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TMI Blog1976 (8) TMI 14X X X X Extracts X X X X X X X X Extracts X X X X ..... was right in its view that there was a gift which was taxable according to the provisions of the Gift-tax Act ? and (4) Whether, on the facts and in the circumstances of the case, the Tribunal was right in its view that the order of rectification in respect of the assessment to income-tax for 1959-60 was valid in law ? " We shall take up the fourth question first for disposal as it relates to the earlier of the two years under consideration. The assessee is a HUF of which one Ramaswami Udayar was the karta. He had a wife by name Vridhambal and a son, R. Prabhakaran. Among other sources for deriving income, the assessee-family had a business of plying motor buses in the name of A.M.S. Roadways. The books were closed for each year as on 31st March and the books had been closed for the assessment year 1959-60 on March 31, 1959. The assessee claimed depreciation and development rebate referable to the cost of the motor buses and this was also allowed in the assessment for this year. On 7th May, 1959, Messrs. Bharani Roadways (P.) Ltd. was incorporated as a private company with the object of carrying on the business of plying motor buses. The subscribed capital of the company was 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es in the books of accounts that the consideration of Rs. 1,72,500 was adjusted by means of book entries in the respective accounts. The permits were also transferred with the consent of the Regional Transport Authority concerned. The assessee did not include in its assets the nine buses from the stage they were transferred to the limited company. Correspondingly, the company showed these nine buses as its assets from the time of transfer and the consideration paid to the assessee was taken as the cost of the buses and the depreciation was written off in the books of the company on the basis of this cost. The assessee claimed deduction on account of development rebate on the cost of these buses and a sum of Rs. 31,972 was allowed in the assessment for the assessment year 1959-60 made on 31st October, 1963. When the assessee filed its returns for the assessment year 1961-62 on 1st June, 1962, it sent a letter stating, inter alia, as follows : " During the year, the assessee has given all his buses to a limited company-Bharani Roadways Private Limited, Salem-the family members being its shareholders. It is claimed that this giving away of the buses to this family company does not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Income-tax v. Morning Star Bus Service [1963] 49 ITR 927 (Ker) has not been accepted by the department, there is a strong case for reopening the assessment already made. The decision reported in page 315 of [1964] 54 ITR referred to above is subsequent to the date of completion of the assessment. Further, it is also seen that the company, on the date of incorporation, had four shareholders who were not the members of the same family. It is also seen that the share capital contributed by the lady and one of the members of the family was not from the family funds but from out of the gifts received from one N. Vaidyalingam. In the circumstances, it cannot be said that there is a complete identity between the family and the company even assuming that the transfer was by a family to a company whose shareholders were substantially the members of the family. Office: Please issue notice under s. 147 for the assessment year 1961-62 in the file of N. R. Udayar." The assessment of the family for 1961-62 was reopened accordingly and reassessment was made under s. 147(b) of the I.T. Act, 1961, by an order passed on 30th October, 1965. We shall come to this reassessment separately a litt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... O has taken proceedings under the provisions of the 1961 Act in addition to referring to the provisions of s. 35 of the old Act. However, it is the assessee's own case that the order has been passed under s. 154 of the I.T. Act, 1961, as, otherwise, the assessee could not have filed an appeal to the AAC and then to the Tribunal and, thereafter, brought the matter under reference. The provisions of s. 35(11) of the old Act and s. 155(5) of the new Act are clear to the effect that, where, if any machinery with reference to which development rebate had been granted is sold within the period of ten years under s. 35(11) of the old Act or eight years under s. 155(5) of the new Act, specified in the respective provisions, then the grant of development rebate would be deemed to be a mistake which was liable to be rectified by recourse to either s. 35(1) of the old Act or s. 154 of the new Act. In the present case, even at the time when the assessment came to be made on 31st October, 1963, the transfer of the nine buses had already been effected. Therefore, the ITO could not have granted development rebate under the provisions of s. 10(2)(vib) of the 1922 Act or s. 33 of the 1961 