Change from sole proprietorship to partnership is not a transfer of assets for development rebate withdrawal.

Conversion of a sole proprietorship into a partnership, where the same business and machinery continued and the former proprietor became a partner, did not amount to a transfer of the business or its assets. On that basis, withdrawal of development rebate was not justified because the statutory condition for invoking section 155(5) was not satisfied. The Tribunal's view aligned with the settled principle that a mere change in the form of business constitution is not a sale or transfer to a third person, and no referable question of law arose.

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Issues: Whether the withdrawal of development rebate under section 155(5) of the Income-tax Act, 1961 was justified when a sole proprietorship was converted into a partnership firm and the former proprietor continued as a partner, and whether any referable question of law arose from the Tribunal's order.

Analysis: The conversion of a proprietary business into a partnership, with the same business and machinery continuing in use, was held not to involve any transfer of the business or its assets. The Court followed its earlier decision that such a change in constitution does not amount to a sale or transfer to a third person. On that footing, the Income-tax Officer could not invoke section 155(5) to withdraw the development rebate already allowed, and the Tribunal's view was consistent with the settled legal position.

Conclusion: The invocation of section 155(5) failed, and no referable question of law arose. The petition was dismissed, in favour of the assessee.

Ratio Decidendi: Conversion of a sole proprietary concern into a partnership, without discontinuance of the same business, does not amount to a transfer of assets so as to attract withdrawal of development rebate under section 155(5) of the Income-tax Act, 1961.

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