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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 ..... t year 1981-82, the firm was dissolved on June 30, 1980 and its assets had been distributed amongst the partners in specie. The reserve credited under section 32A(4) of the Act had also been so distributed. While framing the 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... carried on by him for the specified period and such user is given over to another, it can be said that the machinery or plant is "otherwise transferred" by the assessee to another person. What was emphasised by learned counsel 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when the firm is dissolved within ten years of grant of investment allowance, the investment allowance is liable to be withdrawn.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, b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that its business was to be so reconstituted that there would be a separate firm for carrying on the business at each of the centres. The assessee claimed development rebate on plant and machinery installed at Mehsana and Bhuj in 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the actual distribution, division or allotment of the assets that takes place after making 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 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 bus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er of the plant or machinery for the purpose of his business for the specified period, the consequences specified in section 34(3)(b) will follow, provided the machinery or plant is 'otherwise transferred'. It is true that there is no sale; 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 p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in question. The Tribunal held against the appellant and on a reference, the High Court held that the firm became extinct before the expiry of the eight year period and what came afterwards was a different entity even if it comprised only 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 re ..... X X X X Extracts X X X X X X X X Extracts X X X X
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