TMI Blog1978 (9) TMI 46X X X X Extracts X X X X X X X X Extracts X X X X ..... visions of the Act ; and (ii) that the machinery and plant had been transferred to a firm within eight years. In the appeal filed by the assessee against the said order of assessment, the AAC by his order dated March 7, 1972, upheld the order of the ITO disallowing the development rebate on the latter ground, namely, that the proprietary concern of the assessee which owned the assets in respect of which development rebate was claimed, had been converted into a partnership with effect from April 1, 1965, in which the assessee was also a partner and the said assets had become the partnership assets. He, however, held that the first ground on which the ITO had disallowed the rebate was not available. Against the order of the AAC, the assessee filed an appeal before the Tribunal. The Tribunal allowed the appeal holding that when a partnership was formed for the first time and one of the members of the partnership brought into the firm his individual assets, there was no transfer in the eye of law which attracted s. 34(3)(b) of the Act. In doing so, the Tribunal relied upon the decision of the High Court of Madras in CIT v. Janab N. Hyath Batcha Sahib [1969] 72 ITR 528. At the instance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 subsection (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 1st 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 (1 of 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. " The relevant part of s. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ht is acquired or lost by the existence of certain facts which are generally called vestitive facts. An investitive fact confers a right and a divestitive fact extinguishes a right. When the title to a thing is acquired for the first time by a person then he is known to have the original title to it. All other titles are derivative. Similarly when titles are just lost and not transferred to another person, the facts bringing about such extinction are called extinctive facts. When titles are transferred such transfers are brought about by facts which are called alienative facts. The laws in force recognise several ways in which rights are either acquired or lost. Sometimes a right is transferred by an individual who is its owner to himself in another capacity, e.g., as a trustee. Every passing of title is not, however, a transfer. Whenever we think of a transfer, we think of an alienative fact and not an extinctive fact. A Hindu coparcener throwing his exclusive property into the joint family hotchpot brings about the extinction of his exclusive right even without the consent of the other coparceners. This act is not considered as a transfer : vide CIT v. Keshavlal Lallubhai Patel [ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... joint stock companies which the assessee has held jointly with his sons, for Rs. 40,97,000 which was the market value of the shares at that time. It was found that these shares had cost to the assessee only Rs. 30,45,017 and the I.T. authorities levied income-tax on the difference between the market price and the cost price of the shares on the ground that the assessee had made a profit to that extent by this transaction. The High Court held that though the assessee and his sons on the one hand and the private limited company formed by them were distinct entities in law but in truth and substance the only result of this particular transaction was that Sir Homi Mehta and his sons held these very shares in a different way from the way they held before the transaction. It observed that, 'they adopted a different mode, the mode of the formation of the limited company with all its advantages, in order to hold these shares and to deal with these shares and to make profit out of these shares'. It further held that Sir Homi Mehta did not deal with these shares in the ordinary course as a businessman when he transferred these shares to the private limited company. In our opinion, this case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en down value of the machinery to the firm, and the liability to tax, if any, arising under the Act could not be avoided merely because in consequence of the transfer the interest of the partners in the machinery was substituted by an interest in the shares of the company which owned the machinery." It is significant that in the Act, Parliament has thought it fit to enact sub-ss. (3) and (4) of s. 33, cl. (iii) of the prov. to cl. (b) of s. 34(3) and sub- ss. (5) and (6) of s. 33A of the Act. Cl. (iii) of the prov. to s. 34(3)(b) expressly excludes the application of s. 34(3)(b) to a case where the sale or transfer of machinery or plant in respect of which development rebate has been allowed takes place in connection with the amalgamation or succession referred to in sub-s. (3) or sub-s. (4) of s. 33 subject to the conditions mentioned therein. That means even in a case where amalgamation or succession referred to therein takes place but the conditions mentioned therein are not satisfied, then under s. 34(3)(b) the development rebate has to be withdrawn. Sub-ss. (3) and (4) of s. 33 are set out below for ready reference: "33. (3) Where, in a scheme of amalgamation, the amalgama ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d" in s. 34(3)(b), therefore, we have to make an attempt to ascertain the true legal effect of an individual converting his asset in respect of which development rebate has been granted into a partnership asset of a firm of which he is also a partner. While doing so we cannot ignore the documents and agreements which have brought about such transaction and the legal rights and liabilities flowing therefrom. Partnership is a creature of contract between the parties. The amount