1988 (5) TMI 88 - AT - Income Tax

Issues Involved:
1. Withdrawal of development rebate and investment allowance by the Income Tax Officer (ITO).
2. Transfer of assets and liabilities from Tamil Nadu Dairy Development Corporation to Tamil Nadu Co-operative Milk Producers' Federation.
3. Compliance with the provisions of the Income Tax Act regarding the transfer of assets.

Detailed Analysis:

Issue 1: Withdrawal of Development Rebate and Investment Allowance by the ITO
The appellant objected to the withdrawal of development rebate and investment allowance, which were originally allowed by the ITO for the assessment years 1973-74 to 1976-77 and 1978-79 to 1979-80. The ITO invoked the provisions of Section 34(3)(b) of the Income Tax Act to withdraw these allowances, arguing that the plant or machinery in respect of which the development rebate had been allowed had changed hands within the statutory period. The ITO issued orders on 10th September 1984 and 17th December 1984, withdrawing the allowances.

Issue 2: Transfer of Assets and Liabilities
The ITO's remand report, dated 14th October 1986, detailed the transfer of assets and liabilities from the Tamil Nadu Dairy Development Corporation (Corporation) to the Tamil Nadu Co-operative Milk Producers' Federation (Federation). The report stated that the Government of Tamil Nadu initially transferred the dairy business to the Corporation through G.O. No. 258 dated 29th June 1972. Later, through G.O. No. 555, the assets and liabilities of the Corporation were transferred to the Federation, effective from 1st February 1981. The ITO concluded that this transfer was reflected in the balance sheets of both entities, indicating that the assets and liabilities were indeed transferred.

Issue 3: Compliance with the Income Tax Act
The appellant's counsel argued that the transfer of assets and liabilities was done in compliance with the law, as both the Corporation and the Federation were wholly owned by the Government of Tamil Nadu. The counsel presented a Government Order (G.O.) dated 6th October 1987, which clarified that the transfer of assets and liabilities from the Corporation to the Federation was effected through the Government as of 1st February 1981. This clarification was intended to comply with the provisions of the Income Tax Act, specifically proviso (ii) to Section 34(3)(b) and proviso (i) to Section 32A(5)(a).

The ITO, however, argued that the transfer of assets from the Corporation to the Federation was direct and not through the Government, as indicated in the G.O. dated 30th July 1984. The ITO maintained that the withdrawal of the development rebate and investment allowance was justified.

Conclusion:
The Tribunal, after considering the submissions and the remand report, concluded that the transfer of assets and liabilities from the Corporation to the Federation was indeed effected through the Government of Tamil Nadu as of 1st February 1981. The Tribunal noted that both the Corporation and the Federation were created by the State Government to carry out dairy business activities. The Tribunal found that the Government Orders and the annual accounts of both entities supported the appellant's contention that the transfer was lawful and in compliance with the Income Tax Act.

The Tribunal held that there was no violation of the provisions contained in proviso (ii) to Section 34(3)(b) or proviso (ii) to Section 32A(5)(a) of the Income Tax Act, and therefore, the withdrawal of the development rebate and investment allowance by the ITO was not justified. The Tribunal allowed the appeals and cancelled the ITO's orders under Section 155(5)(4A) of the Act.

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