1983 (11) TMI 98 - AT - Income Tax

Assessment Order Certain Assets Family Arrangement Investment Allowance Subject Matter Withdrawal Of Development Rebate

Summary

Issues Involved:
1. Jurisdiction of ITO to rectify assessment orders under section 154.
2. Interpretation of statutory provisions regarding development rebate and investment allowance.
3. Applicability of provisions of section 34(3)(b) and section 155(5) of the Income-tax Act, 1961.

Issue-wise Detailed Analysis:

1. Jurisdiction of ITO to Rectify Assessment Orders under Section 154:

The primary contention of the assessee's counsel was that the assessment orders had merged with the appellate orders and thus, the ITO had no jurisdiction to rectify these orders. The counsel cited various judicial pronouncements to support the argument that rectification was not permissible once the assessment orders had been appealed. However, the departmental representative countered this by referring to rulings that established the ITO's authority to rectify parts of the assessment order that were not subject to appeal. The Tribunal agreed with the departmental representative, emphasizing that sub-section (1A) of section 154 explicitly allows rectification of parts of an order not considered by the appellate authority. Therefore, the ITO's jurisdiction to amend the assessment orders on the issue of development rebate and investment allowance was upheld.

2. Interpretation of Statutory Provisions Regarding Development Rebate and Investment Allowance:

The assessee's counsel argued that the intention of the Legislature in allowing development rebate was to encourage industrial expansion and not to penalize transfers resulting from family arrangements. The counsel cited the Supreme Court ruling in K. P. Varghese v. ITO to argue that statutory provisions should be interpreted to avoid absurd and unjust results. The departmental representative, however, maintained that a limited company is a separate legal entity from its shareholders, and thus, the transfer of machinery between companies could not be treated as a transfer between co-owners. The Tribunal agreed with the departmental representative, stating that the properties owned by a limited company belong to the company itself and not to its shareholders. Therefore, the transfer of plant and machinery between the assessee-company and another company was a transaction between two distinct entities.

3. Applicability of Provisions of Section 34(3)(b) and Section 155(5) of the Income-tax Act, 1961:

The Tribunal examined the provisions of section 34(3)(b) and section 155(5), which mandate the withdrawal of development rebate if the plant and machinery are transferred within eight years. The Tribunal found no ambiguity in these provisions and concluded that the transfer of plant and machinery by the assessee-company to another company triggered the withdrawal of the development rebate. The Tribunal cited the Supreme Court ruling in Chittoor Motor Transport Co. (P.) Ltd. v. ITO, which held that the transfer of assets between a company and a partnership firm constituted a sale or transfer under the relevant provisions. Following this precedent, the Tribunal held that the development rebate and investment allowance were rightly withdrawn by the ITO.

Conclusion:

The Tribunal dismissed the appeals, upholding the orders of the Commissioner (Appeals) and the ITO's rectification orders under section 154, read with section 155(5), for all the assessment years in question. The Tribunal appreciated the arguments presented by both the assessee's counsel and the departmental representative.