1987 (10) TMI 120 - AT - Income Tax

Issues Involved:

1. Justification of the Income-tax Officer in withdrawing development rebate/investment allowance.
2. Applicability of section 47 of the Income-tax Act, 1961 concerning transfers to wholly owned subsidiaries.
3. Interpretation and application of sections 32A(7), 33(4), 155(4A), and 155(5)(i) of the Income-tax Act, 1961.
4. Validity of the assessee's claim based on section 47 and other related provisions.
5. Examination of relevant case laws and judicial precedents.

Issue-Wise Detailed Analysis:

1. Justification of the Income-tax Officer in Withdrawing Development Rebate/Investment Allowance:

The primary issue is whether the Income-tax Officer was justified in withdrawing the development rebate/investment allowance when the assessee transferred its assets to a wholly owned subsidiary within the statutory period. The Income-tax Officer relied on sections 32A(7), 33(4), 155(4A), and 155(5)(i), which mandate that any plant and machinery sold or otherwise transferred by the assessee to any person other than specified entities would amount to a transfer, thereby necessitating the withdrawal of the development rebate/investment allowance. The Officer concluded that the transfer to the subsidiary company fell within this provision, justifying the rectification and withdrawal of the rebate.

2. Applicability of Section 47 of the Income-tax Act, 1961:

The assessee argued that the transfer to the wholly owned subsidiary did not constitute a transfer under clause (iv) of section 47, which exempts certain transfers from being treated as transfers for tax purposes. The Commissioner (Appeals) and the Tribunal, however, held that section 47 is relevant only for capital gains purposes and not for the withdrawal of development rebate under section 155(5). The Tribunal emphasized that the legislative intent behind section 47 was limited to capital gains tax and did not extend to other provisions like section 155(5).

3. Interpretation and Application of Sections 32A(7), 33(4), 155(4A), and 155(5)(i):

The Tribunal upheld the view that sections 32A(7), 33(4), 155(4A), and 155(5)(i) clearly indicate that any transfer of assets to entities other than the Government, local authority, or Government Company would necessitate the withdrawal of development rebate. The Tribunal found that the provisions of section 155(5) were clear and unambiguous, requiring the same assessee to carry on the business and not transfer the machinery within eight years to retain the development rebate.

4. Validity of the Assessee's Claim Based on Section 47 and Other Related Provisions:

The assessee contended that the transfer should not be considered a transfer under section 47 and referred to Explanation 6 to section 43(1) and clause (ii) of the Explanation to sub-section (2) of section 34. However, the Tribunal found these arguments unpersuasive, noting that the legislative intent and judicial precedents did not support the assessee's interpretation. The Tribunal concluded that the non-obstante clause in section 155(5) overrode other definitions and provisions, making the withdrawal of the rebate justified.

5. Examination of Relevant Case Laws and Judicial Precedents:

The Tribunal referred to several judicial precedents, including decisions from the Madras High Court in the cases of Addl. CIT v. Dalmia Magnesite Corpn. and South India Steel Rolling Mills v. CIT, as well as judgments from the Patna High Court, Kerala High Court, Karnataka High Court, and Calcutta High Court. These cases consistently held that the conditions for granting development rebate must be strictly complied with and that any transfer of assets within the specified period would warrant the withdrawal of the rebate. The Tribunal found these precedents applicable and supportive of the Income-tax Officer's actions.

Conclusion:

The Tribunal concluded that the authorities were justified in withdrawing the development rebate. The arguments based on section 47 and related provisions were found to be inapplicable for the purpose of section 155(5). The Tribunal upheld the orders of the Commissioner (Appeals) and dismissed the appeals filed by the assessee, affirming the rectification and withdrawal of the development rebate.

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