695/CBDT. - Income Tax - 695/CBDT

INSTRUCTION NO. 695/CBDT Dated : May 29, 1974 Section(s) Referred: 34(3)(b) ,155(5) Statute: Income - Tax Act, 1961 Section 34 (3)(b) of the Income-tax Act, 1961 provide for withdrawal of development rebate allowed to an assessee by taking resort to section 155(5) of the Income-tax Act in case it is found that the ship, machinery or plant on which the development rebate was allowed, has been sold or otherwise transferred by the assessee to any person other than those mentioned in section 34(3)(b)(ii) at any time before the expiry of eight years from the end of the previous year, in which it was acquired or installed. 2. The Board had occasion to consider the implication of the expression "sold or otherwise transferred" occurring in section 34(3)(b) of the Income tax Act, 1961 in the case of dissolution of a firm and formation of a new firm in its place. The Board has been advised by the Ministry of Law that on the dissolution of a firm, the assessee who had created the reserve goes out of existence and on the formation of a new firm a new assessee becomes the owner of the assets and the development rebate reserve. In view thereof, the benefit of development rebate allowed to the dissolved firm would be liable to be withdrawn if the dissolution is within the time limit of eight years. It may be clarified that the benefit of development rebate would be lost even if transfer of the assets is effected merely as a step-in business or reorganisation or expansion, for example, when a sole proprietor or a joint family forms a partnership. 3. Necessary instruction may please be issued to the Income-tax Officers working in your charge on the lines indicated above.