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TMI Blog2001 (1) TMI 4X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment under section 143(3) of the Act, the Income-tax Officer withdrew the investment allowance of Rs. 20,899, allowed to the assessee on the ground that on the dissolution of the firm, the machineries were transferred to the partners before 8 years within the meaning of section 32A(5) of the Act and reserve was also transferred to the partners within the meaning of section 32A(5)(c) of the Act. On appeal before the Commissioner of Income-tax (Appeals), the assessee relied on the decision of the Supreme Court in Malabar Fisheries Co. v. CIT [1979] 120 ITR 49 and contended that since on the dissolution of the firm no transfer of assets had taken place, the provisions of section 32A(5) of the Act were not attracted. The Commissioner (Appeals) however, upheld the action of the Income-tax Officer taking the view that the closing of the reserve account by transfer of 1/4th of the amount to each partner's account was not a purpose of the undertaking. Feeling aggrieved by the order of the Commissioner of Income-tax (Appeals), the assessee went in appeal before the Tribunal. Relying on the aforesaid decision of the Supreme Court as well as the decision of the Gujarat High Court in Ab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was that the reserve must be used for 10 years by the assessee who had obtained investment allowance and when the firm is dissolved within ten years of grant of investment allowance, the investment allowance is liable to be withdrawn. In support of his submissions, learned counsel placed reliance on the decisions of the Supreme Court in (1) CIT v. Narang Dairy Products [1996] 219 ITR 478, and (2) South India Steel Rolling Mills v. CIT [1997] 224 ITR 654. Though served, none appears on behalf of the respondent. We have heard learned counsel for the Revenue and taken into consideration the relevant decisions on the point. Opinion: Under section 32A of the Act, investment allowance is allowed in respect of new machinery and plant to the extent of 25 per cent., of the actual cost of machinery or plant, which is owned by the assessee and is wholly used for the purposes of business carried on by him. It is not only the ownership of the plant or machinery, but also its exclusive user by the assessee for the purposes of his business, that is essential to enable the assessee to get investment allowance under section 32A. Moreover, under section 32A(4) an amount equal to 75 per cent. of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the previous year relevant to the assessment year 1968-69; whereas in the previous year relevant to the assessment year 1969-70, the assessee claimed development rebate on plant and machinery installed at Rajkot and Ahmedabad. The Income-tax Officer declined to grant development rebate claimed by the assessee on its plant and machinery on the ground that the machinery on which development rebate was claimed had been sold to the newly constituted partnership firm within the period of eight years and therefore, the conditions laid down in section 34 of the Act were not fulfilled for claiming development rebate. On appeals, the Appellate Assistant Commissioner affirmed the decision of the Income-tax Officer. The Appellate Tribunal dismissed the appeals of the assessee. On a reference, the High Court held that when the assets are distributed amongst the partners, no transfer of machinery takes place and, therefore, the development rebate should not have been withdrawn. In Malabar Fisheries Co. v. CIT [1979] 120 ITR 49 (SC), a firm consisting of four partners carried on six different businesses. During the accounting periods relevant to the assessment years 1960-61 to 1963-64 it instal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... counts, 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 correct to say that the distribution of assets takes place eo instanti with the dissolution of the firm or that it is effected by the dissolved firm." In view of the above referred to decisions, prima facie it would appear that the view taken by the Tribunal is the correct one. However, the later decisions of the Supreme Court indicate that a different principle has been enunciated by the Supreme Court after reviewing the law on the point. In CIT v. Narang Dairy Products [1996] 219 ITR 478, the assessee-firm carried on the business of manufacture of milk powder. For the assessment year 1965-66, the Income-tax Officer allowed development rebate in respect of the entire machinery and plant owned by the assessee and used for the said business in the sum of Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le; nor is there any complete extinguishment of the right of the assessee in the machinery or plant by the grant of lease; but the exclusive possession and enjoyment of the machinery or plant by the assessee no longer exists or survives. Such right to exclusive possession and enjoyment vests in the lessee and it is a case where the machinery or plant is 'otherwise transferred' to the lessee. It is a case where the machinery or plant is 'otherwise transferred' by the assessee to any person before the expiry of eight years from the end of the previous year in which it was acquired. Even assuming that the transaction may not be a 'transfer' as defined under section 2(47) of the Act, in our view, the definition section is an inclusive one and does not exclude the contextual or the ordinary meaning of the word, 'transfer'. There are different shades of meaning to the word 'transfer', viz. 'to make over possession of to another', 'a delivery of title or property from one person to another', 'to displace from one surface to another', 'removal', 'hand over', 'make over possession of property to another', 'change', 'displace', etc. The words' otherwise transferred' occurring in section 34(3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the surviving partner and the deceased partner's legal representatives, and that, therefore, there was non-compliance with the conditions necessary for grant of the rebate. The Supreme Court while dismissing the appeal has held as under: "...Having regard to the words 'which is owned by the assessee and is wholly used for the purposes of the business carried on by him', in section 33(1)(a), it must be held that the benefit of development rebate is available only to the assessee, which is owning the machinery or plant and is using it wholly for the purpose of the business carried on by him. Similarly, in section 34(3)(a), the words used are 'to be utilised by the assessee during a period of eight years next following for the purpose of the business of the undertaking'. The grant of development rebate under section 33(1)(a) is subject to the conditions laid down in section 34(3)(a), which means that the assessee who has obtained the development rebate under section 33(1)(a) must also be the assessee, who should utilise the amount credited to the reserve account during the period of eight years next following for the purpose of the business of the undertaking for which the developme ..... X X X X Extracts X X X X X X X X Extracts X X X X
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