1980 (8) TMI 107 - AT - Income Tax

Summary

Issues:
1. Whether there was a change in the constitution of the firm or a succession.
2. Whether the development rebate granted should be withdrawn due to the change in the constitution of the firm.
3. Whether the orders of the ITO withdrawing the development rebate for certain assessment years were justified.

Detailed Analysis:

Issue 1: The main issue in the appeal was to determine whether there was a change in the constitution of the firm or a succession. The facts revealed that partners retired and new partners were admitted, but the business continuity was maintained. The provisions of section 187(2)(a) of the IT Act were analyzed to establish that the changes in partners did not amount to succession but constituted a change in the constitution of the firm. The deeds of partnership and the continuity of business supported this conclusion. The tribunal held that the case fell within the meaning of 'change in the constitution' as per the Act, and there was no dissolution of the firm, affirming the assessee's position.

Issue 2: Regarding the withdrawal of development rebate, the ITO had withdrawn the rebate for certain assessment years citing succession and transfer of assets. However, the tribunal found that there was no transfer of assets from one firm to another due to a mere change in the constitution of the firm. The tribunal upheld the AAC's decision that there was only a change in the constitution and no transfer of assets, leading to the conclusion that the development rebate granted should not be withdrawn based on the change in partners.

Issue 3: The appeal also addressed the orders of the ITO withdrawing the development rebate for specific assessment years. The Revenue argued that the development rebate reserve was not properly reflected in the balance sheet, but the tribunal found that the reserve was included in the revised balance sheet submitted to the ITO. Citing relevant case law, the tribunal held that there was no violation of the IT Act provisions regarding the development rebate, and the orders of the AAC upholding the rebate for all the years under appeal were justified. The tribunal dismissed all three appeals by the Revenue.

In conclusion, the tribunal ruled in favor of the assessee, determining that there was a change in the constitution of the firm, not a succession, and that the development rebate should not be withdrawn based on the changes in partners. The tribunal also upheld the AAC's decision regarding the development rebate for the relevant assessment years, dismissing the Revenue's appeals.