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TMI Blog1974 (9) TMI 41X X X X Extracts X X X X X X X X Extracts X X X X ..... f Shri Mahabir Cold Storage. The two partners took loan from a private limited company named Periwal and Co. (P.) Ltd. for the erection and running capital of the cold storage. Subsequently, the company aforesaid was taken as a partner for better management and financial assistance for business of cold storage at Purnea. A fresh partnership deed was executed on November 10, 1958. According to this deed, Prayagchand had 25% share, Hanumanmal also had 25% share and the private limited company was allotted 50% share in the profits of the newly constituted partnership. This newly constituted partnership of Shri Mahabir Cold Storage was granted a separate registration under section 26A of the Indian Income-tax Act, 1922, (hereinafter called " the 1922 Act "). It was separately assessed for the assessment year 1960-61 and thereafter. The original firm consisting of the two partners, Prayagchand Periwal and Hanumanmal Periwal, had installed machinery of the value of Rs. 5,80,055 in the accounting year relating to the assessment year 1959-60. After the new partnership firm came into existence with three partners from November 11, 1958, it claimed development rebate in the assessment yea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he unabsorbed development rebate coming forward from the earlier years. A copy of the order of the Tribunal is annexure " C " to the statement of the case. Upon the facts aforesaid, the question of law afore-mentioned has been referred to this court for its opinion. Before I proceed to discuss the law on the point I may state that, at the time of argument, learned counsel for the department and learned counsel for the assessee were at issue whether the present assessee had claimed development rebate in the assessment years 1960-61 and 1961-62. The Tribunal has not recorded any finding in that regard. Reference to this matter in the order of the Income-tax Officer is not clear. I, therefore, do not propose to answer the question on the footing that the assessee had not claimed any development rebate in the years 1960-61 and 1961-62. I shall assume in favour of the assessee that it claimed development rebate in those years also. But one thing is clear that, due to one reason or the other, no development rebate in any of those years was allowed. The dispute in this case is regarding the claim of the balance of the development rebate in respect of the machinery worth Rs. 5,00,000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mal to Mahabir Cold Storage, and development rebate allowed to Prayagchand Hanumanmal was accordingly withdrawn under section 155(5) of the 1961 Act. When the matter finally came to the Tribunal, the Tribunal held : (1) When the two partners took over a third partner by reconstituting the firm, there was no transfer or sale involved as the two original partners had not been divested of their interest. The partnership deed dated November 10, 1958, had only brought about a reconstitution in the firm. There was no sale or transfer of the assets so as to attract the provision contained in section 155(5). (2) Instead of two co-owners, Mahabir Cold Storage, as a result of the constitution of the firm under the partnership deed dated November 10, 1958, had three co-owners and there was no sale or transfer involved. The third finding recorded by the Tribunal in the earlier appellate order was that M/s. Prayagchand Hanumanmal and Mahabir Cold Storage may be treated as separate units for the purpose of assessment but they could not be treated as separate legal entities for the purpose of bringing about a legal transfer. There was an identity of interest between the transferor and the t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y assessed to income-tax. On these facts it is difficult to appreciate how the two firms can be said to be one and the same. The notion of reconstitution of a partnership firm and the same unit continuing the business is that by mere change of partnership, either in-coming or out-going, the firm does not become a different entity. Similarly, in the case of a Hindu undivided family, it has been repeatedly pointed out that the unit for the purpose of taxation, namely, the Hindu undivided family, continues, irrespective of the deaths and births in the family. But it is difficult to understand the logic of the Tribunal's order that even though two separate units came into existence on constitution of a different new firm, still the new firm could be said to be a reconstitution of the old firm ? I have not come across a case, nor was any cited, where a partnership firm can be partly reconstituted and can partly remain the old firm. In this background, I now proceed to refer to the relevant provisions of the law. The provisions relating to the grant of development rebate have been amended many a time. The assessment year in question being 1962-63, the provisions contained in section 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 1961 Act. Reading these provisions together, it would be noticed that the assessee who instals the new machinery or plant, who remains the owner of them and uses them wholly for the purpose of the business, is entitled to the development rebate either in one year or the other. If in the meantime the assessee transfers the machinery and plant to any person at any time before the expiry of eight years from the end of the previous year in which it was acquired or installed, then any allowance made under section 33 of the 1961 Act or the corresponding provision of the 1922 Act in respect of that machinery or plant shall be deemed to have been wrongly made in view of the provisions contained in clause (b) of sub-section (3) of section 34 of the 1961 Act. The amount of development rebate allowed can be withdrawn under sub-section (5) of section 155 of that Act. It would thus be seen that the same assessee who installed the new plant or machinery must carry on the business with them in order to be entitled to get development rebate, and he must not transfer them before the expiry of eight years. If he does so, the development rebate granted is cancelled. In the instant case, if the iden ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n some of these cases recoil adversely on the case of the assessee. In the case of A. W. Figgies the Supreme Court pointed out : " The partners of the firm are distinct assessable entities, while the firm as such is a separate and distinct unit for purposes of assessment. Sections 26, 48 and 55 of the Act fully bear out this position. These provisions of the Act go to show that the technical view of the nature of a partnership, under English law or Indian law, cannot be taken in applying the law of income-tax. The true question to decide is one of identity of the unit assessed under the Income-tax Act, 1918, which paid double tax in the year 1939, with the unit to whose business the private limited company succeeded in the year 1947. We have no doubt that the Tribunal and the High Court were right in holding that, in spite of the mere changes in the constitution of the firm, the business of the firm as originally constituted continued as tea brokers right from its inception till the time it was succeeded by the limited company and that it was the same unit all through, carrying on the same business, at the same place and there was no cesser of that business or any change in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nge in the unit. " It was further observed that under the taxation law " it is the firm which has to be considered as a unit of assessment and seen whether there has been a continuity of its personality throughout, in spite of changes in its constitution from time to time, in that it has continued the very same business right through in the same name and at the same place. " In the instant case, as I have said above, the unit of assessment was broken and a new unit came into existence. The decision of the Punjab and Haryana High Court in the case of Kay Engineering Co. was concerned with the question of withdrawal of development rebate. Four persons started a partnership firm on April 1, 1959, styled Kay Engineering Co., to carry on the business of manufacture and sale of electrical accessories. One of the partners retired on June 9, 1961, and the other three constituted a new firm on June 10, 1961, with the same name, their shares changing. This firm was dissolved on March 31, 1964, and the assets were divided in specie among the partners. Two of them formed a new firm named Ram Kay Engineering Co. on April 1, 1964, and carried on the same business, On April 7, 1964, all the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed the new machinery and plant ; the assessee which had done so was different. The Tribunal has nowhere found that they were one and the same ; that is, the assessable unit remained the same irrespective of the addition of one more person. In the absence of such a finding and on the simple and plain facts of this case, it is difficult to accept the view of the Tribunal as correct. The assessee, in my opinion, in the present case is not entitled to any development rebate in respect of the machinery and plant worth Rs. 5,00,000 and odd installed in the previous year relating to the assessment year 1959-60 by the other partnership-firm. Before finally answering the question, I think it advisable to reframe it in order to bring out clearly the point at issue. I, accordingly, reframe the question as follows : " Whether, on the facts and in the circumstances of this case, the order of the Tribunal allowing the unabsorbed development rebate in respect of the plant and machinery not installed by the assessee under section 33(1) of the Income-tax Act was legal and proper ? " I would answer the reframed question in the negative, against the assessee and in favour of the revenue. I, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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