1990 (12) TMI 3 - SC - Income Tax

Whether order of the Tribunal allowing the unabsorbed development rebate in respect of the plant and machinery not installed by the assessee under section 33 (1) was legal and proper - Whetherthe order of the Tribunal holding that the conditions under section 33(1) are satisfied is legal and proper - held that new firm is not the owner who installed the plant and machinery - development rebate not entitled

Summary

Issues Involved:
1. Entitlement to development rebate under Section 33(1) of the Income-tax Act, 1961.
2. Ownership and usage of plant and machinery for claiming development rebate.
3. Legal identity and continuity of the partnership firm.

Issue-wise Detailed Analysis:

1. Entitlement to Development Rebate under Section 33(1) of the Income-tax Act, 1961:
The primary issue in this case was whether the appellant-assessee was entitled to claim development rebate on the plant and machinery installed by the original firm, Messrs. Prayagchand Hanumanmal. The Tribunal had initially allowed the rebate, but the High Court reversed this decision, siding with the Revenue. The High Court reframed the question as: "Whether, on the facts and in the circumstances of the case, the order of the Tribunal allowing the unabsorbed development rebate in respect of the plant and machinery not installed by the assessee under section 33 (1) of the Income-tax Act, 1961, was legal and proper?" The Supreme Court upheld the High Court's decision, concluding that the appellant was not entitled to the development rebate as it did not meet the ownership and usage criteria stipulated under Section 33(1) of the Act.

2. Ownership and Usage of Plant and Machinery for Claiming Development Rebate:
The appellant argued that the reconstituted firm, Messrs. Mahabir Cold Storage, was essentially a continuation of the original firm and thus should be entitled to the development rebate. However, the High Court found that the old firm retained its identity and carried on its business separately at Calcutta, while the new firm operated at Purnea. The Supreme Court emphasized that for entitlement to development rebate, the plant and machinery must be "owned by the assessee and wholly used for the purposes of the business carried on by him." Since the appellant firm did not install the new machinery and plant, it did not fulfill the ownership requirement. The Court also noted that the appellant firm and the original firm were separately registered and assessed, indicating distinct legal identities.

3. Legal Identity and Continuity of the Partnership Firm:
The appellant contended that the reconstitution of the firm did not change its legal identity, arguing that the business continued unbroken with only a change in the partners' interests. However, the Supreme Court clarified that the new partnership firm was a separate assessable entity under the Income-tax Act. The Court stated: "The appellant is separately registered under section 26A of the 1922 Act and assessed to tax from the assessment year 1960-61 and onwards. There is no reconstitution of the original firm, Prayagchand Hanumanmal, inducting Periwal and Co. (P.) Ltd. as its partner." Therefore, the appellant firm was not a successor-in-interest of the old firm and could not claim the development rebate for the machinery installed by the old firm.

Conclusion:
The Supreme Court concluded that the appellant was not entitled to the development rebate under Section 33(1) of the Income-tax Act, 1961, as it did not meet the necessary conditions of ownership and usage of the plant and machinery. The appeal was dismissed with costs quantified at Rs. 5,000. The judgment reaffirmed the importance of maintaining distinct legal identities and fulfilling specific statutory requirements to claim tax benefits.