1. The present appeal has been filed u/s 260A of the income tax Act, 1961 (hereinafter called ""the Act, 1961"") against the order dated May 25,
2009, passed by the income tax Appellate Tribunal Delhi Bench ""A"", New Delhi (hereinafter called ""the Tribunal"") in I.T.A. No. 1085/Del/2008.
The matter relates to the assessment year 2004-05. During the course of the assessment year 2004-05, the assessee claimed exemption u/s 10A
of the Act, 1961. The said exemption was denied by the Assessing Officer by the order dated December 29, 2006, on the ground that the
assessee was earlier a proprietorship concern, but during the previous year, it has been converted into a partnership firm. The matter was carried in
appeal before the Commissioner of income tax (Appeals), who confirmed the order passed by the Assessing Officer, vide order dated December
31, 2007. Thereafter, both the assessee as well as the Department preferred an appeal before the Tribunal. It has been stated at the Bar that the
appeal filed by the assessee was allowed by the Tribunal holding that the assessee is entitled to claim exemption u/s 10A of the Act, 1961. Against
the order of the Tribunal, it appears that a defective appeal was preferred before this court being I.T.A. No. 269 of 2008. The said appeal has
been dismissed as barred by time. Subsequently, the appeal preferred by the Department came up for consideration before the Tribunal and the
Tribunal by the order under appeal has dismissed the appeal preferred by the Department by following its earlier order passed in the case of the
asses-see''s appeal.
2. Heard Shri Dhananjay Awasthi, learned counsel for the appellant and Shri D.M. Sinha, learned counsel for the assessee-respondent.
3. Learned counsel for the Department submits that in view of section 10A sub-sections (9) and (9A) of the Act, 1961, the order of the Tribunal is
incorrect and a substantial question of law with regard to interpretation of section 10A of the Act, 1961, is involved in the appeal.
4. On the other hand, learned counsel for the assessee supports the order of the Tribunal.
5. Considered the respective submissions of the learned counsel for the parties.
6. It may not be out of place to mention that sub-sections (9) and (9A) of section 10A of the Act, 1961, are omitted by the Finance Act, 2003,
with effect from April 1, 2004. For the sake of convenience sub-sections (9) and (9A) of section 10A of the Act, 1961, as they were existing prior
to omission, are reproduced below:
(9) Where during any previous year, the ownership or the beneficial interest in the undertaking is transferred by any means, the deduction under
sub-section (1) shall not be allowed to the assessee for the assessment year relevant to such previous year and the subsequent years.
(9A) Notwithstanding anything contained in sub-section (9), where as a result of reorganisation of business, a firm or a sole proprietary concern is
succeeded by a company and the ownership or beneficial interest in the undertaking of the firm or the sole proprietary concern is transferred to the
company, the deduction under sub-section (1) in respect of such undertaking shall be allowed to the company, as the same would have been
allowed to such firm or sole proprietary concern, as the same would have been allowed to such firm or sole proprietary concern, as the case may
be, if the reorganisation had not taken place:
Provided that,--
(a) in the case of a firm the aggregate of the shareholding in the company of the partners of the firm is not less than fifty-one per cent. of the total
voting power in the company and their shareholding continues to be as such for the period for which the company is eligible for deduction under
this section;
(b) in the case of a sole proprietary concern, the shareholding of the sole proprietor in the company is not less than fifty-one per cent. of the total
voting power in the company and his shareholding continues to remain as such for the period for which the company is eligible for deduction under
this section.
7. Obviously, the aforestated sub-sections (9) and (9A) were no longer in existence with effect from April 1, 2004, i.e., for the assessment year
2004-05. There is no other provision for disallowance of the benefit to the assessee u/s 10A of the Act. The Commissioner of income tax
(Appeals) in his order has quoted the relevant extract from the Board''s Circular No. 7 of 2003, dated September 5, 2003 (see Commissioner of
Income Tax Vs. B. Narasimha Rao, ), and has come to the conclusion that the Board agrees that the benefit is attached to the undertaking and not
to the owner thereof. It is an acknowledged legal position that beneficial circular issued by Central Board of Direct Taxes is binding on the
Department. Reference can be made in this regard to a recent judgment of Supreme Court in Catholic Syrian Bank Ltd. Vs. Commissioner of
Income Tax, Thrissur, . Paragraph 21 is reproduced below (page 282 of 343 ITR):
Now, we shall proceed to examine the effect of the circulars which are in force and are issued by the Central Board of Direct Taxes (for short,
''the Board'') in exercise of the power vested in it u/s 119 of the Act. Circulars can be issued by the Board to explain or tone down the rigours of
law and to ensure fair enforcement of its provisions. These circulars have the force of law and are binding on the income tax authorities, though
they cannot be enforced adversely against the assessee. Normally, these circulars cannot be ignored. A circular may not override or detract from
the provisions of the Act but it can seek to mitigate the rigour of a particular provision for the benefit of the assessee in certain specified
circumstances. So long as the circular is in force, it aids the uniform and proper administration and application of the provisions of the Act (Refer to
UCO Bank, Calcutta Vs. Commissioner of Income Tax, West Bengal, ).
8. Reliance placed by the learned counsel for the appellant on TARUN BHAI Vs. COMMISSIONER OF Income Tax., is misplaced one.
Altogether a different controversy was involved therein. There construction of exemption provision granting incentive to particular income was not
in issue. It was rendered in the context of development rebate and is, therefore, distinguishable.
9. It is not disputed before us that for the earlier assessment years exemptions have been granted to the undertaking. In this view of the matter, the
Tribunal was justified in holding that the assessee is entitled to get exemption u/s 10A of the Act, 1961. The argument of the learned counsel for the
Department that since the proprietorship has been converted into partnership, therefore, this disentitles the assessee to claim benefits u/s 10A of
the Act, 1961 does not borne out either from the plain language of sub-sections (9) and (9A) of section 10A of the Act, 1961, or in view of the
Circular of the Central Board of Direct Taxes referred to above. No substantial question of law is involved in the appeal. The appeal is dismissed.