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TMI Blog1984 (3) TMI 174X X X X Extracts X X X X X X X X Extracts X X X X ..... dated 18-12-1981 with effect from 1-1-1981. The ITO took the view that the formation of the partnership with effect from 1-1-1978 involved a transfer of the machinery from the assessee in his capacity as an individual to the firm in which he is a partner. The ITO noticed that the firm took over the assets and the liabilities of the assessee and that the difference between assets and liabilities of the business was reflected as capital contributed by the assessee. The ITO with the view that it involved a transfer, took action under section 155(5) of the Income-tax Act, 1961 (' the Act ') so as to withdraw the development rebate. 3. The first appellate authority, however, accepted the assessee's case that there was no transfer in law. He also accepted that there was no unconditional parting of the assets by the individual assessee to the firm apparently on the basis of second partnership deed which reserved the rights of the goodwill to the assessee. 4. In the departmental appeal this inference both on facts as well as on law is questioned. It is pointed out by the learned departmental representative that the machinery appears as partnership assets and that merely because the go ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ttracted only where there is undisputed and non-controversial transfer of assets even as held by the Cuttack Bench of the Tribunal in T. Ch. V. Ramaniah and T.B.V. Ramaniah v. ITO [IT Appeal No. 772 (Hyd.) of 1974-75, dated 24-3-1976]. 6. We have carefully considered the records as well as the arguments. We find that all the assets and liabilities in the business undertaking in the name of Liberty Industries owned by the assessee in his individual capacity till 31-12-1977 became the assets of the partnership consisting of the assessee and his son with effect from 1-1-1978. It is true that his son was not a capitalist partner but he became a co-partner to the assessee. The machinery was shown as the asset of the new partnership as was noticed by us with reference to the balance sheets of the firm on record. The partnership deed also does not indicate any reservation of rights over machinery in favour of the assessee. Even the management and control of business vide clause 9 of the deed vested with both the partners. The assessee would like us to believe that notwithstanding this position in the accounts and the deed, the assessee continues to be the absolute owner of the assets of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecord show that the machinery ceased to belong to the assessee in his individual capacity and belonged to the firm from 1-1-1978. The assessee had only right as a partner in the partnership. The assessee was given credit for value of machinery along with other assets in his capital account. Depreciation on such machinery had been claimed and allowed to the firm. The argument based upon the decision of this Tribunal in ITO v. S. Rajamani Thangarajan Industries [1982] 1 ITD 504 (Mad.), to which one of us was a party, can have no application inasmuch as it was found in that case that the partners who brought in the assets had specifically reserved the right over the ' transferred ' assets notwithstanding their permission to the firm to use them by a specific stipulation in the partnership deed itself. It was under these circumstances that it was found in that case that the assets in question continued to belong to contributing partners. In the assessee's case the facts are that they became partnership property in every sense of the word on the constitution of the firm on 1-1-1978. The Supreme Court in the case of Malabar Fisheries Co. v. CIT [1979] 120 ITR 49 quoted the following pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th the case where the issue related to the question of capital gains. The Special Bench following the decision of the Gujarat High Court in Kartikey V. Sarabhai's case found that section 2(47) of the Act in its definition of ' transfer in relation to a capital asset ' comprehended both ' relinquishment ' and ' extinguishment '. The High Court in this case again was dealing with the question only for purposes of capital gains. It did not have to deal with the argument that the expression ' transfer ' embodied in section 2(47) was only for the purposes of section 45 of the Act in the context of chargeability of surplus in a transfer of capital asset for purposes of capital gains tax. No doubt the Karnataka High Court in M A.J. Vasanaik's case had held that there was ' transfer ' even for withdrawal of development rebate under section 34(3)(b) of the Act, but it was because it took the view that even without recourse to section 2(47), there was transfer because section 34(3)(b) uses the words ' otherwise transferred ', words which were considered to be broad enough to cover the transaction. The Gujarat High Court specifically referred to this aspect of the matter at page 56 of Kartike ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts therein or the compulsory acquisition thereof under any law ;" Capital asset itself has been defined under section 2(14). Section 45, which is the charging section for capital gains, charges ' any profits and gains arising from transfer of a capital asset '. The words ' capital asset ' is not used either with reference to allowance of either development rebate or depreciation. It, therefore, stands to reasons that this extended definition is intended to cover transfer only for capital gains purposes. Legislative history also seems to confirm this position. Section 45 of the 1961 Act is corresponding to section 12B of the Indian Income-tax Act, 1922 (' the 1922 Act ') which incorporated the definition of transfer in itself as ' sale, exchange, relinquishment or transfer of a capital asset '. The 1961 Act extended the concept by inclusion of ' the extinguishment of any rights therein or the compulsory acquisition thereof under any law. The object of this extension was to plug certain loopholes in the pre-existing law noticed from certain judicial decisions. The Bombay High Court in CIT v. Asiatic Textiles Co. Ltd. [1955] 27 ITR 315 and Provident Investment Co. Ltd. v. CIT [1953] ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no transfer in the general sense. 9. The indication that the extended definition of ' transfer ' in section 2(47) is intended to apply for capital gains purposes only is available from the qualifying words ' in relation to capital assets ' in section 2(47) itself. Besides, the definition of ' capital asset ' in section 2(14) has undergone amendment about half a dozen times to exclude certain assets from its purview whenever exemption from capital gains tax was sought to be given as in the case of gold bonds, etc. This again shows that the definition of ' capital asset ' or ' transfer in relation to capital asset ' are to be applied only in the context of computation of capital gains. The definition of transfer in Explanation 2 to section 32(1)(iii) in relation to terminal charge or allowance or the concept of transfer under section 34(3)(b) cannot obviously apply to computation of capital gains in view of the special definition for the same in section 2(47). It, therefore, stands to reason that the definition under section 2(47) cannot be invoked for purposes of withdrawal of development rebate as there has been no capital gains impact in this ' transaction ' even on the widest m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owed by the Special Bench of the Tribunal Delhi Bench ' A ' also for capital gains purposes in Mannalal Nirmal Kumar Soorana's case cannot apply automatically for purposes of withdrawal of development rebate. Even if we were to approach the Madras High Court view that even if the definition of transfer in section 2(47) applied for purposes of withdrawal of development rebate, there can be no such withdrawal in the view that there is no extinguishment cautiously, we find it difficult to accept that the phrase ' sold or otherwise transferred ' would comprehend the arrangement we have encountered here. Since the words ' or otherwise transferred ' immediately follows ' sold ', the principle of ejusdem generis should be applied in interpreting the phrase. The Kerala High Court based its decision with reference to the definition in section 2(47) practically without a contention, as we have pointed out earlier, that it had no application. Earlier the Gujarat High Court decisions indicated that earlier decisions of the Supreme Court (regarding pooling at the time of formation and distribution at the time of dissolution) were to be treated on par for purposes of withdrawal of development re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax Officer, by applying the provisions of section 154 of the Act so far as they may be applicable thereto may recompute the total income of the assessee by withdrawing the development rebate originally granted. Section 154 of the Act speaks of ' with a view to rectifying any mistake apparent from the record '. It is well settled that a highly debatable point of law cannot be said to be a ' mistake within the meaning of section 154 of the Act ' vide decision in the case of T.S. Balaram, ITO v. Volkart Bros. [1971] 82 ITR 50 (SC). It is obvious that the provisions of section 155(5) of the Act can be invoked only where the plant or machinery were clearly sold or transferred. In other words, section 155(5) of the Act read with section 154 of the Act cannot be invoked in a case where a certain event can be held to be a ' sale ' or ' transfer ' only after taking recourse to long drawn process of reasoning involving debatable points of law as in the instant case before us. Unless the event envisaged in section 155 of the Act is self-evident and unambiguous, we think that section cannot be invoked." The facts in the case before us and the other case, i.e., in T. Ch. V. Ramanaiah and T.B ..... X X X X Extracts X X X X X X X X Extracts X X X X
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