TMI Blog1985 (10) TMI 14X X X X Extracts X X X X X X X X Extracts X X X X ..... moria Electricity Supply Company. He became one of the partners of that firm having 20 paise share in a rupee in the profit and loss thereof. In the assessment year 1972-73, the Income-tax Officer learned about the conversion of the proprietary business into a partnership one, whereupon he invoked section 34(3)(b) of the Income-tax Act, 1961 (hereinafter called "the Act"), which provides as under : "(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 (11 of 1922), in re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 155(5) of the Act. The assessee, feeling aggrieved against the said order, appealed to the Appellate Assistant Commissioner who held that the conversion of the proprietary business into partnership business did not involve a transfer of the plant and machinery in question. He, therefore, allowed the appeal and set aside the order of the Income-tax Officer against which the Revenue preferred an appeal to the Tribunal. The Tribunal dismissed the appeal of the Revenue relying on its earlier decisions in Poonamchand F Shah v. ITO and Abdulrahim Umarbhai Maniar v. ITO, dated January 31, 1975 in I.T.As Nos. 905 and 906/Ahd/1975-76 and 668 and 669/Ahd/69-70 respectively. The Revenue, therefore, claimed a reference and the following question has be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the expression "otherwise transferred" used in clause (b) of sub-section (3) of section 34 as well as sub-section (5) of section 155 of the Act, the Kerala High Court in Abdul Rahim (A.), Travancore Confectionary Works v. CIT [1977] 110 ITR 595, held that when the business in the manufacture and sale of confectionery owned by the assessee was converted into a partnership business of the assessee and his son and the firm took over the assets and liabilities of the said business, there was an extinguishment of the right of the assessee in the property which was exclusively his and it was brought in for the purpose of the business of the firm and amounted to a "transfer" of capital asset within the meaning of section 2(47) read with section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the property of the firm and the individual loses his exclusive proprietary rights therein and to that extent, there is "transfer" of a capital asset in the ordinary sense of the term as well as under section 2(47) of the Act. In view of this decision of the Supreme Court, we do not think that it is permissible for Mr. Shah to now contend that the definition in section 2(47) of the Act is confined to cases of capital gains under section 45 of the Act and cannot be extended to the expression "otherwise transferred" employed in section 34(3)(b) as well as section 155(5) of the Act. As pointed out earlier, even de hors the definition contained in section 2(47) of the Act, if we are to consider whether conversion of individual property into pa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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