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Issues: Whether the development rebate granted in respect of the trawler was liable to be withdrawn on the ground that there was a sale or other transfer within eight years, and whether the consequent recomputation of income was valid.
Analysis: Section 33 grants development rebate subject to section 34, and section 34(3)(b) read with section 155(5) withdraws that allowance if the ship is sold or otherwise transferred within eight years from the end of the previous year in which it was acquired. The expression "otherwise transferred" is of wide import and is not confined to a completed sale. The agreement placed the transferee in exclusive possession and enjoyment of the trawler, permitted alterations, created a lien and hypothecation in its favour, and was preparatory to eventual sale. Although the formal sale was completed later under the Merchant Shipping Act, the substantive transfer of the right and interest in the vessel took place when the agreement was executed.
Conclusion: The transaction amounted to an "otherwise transferred" of the trawler within the statutory period, so the development rebate was rightly withdrawn and the recomputation of income was valid.
Final Conclusion: The questions referred were answered in the affirmative in favour of the Revenue and against the assessee.
Ratio Decidendi: For the purposes of sections 34(3)(b) and 155(5) of the Income-tax Act, 1961, a transfer attracting withdrawal of development rebate includes any transaction that effectively divests the assessee of exclusive possession and enjoyment of the asset within the prescribed period, even if formal sale is completed later.
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