TMI Blog1970 (12) TMI 16X X X X Extracts X X X X X X X X Extracts X X X X ..... dissolution of the firm amounts to sale or transfer within the meaning of section 10(2)(vib) of the Indian Income-tax Act, 1922/section 34(3)(b) of the Income-tax Act, 1961 ? 2. Whether, in view of the provisions of section 10(2)(vic)(ii) of the Indian Income-tax Act, 1922/section 33(4) of the Income-tax Act, 1961, on the admitted facts and in the circumstances of the case, one-half of the development rebate in respect of machinery and plant which fell to the share of the two partners, A.R. Khosla and Adarsh Bala Khanna, was rightly withdrawn by the Income-tax Officer in respect of the assessment years 1959-60 to 1963-64 ? 3. Whether, in respect of the assessment year 1964-65 when the factory worked for the whole year, the Income-tax O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rsh Bala Khanna, while the other half was taken by Shanti Swarup Khosla. Anant Ram Khosla and his daughter, Smt. Adarsh Bala Khanna, formed a new partnership firm under the name and style of Ram Kay Engineering Co., under a deed dated April 1, 1964, and carried on the business of manufacture and sale of electrical accessories, as was being done by the previous firm. This new firm, however, lasted only for six days and on April 7, 1964, all the assets of the firm, Ram Kay Engineering Co., were taken over by a private company, named, Ram Kay Engineering Co. P. Ltd., which was constituted by Anant Ram Khosla and his daughter, Smt. Adarsh Bala Khanna, the only two shareholders. They were also the partners of Ram Kay Engineering Co. Shanti Swaru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te Assistant Commissioner but with no success. The further appeal to the Income-tax Appellate, Tribunal met the same fate. The result was that for all the five years, the development rebate already allowed to the assessee was withdrawn by passing modified orders of assessment under section 155 of the 1961 Act. The assessee, Messrs. Kay Engineering Co., then filed six reference applications before the Tribunal which arose out of the consolidated order of the Tribunal and all those applications were decided by one order and the questions of law set out above in the beginning of this judgment have been referred to this court for opinion. The first question that arises for determination is whether the division of the assets amongst the part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the property of the firm applied in payment of the debts and liabilities of the firm, and to have the surplus distributed among the partners or their representatives according to their rights. Section 48 of the Partnership Act provides for the mode of settlement of ccounts between the partners. It prescribes the sequence in which the various outgoings are to be applied and the residue remaining is to be divided between the partners. The distribution of surplus is for the purpose of adjustment of the rights of the partners in the assets of the partnership; it does not amount to transfer of assets. On the dissolution of the partnership, each theatre must be deemed to be returned to the original owner, in satisfaction partially or wholly of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 33(4) of the 1961 Act, and, therefore, the Income-tax Officer was justified in withdrawing the development rebate that had already been allowed during the five assessment years. There is no merit in this submission. The firm, Ram Kay Engineering Co., was immediately succeeded by the private company and all its assets and liabilities were taken over by it and all the shareholders of the private company were the partners of the previous firm, and, therefore, all the ingredients specified in section 33(4) and Explanation (ii) thereto are satisfied in the present case. The private company cannot be said to have succeeded to M/s. Kay Engineering Co., Kapurthala, which was dissolved on March 31,1964, but it succeeded to Ram Kay Engineering Co. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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