1993 (9) TMI 78 - HC - Income Tax

High Court rules for assessee in development rebate case, finding valid business transfer despite minor omission.

Commissioner Of Income-Tax Versus Shrishakti Trading Co.

The High Court ruled in favor of the assessee, against the Revenue, in a case involving the withdrawal of development rebate for assessment years 1961-62 ... Developement Rebate, Legal Fiction Issues Involved:1. Withdrawal of development rebate for assessment years 1961-62 and 1962-63.2. Entitlement to development rebate for the assessment year 1963-64.Summary:Issue 1: Withdrawal of Development Rebate for Assessment Years 1961-62 and 1962-63The first issue pertains to whether the development rebate allowed to the assessee-firm for the assessment years 1961-62 and 1962-63 was rightly withdrawn u/s 155(5)(i) of the Income-tax Act, 1961. The Revenue argued that the transfer of the business by the assessee-firm to Shree Shakti Insulated Wire Private Ltd. did not fall within the ambit of sub-section (4) of section 33, as the cash balance was not transferred. The Tribunal, however, held that the omission to transfer an insignificant amount of Rs. 9,196 did not detract from the transfer of all the property of the firm to the company. The High Court agreed with the Tribunal, stating that non-transfer of cash in hand and at banks amounting to Rs. 9,196 cannot affect the succession of the business of the assessee by the company as a going concern. Thus, the withdrawal of the development rebate was not justified.Issue 2: Entitlement to Development Rebate for the Assessment Year 1963-64The second issue concerns whether the assessee-firm was entitled to development rebate for the assessment year 1963-64. The Income-tax Officer had disallowed the development rebate on the grounds that the newly installed machinery was transferred to the company. The Tribunal found in favor of the assessee, and the High Court upheld this decision, stating that the transfer of the plant and machinery was the result of the succession of the business of the assessee by the company. The High Court emphasized that a literal interpretation of the requirements of the Explanation to section 33(4) would defeat the legislative intent and produce an unreasonable result. Therefore, the assessee-firm was entitled to the development rebate for the assessment year 1963-64.Conclusion:The High Court answered both questions in the negative, in favor of the assessee and against the Revenue. The Tribunal was justified in holding that the Income-tax Officer was not correct in withdrawing the development rebate for the assessment years 1961-62 and 1962-63 and in refusing to allow development rebate for the assessment year 1963-64. There was no order as to costs.