of capital to be contributed by the partners to the firm, the manner in which profits of the firm can be divided, the question as to whether any partner can convert his individual and exclusive property into partnership property and several other matters have to be agreed upon by all the partners. It is urged on behalf of the assessees that the words "otherwise transferred" in the expression "sold or otherwise transferred" in s. 34(3)(b) should be given the same meaning as the word "sold" preceding them and as no sale takes place when the properties of an individual are transferred to a firm of which he is a partner, s. 34(3)(b) would not be applicable. Reliance is placed by the assessees on the rule of ej ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dges have seriously differed. When in a statute particular classes are mentioned by name and then are followed by general words, the general words are sometimes construed ejusdem generis, i.e., limited to the same category or genus comprehended by the particular words. But it is not necessary that this rule must always apply. The nature of the special words and the general words must be considered before the rule is applied. In Allen v. Emmerson [1944] 1 KB 362, Asquith J., gave interesting examples of particular words followed by general words where the principle of ejusdem generis might or might not apply. We think that the following illustration will clear any difficulty. In the expression 'books, pamphlets, newspapers and other documents' private letters may not be held included if 'other documents' be interpreted ejusdem generis with what goes before. But in a provision which reads 'newspapers or other document likely to convey secrets to the enemy', the words 'other document' would include document of any kind and would not take their colour from 'newspapers'. It follows, therefore, that interpretation ejusdem generis or noscitur a sociis need not always be made when words sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is not similar to the unilateral act on the part of a coparcener who throws his separate property into the family hotchpot. The legal results which flow from the individual's property being converted into partnership property are that the partner to whom the property belonged before becoming partnership property loses his exclusive title to it and the right he thereupon acquires is only the right of a partner in the partnership assets, in accordance with the partnership agreement and the provisions of the Partnership Act. There is virtually a transfer of his right in the property to the partners of the firm including himself. s. 5 of the Transfer of Property Act recognises transfer from an owner to himself and others. But the Transfer of Property Act is not an exhaustive code dealing with all kinds of transfers. As its preamble suggests it deals with only certain kinds of transfers. It cannot, therefore, be said that any Act which transfers right in a property but which is not covered by the Transfer of Property Act is no transfer. In Addanki Narayanappa v. Bhaskara Krishnappa, AIR 1966 SC 1300, the effect of the individual property being treated as partnership property is explai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ........." In CWT v. Mrs. Christine Cardoza (T. R. C. Nos. 10 and 11 of 1975, decided on June 8, 1978) [since reported in [1978] 114 ITR 532 (Kar)], a Division Bench of this court, of which one of us was a member, has held, following the above two decisions of the Supreme Court, that the partners of a firm are really the owners of the partnership property and while assessing them under the W.T. Act, the benefit of s. 5(1)(iva) of that Act should be given to each of them having regard to the extent of interest each one of them has in the assets of the firm. The effect of converting individual assets into assets of a partnership firm of which the individual is a partner is that he ceases to be the exclusive owner of the property and his rights in the property stand transferred to the partners of the firm including himself. There is, therefore, an extinguishment of his exclusive right and acquisition of that right by all partners including himself. This is not a case similar to the allotment of property to the share of a member of a joint Hindu family at a partition or allotment of the properties of a partnership firm to the share of erstwhile partners on its dissolution in recognit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or a body of individuals whether incorporated or not. The word "person" in s. 34(3)(b) of the Act has to be given the meaning assigned to it in s. 2(31). It is also to be seen that in s. 34(3)(b) itself there is reference to the transfer of assets of a firm to a company which is excluded from the operation of s. 34(3)(b) of the Act. Even granting that the firm is not a person, but it really represents a group of individuals who are partners, the result is the same as there is a transfer of asset from one individual to a group of individuals including himself who acquire interest in it as tenants-in-common (See Chidambaram Pillai's case [1977] 106 ITR 292 (SC)). We do not, therefore, find any substance in this contention. In K. D. Pandey v. CWT [1977] 108 ITR 214, a Division Bench of the Allahabad High Court, of which one of us was a member, while dealing with the question whether a registered deed was necessary when immovable property of a partner was transferred to the partnership of which he was a partner, observed that on mere expression of the intention of the partner concerned the property stood transferred to the partnership firm by virtue of s. 14 of the Partnership Act an ..... X X X X Extracts X X X X X X X X Extracts X X X X
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