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TMI Blog1979 (4) TMI 81X X X X Extracts X X X X X X X X Extracts X X X X ..... tnership firm's business as a going concern. By a deed dt. 1st Jan., 74 the P. Ltd. Company was taken as another partner in the firm with a share of 5/75. On 21st Jan., 74 the partnership firm was dissolved and the assets and liabilities of the firm were transferred to one of its partners, namely the private limited company. By means of journal entries passed in the books of the firm all the assets and liabilities including Rs. 16,37,163 being the credit balance in the capital and current account of the partners as well as Rs. 57,237 being the balance credit in the development rebate reserve account were transferred to the P. Ltd. Company. The excess of assets over liabilities of the firm were taken by the company to equity share application money account to the extent of Rs. 5,90,000 and to preference share application money account to the extent of Rs. 4 lakhs. The balance credit was to be paid by the Limited company to the various partners, Such cash payments to the 15 partners of the firm amounted to Rs. 6,37,408.40. In the deed of dissolution, it was pointed out that as the major partners considered it prudent and advantageous, the entire business was taken over by the company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the firm relating to the business immediately before the succession had not become the property of the company. The Commissioner considered the various contentions raised by the assessee and held that there was either a sale or transfer of the assets by the partnership firm to the limited company and so s. 155(5)(I) of the Act is applicable. He negatived the conditions of the assessee that it is covered by s. 33(4) of the Act, in that there was a succession by the company to the business carried on by the firm. 6. The learned Chartered Accountant for the assessee contended that the limited company took over all the firm's assets and liabilities in accordance with the arrangement and settlement of the rights of the partners at the time of the firm's dissolution on 20th Jan., 1974 and since the limited company itself was one of the partners, such arrangements did not amount to either sale or transfer. In connection with that plea he relied on the following decisions: CIT vs. Dewas Cine Corpn.(2), CIT vs. Bankeylal Vaidya(2), CIT vs. Hind Construction Ltd(3). The learned representative also relied on the decisions of the Gujarat High Court in Abdul Rehman Haji Miya vs. V.P. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat if development rebate was allowed earlier and subsequently at any time before the expiry of eight years, there was sale or transfer of the machinery or plant, except that transfer was by way of succession by a company the firm under s. 33(4) of the Act and if the development rebate reserve was utilised by the assessee for distribution by the assessee for distribution by way of dividends or profits or for any other purpose, which is not the purpose for the business of the undertaking. 9. The Kerala High Court in CIT vs. C.M. Kunhammed(14), had held that if there was no transfer of the machinery the development rebate allowed could not be withdrawn under s. 155(5) of the Act. In dealing with the question whether there was a sale or transfer, the Kerala High Court had considered the Supreme Court's decision in 68 ITR 240, 79 ITR 594 and 83 ITR 211. The Supreme Court in 68 ITR 240 had held that in a case of adjustment of right of the partner in a dissolved firm by allotment of its assets, there is no transfer involved and that there was no sale for a price. 10. At this junction it is necessary to point out the provision in the deed of dissolution dt. 20th Jan., 1974. This deed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... recognised method of making up the accounts of the dissolved firm, the receipt of money by a partner is nothing but a receipt of his share in the distributed assets of the firm. The Supreme Court in 83 ITR 211(3), had pointed out that no one can sell his goods to himself nor can a person by handing over his goods to a partnership of which he is a partner can be considered as having sold the goods to the partnership. 11. The learned departmental representative relied on the following decisions: 59 ITR 238(7), 59 ITR 221(8), and 100 ITR 537(9). The first was a case of a shareholder of a company transferring a number of buses to a firm: and the second was the transfer of the business assets of a company and the consideration paid was partly in cash and partly by allotment of shares. In these two decisions there was a transfer of the assets by the company to the firm but in the present case the company had taken the assets and liabilities of the firm by way of adjustments of rights and liabilities of the partners in the sense that one of the partners namely, the company had taken over all the assets and liabilities of the firm and had agreed to compensate the partners of their shar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were distributed among the partners of the dissolution of the firm there is no question of the utilisation of the assets in respect of which the development rebate was allowed otherwise than for the purpose of the business of the undertaking. The Gujarat High Court in the case of Bharat Petroleum had held that cl. (c) of s. 155(5)(2) could be invoked in a case where there was utilisation of the development rebate reserve otherwise than for the purpose of business under and when the business cannot be said to have been otherwise preferred. 15. The learned departmental representative also relied on the decision of the Madras High Court in Lakshmi Paper Industries(9). That was a case where the development rebate or machinery owned by a partnership firm was taken over by three of the five partners as a liability. The High Court held that the reserve was not available to the five partners who originally constituted the firm and so reserve cannot be utilised for the purposes of the business of the undertaking because that business itself had ceased to exist. In this particular case the business as a going concern was taken over by the limited company and the Ltd. Company itself had tak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Company itself was one of the partners of the firm it does not follow that the shareholders of the company were not partners in the firm. The clause does not say that all the partners of the firm should be the shareholders of the company as such condition No. (iii) is also fulfilled. 16. The real bone of contention in this regard is whether condition no. 1 is satisfied namely even the immovable properties of the partnership firm had become the property of the company. The deed of dissolution dt 20th Jan., 1974 provides for the taking over of all the assets and liabilities of the firm by the company. In annexure A to the dissolution deed, reference is made to the fixed assets and current assets and of the liabilities and all such assets were valued and the liabilities were considered and the net amount due to the other partners of the firm were worked out and the Ltd. Company as one of the partners by way of adjustment had to pay Rs. 16,27,408.40 to the fifteen partners of the firm. The learned departmental representative relied on the decision of the Supreme Court in Bhurangya Coal Company's case, (ii) and K.C. Pal Chowdhary's (Cal) case(12), and urged that the immovable proper ..... X X X X Extracts X X X X X X X X Extracts X X X X
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