1981 (7) TMI 26 - HC - Income Tax

Summary

Issues Involved:
1. Applicability of Section 155(5) of the Income-tax Act, 1961.
2. Conditions for withdrawal of development rebate.
3. Interpretation of "transfer by the assessee" in the context of partial partition of HUF.
4. Relevance of precedent cases in interpreting Section 155(5).

Detailed Analysis:

1. Applicability of Section 155(5) of the Income-tax Act, 1961:
The primary issue was whether Section 155(5) of the Income-tax Act, 1961, could be applied to withdraw the development rebate allowed for the assessment years 1960-61 to 1965-66. The court examined the statutory provisions, particularly Sections 33, 34, and 155(5), which deal with the allowance and withdrawal of development rebate. Section 33 provides for the allowance of development rebate, while Section 34 outlines the conditions for such allowance, including the requirement to credit a reserve account. Section 155(5) allows the Income-tax Officer (ITO) to withdraw the development rebate if the machinery or plant is sold or transferred within eight years from installation.

2. Conditions for Withdrawal of Development Rebate:
The court emphasized that for Section 155(5) to be invoked, three conditions must be satisfied: (a) the machinery or plant must be sold or transferred, (b) the sale or transfer must be by the assessee, and (c) the sale or transfer must occur within eight years from the end of the previous year in which it was installed. The court noted that the HUF, which originally received the development rebate, did not sell or transfer the machinery. Instead, the machinery was allotted to the coparceners upon partial partition and subsequently sold by them.

3. Interpretation of "Transfer by the Assessee" in the Context of Partial Partition of HUF:
The court held that the term "transfer by the assessee" refers to a transfer effected by the original recipient of the development rebate. Since the HUF ceased to exist upon partial partition, there was no transfer by the HUF. The sale by the individual members post-partition did not qualify as a transfer by the assessee as per the statutory provisions. The court highlighted that the statutory language requires the transfer to be by the assessee who was granted the rebate, not by any subsequent holder of the asset.

4. Relevance of Precedent Cases in Interpreting Section 155(5):
The court referred to several precedent cases to support its interpretation. In Addl. CIT v. Dalmia Magnesite Corporation, it was held that a transfer must be by the assessee for Section 155(5) to apply. The Supreme Court's decision in Malabar Fisheries Co. v. CIT further clarified that Section 34(3)(b) and Section 155(5) are interlinked, and the conditions for invoking these sections must be strictly met. The court concluded that since the HUF did not exist at the time of the sale, the conditions for applying Section 155(5) were not satisfied.

Conclusion:
The court affirmed that the Appellate Tribunal was correct in holding that Section 155(5) of the Income-tax Act, 1961, was not applicable in this case. The development rebate allowed for the assessment years 1960-61 to 1965-66 could not be withdrawn by the ITO because the transfer was not effected by the original assessee (HUF). The reference was answered in the affirmative and in favor of the assessee, with the assessee entitled to costs.