TaxTMI 
TaxTMI 
1998 (3) TMI 4
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....On August 1, 1967, there was a partial partition of the joint family and the plant and machinery which had been the subject-matter of development rebate was allotted to the two coparceners at the written down value. After the partition, the two members sold the machinery and plant allotted to them respectively to a third party on October 1, 1967. On coming to know of the sale within a period of eight years from the installation of the said plant and machinery, the Income-tax Officer by his letter dated February 6, 1971, proposed to withdraw the development rebate granted to the assessee on the ground that the machinery had been sold within the statutory period. It was contended on behalf of the assessee that the person to whom the development rebate had been allowed was the Hindu undivided family. The Hindu undivided family did not sell or transfer the plant or machinery and hence section 155(5) of the Income-tax Act, 1961, would not be attracted. This contention has been upheld by the Tribunal as well as by the High Court. The High Court further held that the Hindu undivided family had not merely not sold the machinery or plant itself, or transferred it, but it had also not cease....
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....on 33 or under the corresponding provisions of the Indian Income-tax Act, 1922 (11 of 1922), and subsequently--- (i) at any time before the expiry of eight years from the end of the previous year in which the ship was acquired or the machinery or plant was installed, the ship, machinery or plant is sold or otherwise transferred by the assessee to any person other than the Government, a local authority, a corporation established by a Central, State or Provincial Act or a Government company as defined in section 617 of the Companies Act, 1956 (1 of 1956), or in connection with any amalgamation or succession referred to in sub-section (3) or sub-section (4) of section 33; or (ii) at any time before the expiry of the eight years referred to in sub-section (3) of section 34, the assessee utilises the amount credited to the reserve account under clause (a) of that sub-section--- (a) for distribution by way of dividends or profits; or (b) for remittance outside India as profits or for the creation of any asset outside India; or (c) for any other purpose which is not a purpose of the business of the undertaking; the development rebate originally allowed shall be deemed to have been w....
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....he term "transfer" is defined under section 2(47) of the Income-tax Act, 1961, in a wide manner so as to include not merely a sale or exchange, but also extinguishment of any right in the capital assets (vide capital gains). Whether in the present case the partial partition results in the extinguishment of any right of the assessee joint Hindu family in the assets of the joint Hindu family, or amounts to a transfer of its assets to the individual coparcener, requires to be considered. A similar question came up before this court and was considered by a Bench of three judges in Malabar Fisheries Co. v. CIT [1979] 120 ITR 49. In that case the development rebate had been granted to the partnership firm which was dissolved within a period of eight years. On the dissolution of the firm, assets were distributed between the partners. This court examined the question whether on dissolution of the partnership firm there was any transfer of assets from the partnership firm to the partners. This court held that there was no transfer of any asset from the partnership firm to its partners on dissolution of the firm. This court observed : "On a plain reading of section 34(3)(b), it will appear ....
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....of the Act". The same reasoning would apply to partition of a Hindu joint family. In Principles of Hindu Law, Mulla, at page 262 (16th edition), has compared a partnership firm and a joint Hindu family firm and set out points of distinction between the two. The main distinction is that in a joint family business no member of the family can say that he is the owner of any specific share. The essence of the joint Hindu family property is unity of ownership and community of interest. Shares of the members are not defined. However, in view of the unity of ownership and community of interest of all coparceners in the joint Hindu family business, the position on partition of the joint Hindu family business, whether it be partial or complete, is very similar in law to the position on dissolution of a partnership firm. On partition the shares of the coparceners in the joint family business become defined and their community of interest is separated. Division of assets is a matter of mutual adjustment of accounts as in the case of a dissolved partnership firm. The property which so comes to the share of the coparcener, therefore, cannot be considered as transfer by the joint family to a co....
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....ourt examined the case where the partnership firm had obtained the benefit of development rebate under section 33(1)(a) but the partnership firm stood dissolved before the expiry of eight years on account of the death of one of the two partners, although from the next day a new partnership firm was constituted. This court said that under section 33(1)(a), the words which qualify an assessee for obtaining development rebate are, (plant and machinery) "which is owned by the assessee and is wholly used for the purposes of the business carried on by him". Therefore, the machinery must be used for a period of eight years by the assessee for the purposes of the business carried on by him. Since the assessee had ceased to carry on business within the period of eight years, it ceased to comply with section 33(1)(a) and the similar requirements of section 34(3)(a). Hence it would lose its right to the development rebate which was earlier granted. This court distinguished the decision in Malabar Fisheries Co.'s case, [1979] 120 ITR 49 (SC), by saying that in that case this court had construed the expression "transfer" in the context of section 34(3)(b) of the Act while in the case before it ....