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Issues: (i) Whether the division of the development rebate reserve among partners on dissolution of the firm amounted to utilisation for a non-business purpose within the meaning of section 155(5)(ii)(c) of the Income-tax Act, 1961. (ii) Whether the development rebate was to be treated as wrongly allowed and the total income recomputed with the amendment contemplated by section 155(5) of the Income-tax Act, 1961.
Issue (i): Whether the division of the development rebate reserve among partners on dissolution of the firm amounted to utilisation for a non-business purpose within the meaning of section 155(5)(ii)(c) of the Income-tax Act, 1961.
Analysis: The questions were answered in the light of the Supreme Court decision holding that dissolution of a firm and distribution of its assets does not amount to utilisation of the reserve for a purpose other than that of the business of the undertaking.
Conclusion: The question was answered in the affirmative and in favour of the assessee.
Issue (ii): Whether the development rebate was to be treated as wrongly allowed and the total income recomputed with the amendment contemplated by section 155(5) of the Income-tax Act, 1961.
Analysis: This question was consequential upon the answer to the first question and depended on the same legal position regarding the effect of dissolution of the firm on the development rebate reserve.
Conclusion: The question was answered in the negative and in favour of the assessee.
Final Conclusion: Both referred questions were decided in favour of the assessee, and no further relief as to costs was granted.
Ratio Decidendi: Distribution of a development rebate reserve on dissolution of a firm does not amount to utilisation of that reserve for a non-business purpose so as to trigger withdrawal of the rebate.
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