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TMI Blog1988 (9) TMI 89X X X X Extracts X X X X X X X X Extracts X X X X ..... ership firm M/s. Ispat Udyog was constituted by two partners, namely, Shri K.B. Lal (60%) and Sudhir Kumar (40%). It was allowed development rebate of Rs. 9,244 for asst. year 1973-74 and of Rs. 26,771 for assessment year 1974-75. Shri K.B. Lal died on 26-7-79 and thereafter the surviving partner Shri Sudhir Kumar took his own wife Smt. Meena Aggarwal as a partner. For the period 26-7-79 to 31-3-80 the new firm did not apply for registration but the ITO treated it as a registered firm under section 183(b) of the Act. The ITO took the view that by the introduction of Smt. Meena Aggarwal as a partner, assets in respect of which development rebate was allowed to the firm stood transferred and, therefore, in terms of section 34(3)(b) the develo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tended that there was no transfer by the assessee and hence no action could be taken. For the sake of easy reference, we reproduce below section 34(3)(b) : "If any ship, machinery or plant is sold or otherwise transferred by the assessee to any person at any time before the expiry of eight years from the end of the previous year in which it was acquired or installed, any allowance made under section 33 or under the corresponding provisions of the Indian Income-tax Act, 1922 (11 of 1922), in respect of that ship, machinery or plant shall be deemed to have been wrongly made for the purposes of this Act, and the provisions of sub-section (5) of section 155 shall apply accordingly." 4. The learned Departmental Representative relied upon Chi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss was taken over by a new firm. Thus when the old firm ceased to exist subsequently and by operation of law on account of the death of one of its two partners, the firm that had availed of the development rebate could not have transferred the plant and machinery. On the death of K.B. Lal the firm came to an end and the assets of the erstwhile firm became the joint property of Sudhir Kumar and the heirs of K.B. Lal to be shared in accordance with the provisions of the Partnership Act. If thereafter Sudhir Kumar entered into a new partnership with his own wife there might be a transfer of plant and machinery by Sudhir Kumar to the new firm but that cannot be termed as a transfer by the old firm (the assessee) as contemplated under section 34 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rior to the actual distribution, division or allotment of the assets that takes place after making up accounts and discharging the debts and liabilities due by the firm. Upon dissolution the firm ceases to exist, then follows the making up of accounts, then the discharge of debts and liabilities and thereupon distribution, division or allotment of assets takes place inter se between the erstwhile partners by way of mutual adjustment of rights between them. The distribution, division or allotment of assets to the erstwhile partners, is not done by the dissolved firm. In this sense there is no transfer of assets by the assessee (dissolved firm) to any person. It is not possible to accept the view of the High Court that the distribution of ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of dividends or profits; or (ii) for remittance outside India as profits or for the creation of any asset outside India." What the learned ITO appears to have thought is that after the expiry of the period of 8 years the assessee must use the amount of development rebate reserve for its business. The aforesaid provision, on the other hand, required that right from the time of the creation of the reserve up to a period of 8 years, the amount of the reserve has to be utilised for the purposes of business and if there is a default then u/s. 155(5) the amount of development rebate can be withdrawn. Probably the Commissioner while authorising this appeal was conscious of the misconception operating in the mind of the ITO and that is why in t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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