Contribution of personal assets to partnership stock can amount to transfer, triggering withdrawal of development rebate under income-tax law.

An individual's act of throwing personal assets into the common stock of a partnership firm was treated as a transfer under general law because exclusive ownership is reduced to a shared partnership interest. The extended definition of "transfer" in section 2(47) of the Income-tax Act, 1961 was held applicable beyond capital gains cases, and that extended meaning covered the contribution of assets to partnership property. As the assets on which development rebate had been allowed were transferred during the prohibited period, section 34(3)(b) was attracted and the rebate was withdrawable under section 155(5). The text also notes that section 154 was not an additional independent bar.

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Issues: (i) Whether an individual's act of throwing his assets into the common stock of a partnership firm amounts to a transfer under general law; (ii) whether the extended definition of transfer in section 2(47) of the Income-tax Act, 1961 applies outside the capital gains context; (iii) whether such contribution to partnership property constitutes a transfer within the extended meaning of section 2(47); and (iv) whether development rebate already granted can be withdrawn under section 155(5) of the Income-tax Act, 1961.

Issue (i): Whether an individual's act of throwing his assets into the common stock of a partnership firm amounts to a transfer under general law.

Analysis: The nature of the transaction was examined against the background of decisions holding that a partner who brings personal assets into partnership loses exclusive ownership and acquires only a shared interest in the partnership assets. The reasoning accepted that the proprietary interest is altered when the assets become partnership property, and that the transaction is not merely a paper arrangement but a legal change in ownership interest.

Conclusion: Yes. The transaction amounts to a transfer under general law.

Issue (ii): Whether the extended definition of transfer in section 2(47) of the Income-tax Act, 1961 applies outside the capital gains context.

Analysis: The definition in section 2(47) was considered in the setting of capital gains, but the Court held that the statutory language was not confined so narrowly as to be unusable in other contexts where transfer must be identified. The Court declined to accept that the definition could never assist in construing transfer for purposes of section 34(3)(b) and section 155(5).

Conclusion: Yes. The definition in section 2(47) can be applied beyond capital gains cases.

Issue (iii): Whether such contribution to partnership property constitutes a transfer within the extended meaning of section 2(47).

Analysis: On the facts, the assessee's exclusive interest in the assets was reduced to a shared partnership interest when the assets were brought into the firm. The Court treated that reduction in exclusive dominion as falling within the extended concept of transfer and followed the view that the transaction is not merely a reallocation without legal consequence.

Conclusion: Yes. The act constitutes a transfer within the extended meaning of section 2(47).

Issue (iv): Whether development rebate already granted can be withdrawn under section 155(5) of the Income-tax Act, 1961.

Analysis: Since the assets in respect of which development rebate had been allowed were transferred into partnership stock during the prohibited period, the condition in section 34(3)(b) stood attracted and section 155(5) became operative. The Court also rejected the contention that section 154 imposed an additional independent bar, holding that once the statutory event occurs, rectification machinery under section 155(5) operates accordingly.

Conclusion: Yes. The development rebate was validly withdrawable under section 155(5).

Final Conclusion: The reference was answered in favour of the Revenue on all questions, and the withdrawal of development rebate was upheld.

Ratio Decidendi: When an individual brings assets on which development rebate was allowed into the common stock of a partnership firm, the resulting reduction of exclusive ownership to a shared partnership interest constitutes a transfer for purposes of section 34(3)(b) and section 155(5) of the Income-tax Act, 1961, and the extended definition of transfer may be applied for that purpose.

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