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TMI Blog1972 (1) TMI 41X X X X Extracts X X X X X X X X Extracts X X X X ..... rying on business as timber merchant and was also running a saw mill under the style "The Seeyan Saw Mills". On the 1st August, 1960, he formed a partnership with his wife and his manager as partners. This is evidenced by a deed dated 1st August, 1960, which is annexure " D ". The business was thereafter carried on by the firm. In the years of assessment 1960-61 and 1961-62, development rebate of Rs. 9,482 and Rs. 4,844, respectively, in respect of certain machinery installed during the respective accounting years were allowed. On the formation of the partnership the Income-tax Officer felt that there had been a transfer of the machinery installed by the assessee to the firm that was constituted on August 1, 1960, and, therefore, he took action under section 155(5) of the Act. The assessee's contention that there had been no transfer was negatived by the Income-tax Officer and two separate orders both dated October 8, 1964, were passed in relation to the two assessment years 1960-61 and 1961-62, amending the earlier assessment orders by withdrawing the development rebates that had been allowed. The assessee appealed to the Appellate Assistant Commissioner but those appeals were d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny allowance made under section 33 or under the corresponding provisions of the Indian Income-tax Act, 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 : Provided that this clause shall not apply- (i) where the ship has been acquired or the machinery or plant has been installed before the first day of January, 1958 ; or (ii) where the ship, machinery or plant is sold or otherwise transferred by the assessee to 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 ; or (iii) where the sale or transfer of the ship, machinery or plant is made in connection with the amalgamation or succession, referred to in sub-section (3) or sub-section (4) of section 33" "155. (5) 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 p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act and to understand its true scope and intent, for the facts of the case are such that would attract section 155(5). The relevant accounting periods for the two assessment years 1960-61 and 1961-62 were, as already stated, the years that ended on July 31, 1959, and July 31, 1960. The development rebate had been allowed on the installation of machinery that took place during those accounting Periods. Therefore, section 155(5) was attracted because the installation was after the 31st day of December 1957. It does not matter that the development rebate had been granted under the provisions of the 1922 Act because that too is covered by section 155(5). The alleged transfer was within eight years of the end of the previous year as it is stated to have taken place on August 1, 1960. The section, therefore, is attracted and there is no impediment to action being taken under that section provided there had been a sale, or a transfer otherwise, of the plant or machinery. Section 155(5) deals with transfers that took place before the Act came into force as well as transfers after the coming into force of the Act. There being this clear provision in the section that action can be taken ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act that has been brought to our notice which extends the definition of the term " transfer " in section 2(47) of the Act to a transaction that took place before the Act came into force. No doubt, if there had been a transfer even before the Act, action can be taken under section 155(5) as the section takes note of a past event for permitting action being taken under the Act. This, however, is not sufficient to make the definition of transfer applicable to transactions that took place before the Act came into force. In the above view whether there has been a transfer or not covered by the first question posed in paragraph 8 must be decided without reference to the definition in section 2(47) of the Act. If that be so, I think the matter is concluded by the decisions of the Supreme Court in Commissioner of Income-tax v. Dewas Cine Corporation and Commissioner of Income-tax v. Bankey Lal Vaidya In the earlier case dealing with the proviso to section 10(2)(vii) of the Indian Income-tax Act, 1922, their Lordships observed, as follows : " On dissolution of the partnership, each theatre must be deemed to be returned to the original owner, in satisfaction partially or wholly of his ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot be deemed in law to be sold to him."
In view of these pronouncements it is impossible to hold that there has been a sale, or a transfer otherwise, of the machinery by the formation of the partnership, for the principle of the above decisions, which dealt with the question whether there was a transfer on the dissolution of a partnership and distribution of assets, must apply with equal force to the formation of a partnership. In fact, such a view has been taken by the Calcutta High Court in the decision in Commissioner of Income-tax v. Hind Construction Ltd. and the Supreme Court in appeal therefrom (Civil Appeals Nos. 1287 (NT) of 1971 and 2001 of 1968) confirmed the decision.
I, therefore, answer question No. 1 in favour of the assessee and against the department. I answer question No. 2 also in the affirmative, that is, in favour of the assessee and against the department. I direct the parties to bear their respective costs.
A copy of this judgment under the seal of the High Court and the signature of the Registrar will be sent to the Appellate Tribunal as required by sub-section (1) of section 260 of the Income-tax Act,1961.
Questions answered in the affirmative. X X X X Extracts X X X X X X X X Extracts X X X X
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