1965 (10) TMI 16 - SC - Income Tax

Whether section 10(2)(vib) was not repugnant to article 14 of the Constitution, and that the transaction amounted to transfer within section 10(2)(vib)? Held that - The legislature perhaps presumes that if the machinery is offered to the Government for sale, the Government will only buy it at a price which will take into consideration the rebate taken by the assessee. In our opinion, therefore, it has not been established that section 10(2)(vib) violates article 14 of the Constitution. This case has no relevance to the question of the interpretation of the words sold or otherwise transferred in the latter part of section 10(2)(vib). Appeal dismissed.

Summary

Issues:
1. Interpretation of section 10(2)(vib) of the Income-tax Act.
2. Whether the transaction amounted to a sale or transfer within section 10(2)(vib).

Detailed Analysis:

1. Interpretation of section 10(2)(vib) of the Income-tax Act:
The case involved an appeal regarding the disallowance of a development rebate claimed by a private limited company for the assessment year 1959-60. The company had purchased new buses and claimed a development rebate, which was allowed on appeal. However, the Income-tax Officer sought to rectify the assessment due to the transfer of assets to a partnership within ten years. The key provision in question was section 10(2)(vib) of the Income-tax Act, which deemed the rebate wrongly allowed if the asset was sold or transferred within ten years to a non-government entity. The court analyzed the legislative intent behind this provision, emphasizing the condition applied uniformly to all assessees. The court held that the provision did not violate Article 14 of the Constitution, as it did not discriminate but rather provided a choice to assessees regarding the retention of the rebate based on their actions.

2. Whether the transaction amounted to a sale or transfer within section 10(2)(vib):
The appellant argued that the transaction did not constitute a sale or transfer as per section 10(2)(vib) due to the nature of the transfer to a partnership consisting of the same individuals as the company. The court examined precedents cited by the appellant, which focused on the commercial aspect of transactions for tax purposes. However, the court found that the resolution transferring buses to the partnership for consideration constituted a sale under the Sale of Goods Act and met the criteria of a transfer within the provision. The court emphasized that the profit aspect was not relevant to determining whether a sale or transfer had occurred within the scope of section 10(2)(vib). Consequently, the court dismissed the appeal, affirming that the transaction fell within the purview of the provision, leading to the denial of the development rebate.

In conclusion, the Supreme Court upheld the decision of the High Court, ruling against the appellant's claims regarding the interpretation of section 10(2)(vib) and the nature of the transaction in question. The judgment clarified the application of the Income-tax Act provisions and their implications on development rebates claimed by assessees in specific circumstances.