TMI Blog1993 (9) TMI 78X X X X Extracts X X X X X X X X Extracts X X X X ..... drawing the development rebate for the said assessment years and taking action under section 155(5)(i) was justified ? 2. Whether, on the facts and in the circumstances of the case, the assessee-firm was not entitled to any allowance by way of development rebate for the assessment year 1963-64 ?" The first question arises on account of withdrawal of the development rebate granted to the assessee by taking resort to the provisions of section 155(5)(i) of the Act. The controversy in the second question pertains to disallowance of development rebate to the assessee at the very outset. The reason for disallowance in the assessment year 1963-64, of course, is the same which resulted in withdrawal of the development rebate already allowed in the assessment years 1961-62 and 1962-63, viz., non-compliance with the requirements of sub-section (4) of section 33 of the Act on the ground that the transfer of the business by the assessee to the limited company did not fall within the ambit of sub-section (4). Section 33 of the Act provides for allowance of deduction by way of development rebate in respect of new machinery, plant, etc., acquired by the assessee in the year of acquisition i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on (4) of section 33 ; or . . . . 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." Sub-sections (3) and (4) of section 33 read: "(3) Where, in a scheme of amalgamation, the amalgamating company sells or otherwise transfers to the amalgamated company any ship, machinery or plant in respect of which development rebate has been allowed to the amalgamating company under sub-section (1) or sub-section (1A), (a) the amalgamated company shall continue to fulfil the conditions mentioned in sub-section (3) of section 34 in respect of the reserve created by the amalgamating company and in respect of the period within which such ship, machinery or plant shall not be sold or otherwise transferred and in de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... years as the conditions set out in section 10(2)(vib) of the Indian Income-tax Act, 1922 (corresponding to section 33 of the 1961 Act), were satisfied. Later, in the year 1962, a company in the name of Shree Shakti Insulated Wire Private Limited was incorporated with the main object of acquiring the business of the assessee-firm as a going concern. In pursuance of this object, the said company entered into an agreement with the assessee-firm on February 14, 1963, to purchase the business of the assessee-firm as going concern. By sub-clause (2) of clause 1 of the said agreement, all the plant and machinery, equipment, tools, machines, motor cars, spare parts, accessories, etc. (excluding cash in hand and at banks amounting in all to Rs. 9,196) was transferred. By sub-clause (3) of clause 1, all the book debts and other debts due to the assessee-firm in connection with its business and the full benefit of all securities for such debts were transferred to the company. By sub-clause (4) of clause 1, full benefits of licences, quotas and concessions in respect of machinery and raw materials and all other rights and privileges held by the assessee-firm in connection with its business we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the Revenue were questions of law, directed the Tribunal to draw up a statement of the case and refer the questions of law to this court for opinion. Hence this reference. Mr. G. S. Jetly, learned counsel for the Revenue, submits that section 155(5) of the Act has to be construed strictly. It is for an assessee who claims the benefit of the exception to satisfy the Income-tax Officer that the conditions attached to the exception are fully complied with. In the instant case, the assessee wants to get out of the consequences of section 155(5) on the ground that the transfer was in connection with succession of business by a company referred to in sub-section (4) of section 33. It was, therefore, for the assessee to satisfy the Income-tax Officer with regard to the fulfilment of the conditions laid down in the Explanation thereto. According to the Revenue, one of the conditions that all the property of the firm relating to the business immediately before the succession should become the property of the company has not been satisfied in the instant case by retention of cash in hand and with the banks aggregating to Rs. 9,196. Counsel for the assessee, on the other hand, submits ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 55(5) and 33(4) of the Act. Section 155(5) is a deeming provision. It provides that the development rebate allowed originally in respect of certain machinery and plant, etc., shall be deemed to have been wrongly allowed if, within eight years, the assessee sells or transfers such machinery or utilises the amount credited to the reserve in any manner specified therein. For this purpose transfers made to specified persons and in connection with any amalgamation or succession referred to in sub-section (3) or sub-section (4) of section 33 have been taken out. Transfer in cases falling within the exceptions will not attract section 155(5) of the Act and development rebate originally allowed would not be affected by such transfer. Thus, section 155(5) is a deeming provision which is intended to withdraw the development rebate originally allowed if subsequently the assessee acts in any manner specified therein. It creates a legal fiction that if the assessee does any of the acts specified therein, the development rebate originally allowed shall be deemed to have been wrongly allowed. It is well-settled that legal fictions are for a definite purpose and they are limited to the purpose f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 155(5) contained in section 33(4) of the Act, what is necessary is that the firm is succeeded by a company in the business carried on by it and as a result of such succession the firm sells or otherwise transfers the machinery and plant, etc., to the company. It is evident that in cases falling under section 33(4) also, there is a transfer of machinery and plant, etc., by the assessee to the company with the only difference that such transfer is occasion as a result of succession to the business of the firm by the company. The three requirements contained in the Explanation to section 33(4) are intended to ensure that there is a succession in the true sense of the term which results in transfer of plant and machinery and not a transfer simpliciter of plant and machinery in the garb of succession. The Explanation sets out the conditions with a view to restrict the benefit of section 33(4) to cases of real succession and it is that context that provides, inter alia, that all the property and liabilities of the firm relating to the business should become the property and liabilities of the company. Though, strictly speaking, cash may also be termed as property but in the context of su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see by the company. In our opinion, it will be too hypertechnical an interpretation of the requirements of the Explanation to section 33(4) to say that though there was succession to the business of the assessee as a going concern by the company as a result of which all the assets and liabilities including plant and machinery got transferred to the company, it would cease to be a case of "succession" because of non-transfer of cash amounting to Rs. 9,196. Transfer of this amount, in any event, would have been a mere formality and a futile exercise because it would have merely added to the consideration in terms of rupees for the transfer of the business. Non-transfer of it cannot militate against the factum of succession. In view of the above discussion and having regard to the facts and circumstances of the case, we are fully satisfied that the conditions of section 33(4) are satisfied in the instant case and the provisions of section 155(5)(i) are, therefore, not attracted. Accordingly, we are of the opinion that the Tribunal was justified in holding that the Income-tax Officer was not correct in withdrawing the development rebate which had been allowed to the assessee-firm for ..... X X X X Extracts X X X X X X X X Extracts X X X X
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