9911796707
TMI Blog1992 (10) TMI 53X X X X Extracts X X X X X X X X Extracts X X X X ..... h the previous year ended on March 31, 1967. In the next accounting year relevant to the assessment year 1968-69, the assessee-firm was constituted by six partners up to October 4, 1967. Three more partners were inducted on October 5, 1967. One of the original six partners, namely, Surajmal died on February 10, 1968. No business of the firm was carried on from February II, to February 15, 1968. On February 15, 1968, the firm was constituted by eight partners and Smt. Shanti Devi, widow of Surajmal. The firm, therefore, filed two returns for the year 1968-69-one for the period ending February 11, 1968, and the other for the period February 15, 1968, to March 31, 1969. Before the Income-tax Officer, it was pleaded for the assessment year 1968-69 that there was the dissolution of the firm on February 11, 1968, when one of the partners died and, therefore, two separate assessments be made for the two broken periods. This plea was negatived by the Income-tax Officer who held that there was no dissolution, but merely a change in the constitution of the firm. He, therefore, made a single assessment for the assessment year 1968-69. The assessee filed an appeal before the Appellate Assistan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7-68 raising the contention that the order passed by the Income-tax Officer and affirmed by the Appellate Assistant Commissioner was erroneous, inasmuch as there was no transfer of the plant or machinery in respect of which development rebate was granted within the meaning of section 34(3)(b) of the Act by the old firm to the new firm or to any other person. So far as the appeal for the assessment year 1965-66 is concerned, the Tribunal held that the order under section 155(5) was barred by limitation, as that should have been passed on or before March 31, 1972, but was in fact passed on May 4, 1973. For the remaining assessment years 1966-67 and 1967-68, the Appellate Tribunal set aside the orders passed under section 155(5) and held that the benefit of development rebate having been availed of by the old firm for the assessment years 1966-67 and 1967-68 could not be said to have been wrongly allowed and could not have been withdrawn under section 155(5). But we are concerned in this reference only with the assessment year 1967-68. For setting aside the order passed under section 155(5) of the Act by the Income-tax Officer relating to the assessment years 1966-67 and 1967-68, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5 of the Act shall apply accordingly. Sub-section (5) of section 155 of the Act enables the Assessing Officer to recompute the total income of the assessee for the relevant previous year and make the necessary amendment after withdrawal of the development rebate. Sale or transfer of the machinery or plant by the assessee to any person before the expiry of eight years from the end of the previous year in which the machinery or plant was installed is a sine qua non for deeming the development rebate to have been wrongly made and for invoking the provisions of sub-section (5) of section 155 within the meaning of section 34(3)(b) of the Act. The Appellate Tribunal clearly held that the plant or machinery installed by the old firm was neither sold nor transferred otherwise and, therefore, no action could have been taken under section 155(5) of the Act by the assessing authority for the assessment year 1967-68, inter alia. The Tribunal also held that there was dissolution of the old firm on February 11, 1968, when one of the six partners died. The finding that the firm was dissolved on February 11, 1968, has become final inasmuch as, as already pointed out the order of the Appellate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tners would have interest in proportion to their share in the joint venture of the business of partnership. The person who brought it in would, therefore, not be able to claim or exercise any exclusive right over any property which he has brought in, much less over any other partnership property. As already stated his right during the subsistence of the partnership is to get his share of profits from time to time as may be agreed upon among the partners and after the dissolution of the partnership or with his retirement from the partnership the value of his share in the net partnership assets as on the date of dissolution or retirement after deduction of liabilities and prior charges. It is, therefore, clear that upon the dissolution of the partnership, partners are entitled to get the value of their share in the net partnership assets as on the date of dissolution after deduction of liabilities and prior charges. Reverting to the question whether distribution of assets after dissolution entails a transfer, it must be held that upon the distribution of assets after dissolution of the partnership firm, there is no transfer within the meaning of clause (b) of sub-section (3) of sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld be made by the assessee who availed of the benefit of development rebate. Then, Sri Rajesh Kumar Agarwal, learned standing counsel, relying on Tarun Bhai v. CIT [1992] 193 ITR 543 (All) and several other authorities submitted that conversion of a proprietary business into a partnership amounts to a transfer of assets within the meaning of section 34(3)(b) of the Act. Contribution of the assets or capital by a person carrying on proprietary business to a partnership concern may amount to transfer out that is not the question before us and on the basis of Tarun Bhai's case [1992] 193 ITR 543 (All), it cannot be successfully urged by standing counsel that by contributing assets of the old firm by the erstwhile partners which vested in them on dissolution into the business of the new firm, it amounted to transfer under section 34(3)(b) by the old firm. It is significant to note that whatever arrangement was made regarding the assets belonging to the erstwhile partners of the old firm that was made on February 15, 1968, while the old firm ceased to exist on February 11, 1968, when it was dissolved. The old firm not being in existence on February 15, 1968, when the assets of the ers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecided by the Patna High Court, the facts of the case briefly are : The firm in the name and style of Messrs. Prayagchand Hanumanmal comprising two partners carried on business at the Calcutta head office and at the branch office at Purnea with effect from May 3, 1956. The branch office at Purnea of the same partnership carried on business under the name and style of Sri Mahabir Cold Storage. The two partners took a loan from a private limited company, namely, Pariwal and Co. (P.) Ltd. for the erection and running capital of the cold storage. Subsequently, the said company was taken as a partner for better management of the business of the cold storage at Purnea. A fresh partnership deed was executed on November 10, 1958, in which the share of the aforesaid private limited company was fifty per cent. The newly constituted firm, namely, Sri Mahabir Cold Storage, which came into being to carry on business at Purnea only, was granted registration. The original firm consisting of the two partners, Prayagchand Pariwal and Hanumanmal Pariwal, carrying on business in Calcutta at the head office and at the branch office in Purnea, had installed machinery during the accounting year relevant ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
