TMI Blog1972 (1) TMI 41X X X X Extracts X X X X X X X X Extracts X X X X ..... holding that the development rebate amounting to Rs. 9,482 and Rs. 4,844 for the assessment years 1960-61 and 1961-62 could not be withdrawn under section 35(11) of the Indian Income-tax Act, 1922 ? " The assessment years are 1960-61 and 1961-62 and the relative accounting periods are those that ended on the 31st July, 1959, and the 31st July, 1960, respectively. The assessee, an individual, had been carrying 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reliance has been placed on any clause of sub-section (2) of section 297 as authorising action being taken under the Act. I shall now read section 34(3)(b) and section 155(5) of the Act. " 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, 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 transfe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of plant or machinery in regard to which development rebate had been granted also took place before the coming into force of the Act. All the necessary conditions for application of the section may take place before the Act came into force. Even then the section permits action being taken under that section. For the purpose of this case it is even unnecessary to refer to section 34(3)(b) excepting to understand the scheme of 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 pl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of capital gains as transfer is defined in relation to the transfer of a "capital asset", which expression as such is used only in the section of the Act dealing with capital gains. It is unnecessary to decide this matter because the alleged transfer in this case took place before the Act came into force. I am unable to discern anything in either section 34(3)(b) or section 155(5) or for that matter in any other provision of 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ective 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." 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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