1992 (10) TMI 53 - HC - Income Tax

Transfer of Machinery Key for Development Rebate; Income-tax Officer Cannot Withdraw Rebate

The Tribunal held that the machinery was not transferred by the old firm to the new firm before its dissolution. It emphasized that the transfer must be ... Developement Rebate Issues Involved:1. Whether the Tribunal was correct in holding that the machinery was not transferred by the old firm to the new firm.2. Whether the Tribunal was correct in holding that the Income-tax Officer was not entitled to withdraw the development rebate originally granted within the provisions of section 34(3)(b) read with section 155(5) of the Income-tax Act, 1961.Detailed Analysis:Issue 1: Transfer of MachineryThe Tribunal held that the machinery was not transferred by the old firm to the new firm. The key points are:- The old firm was dissolved on February 11, 1968, upon the death of one of the partners. This dissolution was confirmed by the Appellate Assistant Commissioner and was not challenged further.- Upon dissolution, the assets of the firm vested in the surviving partners and the legal representative of the deceased partner.- A new firm was constituted on February 15, 1968, and took over the assets of the old firm.- The Tribunal found that there was no transfer of assets by the old firm to the new firm before its dissolution. The transfer was effected by the partners of the dissolved firm and the legal representative of the deceased partner, not by the old firm itself.- The Tribunal emphasized that for the purposes of section 34(3)(b), the transfer must be by the assessee who had been granted the development rebate. Since the old firm was dissolved before the transfer, it could not be considered that the old firm transferred the assets to the new firm.Issue 2: Withdrawal of Development RebateThe Tribunal held that the Income-tax Officer was not entitled to withdraw the development rebate originally granted. The key points are:- Section 34(3)(b) of the Income-tax Act, 1961, stipulates that if any machinery or plant is sold or otherwise transferred by the assessee to any person before the expiry of eight years from the end of the previous year in which it was acquired or installed, the development rebate shall be deemed to have been wrongly made.- The Tribunal found that the machinery or plant was neither sold nor transferred by the old firm to any other person within the meaning of section 34(3)(b).- The Tribunal referred to the Supreme Court's decision in Malabar Fisheries Co. v. CIT, which held that upon dissolution of a firm, the distribution of assets to the erstwhile partners does not constitute a transfer by the dissolved firm.- The Tribunal concluded that since the old firm ceased to exist on February 11, 1968, and the new firm took over the assets on February 15, 1968, there was no transfer by the old firm within the meaning of section 34(3)(b).- The Tribunal's finding that the firm stood dissolved on February 11, 1968, was final and not challenged further.- The Tribunal held that the requirement of section 34(3)(b) was not met, and therefore, the development rebate could not be withdrawn under section 155(5).Additional Observations:- The Tribunal noted that the old firm was not in existence from February 11 to February 15, 1968, when the transfer of assets took place.- The Tribunal emphasized that the transfer was made by the erstwhile partners and the widow of the deceased partner, not by the old firm.- The Tribunal rejected the Revenue's reliance on cases like Tarun Bhai v. CIT and South India Steel Rolling Mills v. CIT, as they were not applicable to the facts of the present case.- The Tribunal upheld the order of the Appellate Assistant Commissioner and held that the development rebate could not be withdrawn for the assessment year 1967-68.Conclusion:The Tribunal's decision was upheld, and both questions were answered in the affirmative, in favor of the assessee and against the Revenue. No order as to costs was made.