1977 (11) TMI 21 - HC - Income Tax

1922 Act, Appellate Authority, Development Rebate Reserve, Income Tax Act, New Industrial Undertaking Relief, One Partner, Splitting Up

Issues Involved:
1. Withdrawal of relief under Section 15C of the Indian Income-tax Act, 1922.
2. Jurisdiction of the Income-tax Officer (ITO) under Section 35/154.
3. Splitting up or reconstruction of business under Section 84(2) of the Income-tax Act, 1961.
4. Development rebate under Section 155(5) of the Income-tax Act, 1961.
5. Utilization of reserve account under Section 34(3)(a) of the Income-tax Act, 1961.

Issue-wise Detailed Analysis:

1. Withdrawal of relief under Section 15C of the Indian Income-tax Act, 1922:
The court examined whether the relief granted under Section 15C for the assessment years 1960-61 and 1961-62 could be withdrawn by the ITO. The Tribunal held that there was no apparent error justifying a correction under Section 35 of the 1922 Act. The court agreed, stating that the question of reconstruction of the firm was complex and not a simple error apparent on the record. Thus, the ITO's order was erroneous and unsustainable. The first question in T.C. No. 179 of 1974 was answered in the affirmative, agreeing with the Tribunal's view.

2. Jurisdiction of the Income-tax Officer (ITO) under Section 35/154:
The Tribunal's view that the ITO's order, though styled under Section 154, should be considered under Section 35 of the 1922 Act was upheld. Section 297(2) of the 1961 Act mandates that the 1922 Act applies to returns filed before April 1, 1962. The court cited the principle from Hazari Mal Kuthiala v. ITO, stating that an act should be ascribed to a jurisdiction conferring validity upon it. The appeal before the Tribunal was deemed competent despite the AAC's lack of jurisdiction, as the Tribunal had to deal with the matter. The second question in T.C. No. 179 of 1974 was answered by stating the Tribunal's view was correct.

3. Splitting up or reconstruction of business under Section 84(2) of the Income-tax Act, 1961:
The court addressed whether there was any splitting up or reconstruction of the business within Section 84(2) for the assessment years 1962-63, 1963-64, and 1964-65. It held that even if there was a splitting up or reconstruction, the relief under Section 84(2) could not be withdrawn as the industrial undertaking was already newly established. The Tribunal's conclusion that there was no ground to withdraw the relief was upheld. Questions in T.C. No. 240 of 1974 and T.C. No. 180 of 1974 were answered in favor of the assessee.

4. Development rebate under Section 155(5) of the Income-tax Act, 1961:
For the assessment years 1960-61 and 1961-62, the court examined whether the ITO had jurisdiction to pass a rectification order under Section 155(5). The court agreed with the Tribunal that there was no transfer by the assessee of the plant or machinery, thus Section 155(5)(i) was not attracted. The rectification order was not sustainable. The first question in T.C. No. 147 of 1974 was answered in the affirmative. The second question was also answered in the affirmative, as the appeal against the ITO's order was competent and maintainable.

5. Utilization of reserve account under Section 34(3)(a) of the Income-tax Act, 1961:
For the assessment years 1962-63 to 1965-66, the court examined whether the assessee violated Section 34(3)(a). The court held that the amount credited to the reserve account must be utilized by the assessee for the business of the undertaking. Since the firm ceased to exist after January 1, 1964, it became impossible for the firm to utilize the sums credited to the reserve account. Thus, the development rebate could not be granted to the assessee. Questions in T.C. No. 240 of 1974, T.C. No. 146 of 1974, and T.C. No. 171 of 1974 were answered in favor of the revenue.

Conclusion:
The court disposed of the tax reference cases, directing each party to bear their respective costs due to the complexity and difficulty of the questions raised.

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