Act. As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that the legislature clearly intended that no allowance by way of development rebate would be available if the machinery or plant, in respect of which it was claimed, was sold or otherwise transferred by the assessee to any person other than the Government at any time before the expiry of ten years from the end of the year in which it was acquired or installed. The learned judges held that the assessee's claim for development rebate was rightly disallowed even in the first instance. To the same effect is the other decision of the Punjab High Court in CIT v. Indian Motor Transport Co. (P.) Ltd. [1974] 95 ITR 73 (Punj). Hence, the action of the ITO in withdrawing the development rebate in the present case by resorting to the provisions of s. 154 cannot be open to question. The fourth question is, therefore, answered in the affirmative and against the assessee. We now turn to the assessment year 1961-62. We have already pointed out that the assessee-family transferred nine buses to the limited company. In making the original assessment for this year, the ITO granted depreciation referable to the written down value of the nine buses. He did not also bring to assessment the profits ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l of which the partners of the firm had the same interest as they had in the assets and profits of the partnership. In the assessment made on the firm for the assessment year 1959-60, the ITO brought to tax under the second prov. to s. 10(2)(vii) a sum of Rs. 40,743 being the excess realised over the written down value of the machinery. The question for consideration by the Supreme Court was whether the said sum of Rs. 40,743 was assessable to tax by applying the second prov. to s. 10(2)(vii) of the Indian I.T. Act, 1922. In other words, the question was whether there was a sale of the machinery by the firm in favour of the limited company. At page 608, the Supreme Court observed: " In the present case the machinery of the factory belonging to the firm was transferred to the private limited company. Assuming that thereby readjustment of the business relationship was intended, the liability to be taxed in respect of the readjustment had to be determined according to the strict legal form of the transaction. The company was a legal entity distinct from the partnership under the general law. Transfer of the machinery was by the firm to the company; and the legal effect of the transa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case, the question is one of fact, viz., as to whether there was a proper allowance of depreciation or omission to bring to tax the profits assessable under the second prov. to s. 10(2)(vii) of the Indian I.T. Act, 1922, on account of a sale of the assets. On this question of fact, there can be no doubt that the audit note could constitute information. Therefore, the second question has also to be answered in the affirmative and against the assessee. We now come to the third question which arises under the G. T. Act. The assessee, as observed already, was the owner of nine buses. These buses were sold for a consideration of Rs. 1,72,500. There was no specific amount ascribed for the route rights, which the buses had. The transaction between the parties proceeded as if the sum of Rs. 1,72,500 represented the consideration for the sale of the buses alone. Before the GTO too, the assessee raised an objection that there was only a rearrangement of the ownership of the buses and that this did not amount to a transfer so as to constitute a gift. There was also an objection on the part of the assessee that there was no value for the route rights and, therefore, there was no question of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es. We must observe that this pretence of non-payment of consideration for transfer of permits is nothing short of sheer hypocrisy. We can almost take judicial notice of the fact that whenever a bus with a permit is transferred, a fair portion of the consideration would represent the value attributable to the pecuniary gain derived by operating on the route." This decision along with several others and the provisions of the Motor Vehicles Act came to be considered in C. S. No. 46 of 1961 of this court (Judgment dated December 12, 1962-N. Krishnaswami Reddiar v. T. Sivagnanam Pillai). In that case, the point put in issue was that the transfer of route rights for a value would be opposed to public policy and that a contract therefor could not be enforced. This court negatived this objection and applied the aforesaid decision. Subsequently, a Bench of this court in A. Vimalan v. CGT [1974] 94 ITR 21 (Mad) applied this decision to a similar case arising under the G.T. Act itself. That was also a case where buses with route rights had been transferred and the value for the route rights had not been described in the transaction between the parties. The GTO estimated the value of the ro ..... X X X X Extracts X X X X X X X X Extracts X X X X
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