TMI Blog1974 (10) TMI 6X X X X Extracts X X X X X X X X Extracts X X X X ..... after the partnership firm is dissolved and the surplus assets of the partnership are distributed amongst the partners. The revenue contends that on the distribution taking place, the development rebate granted to the firm can be withdrawn and the necessary rectification proceedings either under s. 155(5) of the I.T. Act, 1961, or s. 35(11) of the Indian I.T. Act, 1922, can be adopted, whereas the assessee in each of these cases contends that it cannot be withdrawn in this manner. In Income-tax Reference No. 1 of 1973, the following question has been referred to us by the Tribunal at the instance of the assessee. "Whether, on the facts and in the circumstances of the case, the development rebate allowed to the assessee in the accounting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... while 30 powerlooms came to the share of Balwantbhai Chhotalal and Ramanlal Balwantlal. The parties to whose share the powerlooms came, utilised them for their business subsequent to the dissolution of the assessee-firm. Adjustment entries were also made in regard to the development rebate reserve created in the assessee's books. The parties who got the powerlooms made in their respective books necessary adjustment entries in regard to the development rebate reserve pertaining to the powerlooms which fell to their share. Subsequently, the partners of the assessee-firm formed new firms and created development reserves of similar amounts in the books of accounts of the respective new firms by debiting the accounts of the partners concerned. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed, there could possibly be no utilisation of the reserve for the purpose of the business of the undertaking. Under these circumstances the Tribunal upheld the action of the revenue authorities in withdrawing the development rebate under the provisions of s. 155. Thereafter, at the instance of the assessee the question set out hereinabove has been referred to us. In Income-tax Reference No. 2 of 1973 the years under consideration are assessment years 1962-63 to 1965-66. The assessee-firm is a registered partnership firm and consisted of two partners, Chhotalal Maganlal and Ramanlal Balwantlal, each of them having equal shares. The business was started in the previous year relevant to the assessment year 1962-63 and the business consisted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... but it must be utilised for the purpose of the business of the undertaking and the following question has been referred to us at the instance of the assessee: "Whether, on the facts and the circumstances of the case, the development rebate allowed to the applicant was liable to be withdrawn under s. 34(3)(b) read with s. 155(5) of the I.T. Act, 1961 ?" In Special Civil Application No. 1502 of 1973 decided by us on October 16, 1974 [Abdul Rehman Haji Miya v. V.P. Minocha--since reported in [1977] 106 ITR 821 (Guj)] we have held that cl. (c) of s. 35 (11)(ii) must be interpreted ejusdum generis with cls. (a) and (b) and the non-utilisation must be on a voluntary footing. We have observed: "When on the distribution of the assets of the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... our reasoning in the decision in Special Civil Application No. 1502 of 1973 (Abdul Rehman Haji Miya v. V. P. Minocha, ITO [1977] 106 ITR 821 (Guj)), we hold in each of these two references that the development rebate allowed to a partnership firm cannot be withdrawn under s. 34(3)(b) read with s. 155(5) of the I.T. Act, 1961, because surplus assets of the partnership are distributed amongst the partners on the dissolution of the firm. There cannot be said to be utilisation of the assets in respect of which the development rebate was allowed otherwise than for the purpose of the business of the undertaking. We, therefore, answer the question referred to us in each of these cases in the negative and in favour of the assessee in each case. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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