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TMI Blog1974 (10) TMI 13X X X X Extracts X X X X X X X X Extracts X X X X ..... had allowed development rebate to the extent of Rs. 4,006 for assessment year 1960-61 and Rs. 7,382 for assessment year 1961-62. This was done under the provisions of section 10(2)(vib) of the Indian Income-tax Act, 1922 (hereinafter referred to as " the Act of 1922 "). By a deed of dissolution executed by the partners of the petitioner-firm on August 31, 1963, the petitioner-firm was dissolved and under the terms of the deed of dissolution, the partners distributed amongst themselves the machinery which had been purchased by the firm in assessment years 1960-61 and 1961-62. These items of machinery, along with several other items of machinery, were thus distributed amongst the partners on dissolution. Respondent No. 1, who is the Income-tax Officer in charge of the case of the petitioner-firm, assessed the patitioner-firm for assessment year 1964-65 after the petitioner-firm was dissolved. During the course of the assessment proceedings for that year, respondent No. 1 held that the petitioner had otherwise transferred " the machinery acquired by it in assessment years 1960-61 and 1961-62 before the expiry of the statutory period of eight years prescribed under section 34(3)(b) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d order dated October 15, 1973, and the order, annexure " A-4 ", to the petition was set aside and the order, annexure " A-3 ", was restored. Thereafter, the petitioner has filed this special civil application praying for a declaration that the provisions of clauses (i) and (ii) of section 35(11) and section 30 of the Act of 1922 in so far is the same relate to withdrawal of development rebate and so far as they provide for non-maintainability of appeal against the order of withdrawal of development rebate under section 10(2)(vib) are ultra vires the Constitution as being violative of articles 14, 19(1)(f), 31(1) and 19(1)(g) of the Constitution. He has also prayed for a declaration that the order, annexure " A-1 ", passed by the first respondent and the order, annexure " A-2 ", passed by the 2nd respondent are ultra vires the Constitution being violative of articles 14, 19(1)(f), 31(1) and 19(1)(g) of the Constitution and are also illegal even if they are not ultra vires. He has prayed for the appropriate orders, writs or directions against the Income-tax Officer and the Appellate Assistant Commissioner may be assured quashing and setting aside the order passed respectively by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sidue, and, therefore, the amount of Rs. 44,380 could not be included in the total income of the partnership under the second proviso to section 10(2)(vii). At page 242 of the report, Shah J., as he then was, delivering the judgment of the Supreme Court observed : " Under the Partnership Act, 1932, property which is brought into the partnership by the partners when it is formed or which may be acquired in the course of the business becomes the property of the partnership and a partner is subject to any special agreement between the partners entitled upon dissolution to a share in the money representing the value of the property. When the two partners brought in the theatres of their respective ownership into the partnership, the theatres must be deemed to have become the property of the partnership. Under section 46 the Partnership Act, 1932, on the dissolution of the firm every partner or his representative is entitled, as against all the other partners or their representatives, to have the property of the firm applied in payment of the debts and liabilities of the firm, and to have the surplus distributed among the partners or their representatives according to their rights. Se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ery to the partnership was there a sale and the assessee did not derive any income. The Supreme Court held that a sale contemplates a seller and a purchaser. If a person revalues his goods and shows a higher value for them in his books, he cannot be considered as having sold those goods and made profit therefrom. Nor can a person by handing over his goods to a partnership, of which he is a partner, as his share of the capital be considered as having sold the goods to the partnership. The case of Hind Construction Ltd. [1972] 83 ITR 211 (SC) is in connection with the formation of a partnership rather than of dissolution but the principle underlying is the same, namely, that when some persons come together to carry on business in partnership, there is no sale of the property of the firm nor is there any sale or transfer as was held in Dewas Cine Corporation's case [1968] 68 ITR 240 (SC) when the partnership is dissolved. In Commissioner of Income-tax v. Bankey Lal Vaidya [1971] 79 ITR 594 (SC) the Supreme Court followed its earlier decision in Dewas Cine Corporation's case [1968] 68 ITR 240 (SC). In Bankey Lal Vaidya's case [1971] 79 ITR 594 (SC) the respondent, who was the karta of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, in any event, though there may not have been a transfer of the machinery or plant in respect of which development rebate had been allowed in the past, in the light of the provisions of section 35(11) of the Act of 1922 and section 155(5) of the Act of 1961, there was utilisation of the amount credited to the reserve account for a purpose which was not a purpose of the business of the undertaking. It was contended that under the positive provision to be found in section 10(2)(vib), proviso to Explanation 2, a reserve account had to be maintained equivalent to the amount mentioned in clause (b) of the proviso and that amount credited to the reserve account shall be utilised by the assessee during the period of ten years next following for the purpose of the business of the undertaking except, (i) for distribution by way of dividends or profits, or (ii) for remittance outside India as profits or for the creation of any asset outside India. Mr. Kaji emphasized that reflecting these positive provisions set out in section 10(2)(vib), proviso to Explanation 2, the legislature has also provided under section 35(11) the negative, namely, that if the assessee utilised the amount credited ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the principles of ejusdem generis, the utilisation for any other purpose which is not a purpose of the business of the undertaking must be also a voluntary utilisation. When on the distribution of the assets of the partnership, the surplus assets are distributed amongst the partners, there is no utilisation in the voluntary sense. In the first place, " utilisation ", according to its dictionary meaning, means, converting to use or turning to account as shown by the Oxford English Dictionary. Applying that meaning to the facts of the case before us, when the partnership was dissolved with effect from August 31, 1963, and the surplus assets were distributed amongst the partners, there was no conversion to use or turning to account of this machinery by the different partners. As the legal position has been explained by the Supreme Court in Dewas Cine Corporation's case [1968] 68 ITR 240 (SC), Bankey Lal Vaidya's case [1971] 79 ITR 594 (SC)and Hind Construction Ltd.'s case [1972] 83 ITR 211 (SC), there is no transfer of any asset nor is it possible for us to say that there is any utilisation of the machinery. Each partner gets that which was his own in which he along with the other ..... X X X X Extracts X X X X X X X X Extracts X X X X
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