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TMI Blog1971 (9) TMI 37X X X X Extracts X X X X X X X X Extracts X X X X ..... firm on three new buses purchased during the year 1958. Upon dissolution of the firm the Income-tax Officer initiated proceedings under section 155(5) of the Income-tax Act, 1961, to withdraw the development rebate granted to the firm, and passed an order rectifying the assessment for 1959-60 by withdrawing the rebate. The assessee preferred an appeal before the Appellate Assistant Commissioner against the order and contended that the firm is a collective name for the partners, and that when they took over the assets of the firm on dissolution, there was no transfer of the assets, as the assets already belonged to the partners, and what they took was what they owned already. The Appellate Assistant Commissioner said that the point in issue was whether there was a transfer of the assets as contemplated by the proviso to section 10(2)(vib) of the Income-tax Act, 1922. He held that there was a transfer of the assets to the partners by the dissolution, and distribution of the assets between the partners. The appeal was, therefore, dismissed. The assessee filed an appeal against the order before the Appellate Tribunal and reiterated the contention and relied on the decision of the Supr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Indian Income-tax Act, 1922 (XI 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-section (5) of section 155 shall apply accordingly." Section 155(5) reads: "Where an allowance by way of development rebate has been made wholly or partly to an assessee in respect of a ship, machinery or plant installed after the 31st day of December, 1957, in any assessment year under section 33 or under the corresponding provisions of the Indian Income-tax Act, 1922 (XI 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rship to the individual partners in consideration of their respective shares in the residue. The decision lays down the principle that the distribution of the assets of partnership on dissolution amounts to an adjustment of the rights of partners in the assets of the partnership and it does not amount to transfer of assets. The following observation of the Supreme Court in that case is relevant: " Section 48 of the Partnership Act provides for the mode of settlement of accounts 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." It was contended on behalf of the revenue that there was no definition of the word "transfer" in the Income-tax Act, 1922, and that the word as defined in section 2(47) of the Income-tax Act, 1961, is wide enough to cover a distribution between the partners of the assets on the dissolution of the firm, and, therefore, the assets of the firm were "otherwise transferred" within the m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t all the other partners or their representatives, to have 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 accounts 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 dissolution of the partnership, each theatre must be deemed to be returned to the original owner, in satisfaction partially or wholly of his claim to a share in the residue of the assets after discharging the debts and other obligations. But thereby the theatres were not in law sold by the partnership to the individual partners in consideration of their respective shares in the residue. The expressions 'sale' and 'sold' are not defined in the Income-tax Act: those expressions are used in section 10(2)(vii) in their ordinary mea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... law regarding a firm was stated thus: "No doubt, since a firm has no legal existence, the partnership property will vest in all the partners and in that sense every partner has an interest in the property of the partnership. During the subsistence of the partnership, however, no partner can deal with any portion of the property as his own. Nor can he assign his interest in a specific item of the partnership property to any one. His right is to obtain such profits, if any, as fall to his share from time to time and upon the dissolution of the firm to a share in the assets of the firm which remain after satisfying the liabilities set out in clause (a) and sub-clauses (i), (ii) and (iii) of clause (b) of section 48." During the subsistence of the partnership the administration of the partnership property will have to be only in accordance with the provisions of the Act and the terms of the agreement between the parties. The fact that the firm is a person as defined in the Income-tax Act, 1961, cannot really affect the question. In order to attract section 34(3)(b) there must be a transfer by the assessee to any person. Even if it is possible to hold that there is an extinguishment, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer had allowed development rebate on three new bases purchased during the year 1958 amounting to Rs.26,292. The relevant previous year for the assessment year 1959-60 is that which ended on December 31, 1958. The firm was dissolved with effect from March 1, 1961, and the assets and liabilities were divided between the parties. On the dissolution of the firm the Income-tax Officer initiated proceedings under section 155(5) of the Income-tax Act, 1961, to withdraw the development rebate granted to the firm and passed an order rectifying the assessment for 1959-60 by withdrawing the rebate. In appeal before the Appellate Assistant Commissioner the assessee contended that there was no transfer of the assets and, therefore, the development rebate should not have been withdrawn. This contention was negatived by the Appellate Assistant Commissioner who took the view that there was a transfer of the assets as contemplated by the proviso to section 10(2)(vib) of the Indian Income-tax Act, 1922, and accordingly dismissed the appeal. The assessee, however, succeeded in further appeal before the Appellate Tribunal. The Tribunal, relying on the decision of the Supreme Court in Commissioner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -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 wrongly allowed, and the Income-tax Officer may, notwithstanding anything contained in this Act, recompute the total income of the assessee for the relevant previous year and make the necessary amendment; and the provisions of section 154 shall, so far as may be, apply thereto, the period of four years specified in sub-section (7) of that section being reckoned from the end of the previous year in which the sale or transfer took place or the money was so utilised." There is no case that the lorries had been sold. The lorries were purchased during the year 1958 and, therefore, section 155(5) would apply as the purchase was after the 31st day of December, 1957. The Supreme Court had to consider the question whether the distribution of the assets on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ner of Income-tax v. Dewas Cine Corporation, in dealing with the meaning of the expressions 'sale' and 'sold' as used in section 10(2)(vii) of the Income-tax Act, 1922, this court observed that the expression 'sale' in its ordinary meaning is a transfer of property for a price, and adjustment of the rights of the partners in a dissolved firm by allotment of its assets is not a transfer for a price. In that case the assets were distributed among the partners and it was contended that the assets must in law be deemed to be sold by the partners to the individual partners in consideration of their respective shares, and the difference between the written-down value and the price realised should be included in the total income of the partnership under the second proviso to section 10(2)(vii). This court observed that a partner may, it is true, in an action for dissolution insist that the assets of the partnership be realised by sale of its assets, but property allotted to a partner in satisfaction of his claim to his share, cannot be deemed in law to be sold to him." These decisions, I think, must conclude the matter. Mathew J., however, felt that, in view of the definition of the term ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y necessary implication the definition is made applicable to such events. No doubt, section 155(5) which I have already read as well as section 34(3)(b) take note of transfers that took place before the coming into force of the Act. These sections, however, do not say or provide that what were not transfers at the time they took place shall be deemed to be transfers under the Act. Nor do these sections make the definition in section 2(47) applicable to events that took place before the Act. I may extract section 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, any allowance made under section 33 or under the corresponding provisions of the Indian Income-tax Act, 1922 (XI 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-section (5) of section 155 shall apply accordingly:" I do not find anything in the above section or section 155(5) which expressly or by necessary implication makes the definition of the term ..... X X X X Extracts X X X X X X X X Extracts X X X X
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