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TMI Blog1987 (10) TMI 120X X X X Extracts X X X X X X X X Extracts X X X X ..... wing the development rebate/investment allowance when the assessee holding company transferred its assets of Chettinad Branch within the statutory period of eight years to its wholly owned subsidiary company on which development rebate/investment allowance was already granted earlier. 2. The assessee is a limited company engaged in the manufacture and sale of cotton yarn. In the assessment year 1973-74 the assessee Company brought into use certain new machinery in its branch at Chettinad. Development rebate was granted thereon by the Income-tax Officer for that assessment year. During the previous year relevant for the assessment year 1981-82, i.e. on 4-8-1980 the assessee company had transferred the assets of Chettinad Branch to M/s. Sri Nachammai Cotton Mills Pvt. Ltd., a wholly owned subsidiary of the company. Since development rebate was already granted in respect of such transferred assets, the Income-tax Officer proposed rectificatory action under section 155 of the Income-tax Act, 1961 and called for objections of the assessee, if any. The assessee replied on 28-12-1984 stating that there was no transfer as such in terms of section 47 of the Income-tax Act, 1961, as the tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... effect that, the conversion of proprietary business into that of a company or a firm involves a sale or transfer of assets and therefore the development rebate already granted was liable to be withdrawn, he came to the conclusion that, the provisions of section 155(4A) of the Income tax Act, 1961 squarely apply to this case. In this view of the matter he held that, the Income-tax Officer has rightly rectified the assessment orders for these years and he has correctly withdrawn the development rebate already granted for those years. Consequently he dismissed the appeals filed by the assessee. 4. At the time of hearing the learned counsel for the assessee reiterated the grounds taken by the assessee and urged that, there was no transfer at all in terms of clause (iv) of section 47 although there was change in share holding of the subsidiary company. Since the assessee company held 100% share of the subsidiary company such transfer is excepted and, therefore, development rebate should not be withdrawn. The learned counsel for the assessee referred to the Explanation 6 to section 43(1) of the Income-tax Act, 1961, for the proposition that when a capital asset is transferred by a hol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that only the subsidiary company claimed depreciation as owner of the transferred assets. According to him the word 'transfer' as appearing in sections 32 and 34 are relevant and not in section 47. On his part he relied upon the decision of the Madras High Court in the case of South India Steel Rolling Mills v. CIT (1982) 135 ITR 322. 6. We have duly considered the rival submissions. At the outset it is to be pointed out that, there is no dispute about the fact of the assessee company transferring its assets of the Chettinad Branch to M/s Sri Nachammai Cotton Mills Pvt. Ltd. on which development rebate has been claimed and allowed for these years under consideration. The assessee claim that the transfer of assets having taken place between a holding company and its subsidiary company there is no transfer at all in terms of clause (iv) of Section 47 of the Income-tax Act, 1961. For this reason the provision of section 34(3)(b) is not attracted so as to warrant the withdrawal of the development rebate in terms of section 155(5) of the Income-tax Act, 1961. After due consideration we are of the opinion that, the contentions of the assessee are not valid. In the course of argument ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ason of a scheme framed by the High Court, one of the partners become a wholly owned subsidiary of another's partner to whom the assets and liabilities were transferred and the firm ceased to exist. In this context the Madras High Court held that the condition for grant of development rebate was not fulfilled because of the supervening circumstances that had taken place which made it impossible to comply with the conditions and therefore the development rebate should be withdrawn. This decision of the Madras High Court was referred to and followed in the later judgment of the Madras High Court in the case of South India Steel Rolling Mills. In that case a partnership firm consisting of two partners of which one died subsequently after obtaining development rebate. There was reconstitution of the firm by the surviving partner by taking the legal heirs of the deceased partner and continuing the same business. The Commissioner of Income-tax revised the assessment for violation of condition of section 34(3)(b) and directed withdrawal of development rebate already allowed. This action was upheld by the Tribunal. On reference by the assessee it was held that there was basic failure of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... recently approved by the Supreme Court. In the case of Mahabir Cold Storage a firm carried on business at Calcutta with a branch at Purnia. Later on the constitution of the branch at Purnia was changed and ran as a separate business by taking a company as a partner. It was granted separate registration and separately assessed. In connection with the claim for development rebate by the old firm it was held that as per provisions of sections 33, 34(3)(b) and.155(5) the same assessee who installed the new plant and machinery must carry on the business in order to entitle to get the development rebates and must not transfer the machinery before the expiry must carry on the business in order to entitle to get the development rebate and must not transfer the machinery before the expiry of eight years. In other words, the test that the assessee who installed the machinery should carry on the business was laid down by the Patna High Court in that case. 7. Applying the aforesaid principle laid down by the Courts, we are of the opinion that the authorities were justified in withdrawing the development rebate. In this connection it is necessary to point out that the decision relied upon by ..... X X X X Extracts X X X X X X X X Extracts X X X X
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