TMI Blog1988 (9) TMI 88X X X X Extracts X X X X X X X X Extracts X X X X ..... per cent). It was allowed development rebate of Rs. 9,244 for asst. yr. 1973-74 and of Rs. 26,771 for asst. yr. 1974-75. Shri K.B. Lal died on 26th July, 1979 and thereafter the surviving partner Shri Sudhir Kumar took his own wife Smt. Meena Aggarwal as a partner. For the period 26th July, 1979 to 31st March, 1980 the new firm did not apply for registration but the ITO treated it as a registered firm under s. 183(b) of the Act. The ITO took the view that by the introduction of Smt. Meena Aggarwal as a partner, assets in respect of which development rebate was allowed to the firm stood transferred and, therefore, in terms of s. 34(3)(b) the development rebate should be withdrawn. He issued a notice to the assessee, who contended before the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reference, we reproduce below s. 34(3)(b) : "If any ship, machinery or plant is sold or otherwise transferred by the assessee to any person at any time before the expiry of eight years from the end of the previous year in which it was acquired or installed, and allowance made under s. 33 or under the corresponding provisions of the Indian IT Act, 1922 (11 of 1922), in respect of that ship, machinery or plant shall be deemed to have been wrongly made for the purposes of this Act., and the provisions of sub-s. (5) of s. 155 shall apply accordingly." 4. The learned Departmental Representative relied upon Chittor Motor Transport Co. vs. ITO (1966) 59 ITR 238 (SC), Addl. CIT vs. M.A.J. Vasanaik (1979) 116 ITR 110 (Kar) and Blue Bay Fisher ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th of one of its two partners, the firm that had availed of the development rebate could not have transferred the plant and machinery. On the death of K.B. Lal the firm came to an end and the assets of the erstwhile firm became the joint property of Sudhir Kumar and the heirs of K.B. Lal to be shared in accordance with the provisions of the Partnership Act. If thereafter Sudhir Kumar entered into a new partnership with his own wife there might be a transfer of plant and machinery by Sudhir Kumar to the new firm but that cannot be termed as a transfer by the old firm (the assessee) as comtemplated under s. 34(3)(b). The judgment of Hon'ble the Karnataka High Court in 116 ITR 110 was on a different set of facts there it was an individual who ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g up accounts and discharging the debts and liabilities due by the firm. Upon dissolution the firm ceases to exist, then follows making up of accounts, then the discharge of debts and liabilities and thereupon distribution, division or allotment of assets takes place inter se between the erstwhile partners by way of mutual adjustment of rights between them. The distribution, division or allotment of assets to the erstwhile partners, is not done by the dissolved firm. In this sense there is no transfer of assets by the assessee (dissolved firm) to any person. It is not possible to accept the view of the High Court that the distribution of assets effected by a deed takes place eo instanti with the dissolution or that it is effected by the dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ears to have thought is that after the expiry of the period of 8 years the assessee must use the amount of development rebate reserve for its business. The aforesaid provision, on the other hand, required that right from the time of the creation of the reserve up to a period of 8 years, the amount of the reserve has to be utilised for purposes of business and if there is a default then under s. 155(5) the amount of development rebate can be withdrawn. Probably the CIT while authorising this appeal was conscious of the misconception operating in the mind of the ITO and that is why in the grounds of appeal set up in the present appeal it was not pleaded that the withdrawal of development rebate was based not on the ground of transfer of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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