No transfer on conversion to partnership where proprietary rights were reserved, so development rebate withdrawal failed.

Conversion of a proprietary business into a partnership was treated as not amounting to a transfer where the partnership deed expressly reserved the assessee's proprietary rights over the assets, quota-rights and goodwill. On that basis, the arrangement negated any transfer of the relevant asset and displaced the operation of section 14 of the Partnership Act. As there was no transfer within the meaning of section 2(47) of the Income-tax Act, 1961, the condition for withdrawing development rebate already allowed was not met, and the withdrawal was unsustainable.

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Issues: Whether conversion of a proprietary business into a partnership constituted a transfer of the asset so as to justify withdrawal of development rebate already allowed.

Analysis: The partnership deed reserved in favour of the assessee the proprietary rights over the assets, quota-rights and goodwill. On that footing, the arrangement negatived any transfer of the relevant asset and also displaced the operation of section 14 of the Partnership Act. In the absence of a transfer within the meaning of section 2(47) of the Income-tax Act, 1961, the condition for withdrawing the development rebate did not arise.

Conclusion: The conversion did not amount to a transfer and the withdrawal of development rebate was unsustainable; the assessee succeeded.

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