1990 (8) TMI 177 - AT - Income Tax

Summary

Issues:
1. Withdrawal of development rebate due to sinking of ship and receipt of insurance money.
2. Interpretation of provisions of section 155(5) of the Income-tax Act, 1961.
3. Application of the concept of sale or transfer in the context of development rebate.

Detailed Analysis:
1. The appeal concerned the withdrawal of development rebate by the Income Tax Officer (ITO) due to a ship owned by the assessee sinking and receiving insurance money. The ITO issued a notice under section 155(5) to withdraw the rebate as the ship sank within 8 years of the original assessment. The assessee argued that since the ship was lost due to an act of God and not sold or transferred, the rebate should not be withdrawn.

2. The CIT (Appeals) upheld the ITO's decision based on precedents and opined that there was a transfer or extinguishment of the assessee's right in favor of the Insurance Company. The assessee's counsel contended that the provisions of section 155(5) should be narrowly interpreted as they refer to "sold or otherwise transferred," and in this case, there was no sale or transfer as the ship was a total loss with no salvage.

3. The Tribunal analyzed the provisions of section 155(5) and emphasized that it applies when an assessee disposes of an asset deliberately within 8 years of availing development rebate. It was noted that the legislative intent was not to cover cases where assets are destroyed by natural acts beyond human control. The Tribunal highlighted that for a sale or transfer to occur, there must be consideration and a transferor-transferee relationship, which was absent in this case. Additionally, it was clarified that even if the transaction was considered a transfer, it would not fall under section 155(5) as Insurance Companies, post-nationalization, are Government companies.

4. The Tribunal distinguished the cited decisions and concluded that the order under section 155(5) was incorrect in law. It was emphasized that the narrower scope of section 155(5) does not encompass situations where assets are lost due to natural events. Consequently, the Tribunal set aside the ITO's order and restored the development rebate allowed during the original assessment, ultimately allowing the appeal.