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TMI Blog1990 (12) TMI 114X X X X Extracts X X X X X X X X Extracts X X X X ..... abilities of the firm were taken over by one of the partners Smt. Nilam Swami Rajbharti and she continued the said business as a sole proprietor under the name and style of "M/s. Pratik Prints Business". The Income-tax Officer invoked the provisions of section 155(4A) r.w.s. 32A(4)(ii)(a) and withdrew the investment allowance in both the years under consideration. 2.2 The CIT(A) held that allotment of assets and liabilities upon the dissolution of the firm does not amount to transfer within the meaning of sections 155(4A) and 32A(4) and further held that there was no justification in withdrawing the investment allowance in both the years under consideration. 3.1 The learned Senior Departmental Representative contended that a plain reading of the aforesaid sections namely sections 155(4A) & 32A(4) supports the view taken by the ITO and the investment allowance already granted for assessment years 1977-78 & 1978-79 was rightly withdrawn by him. He explained that provisions of section 155(4A) can be invoked if any one of the three conditions prescribed therein are fulfilled ; (a) If the machinery or plant on which investment allowance has been granted is sold or otherwise transf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y confirmed by the Hon'ble Supreme Court in the case of Malabar Fisheries Co. v. CIT [1979] 120 ITR 49. As regards utilisation of investment allowance reserve, it was submitted that there was a continuation of the same business and the partner who had taken over the assets and liabilities of the firm had fulfilled this condition by purchase of plant and machinery in the subsequent years. It was also submitted that the condition regarding utilisation of investment allowance reserve for purchase of new plant and machinery applies only if the assessee who was granted investment allowance continue to exist. He placed reliance on judgment of Hon'ble Madras High Court in the case of CIT v. S. Balasubramanian [1982] 138 ITR 815. The learned counsel for the assessee relied upon the following decisions to support his contention that the order passed by the CIT(A) is perfectly valid. : D.K. Trivedi & Sons v. ITO [1989] 33 TTJ (JP) 63, Malabar Fisheries Co.'s case, IAC v. Kumar Steel [1990] 81 CTR (Trib.) (Delhi) 102, First ITO v. Industrial & General Products [1985] 12 ITD 132 (Mad.) and ITO v. Ispat Udyog [1990] 32 ITD 217 (Delhi). 4.2 It is also pointed out that some of the above referre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... velopment rebate allowance already granted to the assessee in view of section 155(5). The Hon'ble Madras High Court held that the action of the CIT was justified. The ratio of this judgment goes against the assessee's contention in the present case. But this judgment is based on an earlier judgment of Hon'ble Madras High Court in the case of Addl. CIT v. Dalmia Magnesite Corpn. [1979] 117 ITR 930. The Hon'ble Madras High Court also did not have the benefit of considering the judgment of Hon'ble Supreme Court in the case of Malabar Fisheries Co. It will be worthwhile to observe that in a subsequent judgment, the Hon'ble Madras High Court in the case of S. Balasubramanian has clearly taken a contrary view then the view taken in above referred earlier judgment by the Hon'ble Madras High Court. In this subsequent judgment the Hon'ble Madras High Court have clearly observed that the decision in the case of Dalmia Magnesite Corporation requires re-consideration in the light of the decision of the Hon'ble Supreme Court in the case of Malabar Fisheries . It will also pertinent to add that one of the Hon'ble Judges who decided the aforesaid case of S. Balasubramanian was also one of the Jud ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 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. In view of the aforesaid judgment of the Hon'ble Supreme Court, the view taken by the CIT(A) is perfectly valid and justified as the allotment of all the assets and liabilities to one of the partners upon dissolution of the firm cannot be termed as transfer of assets as contemplated in section 155 r.w.s. 32A(4). 6. As regards the other conditions prescribed in section 155(4A) r.w.s. 32A(4) about non-utilisation of investment allowance reserve, it will be worthwhile to make a useful reference to the Judgment of the Hon'ble Madras High Court in the case of S. Balasubramanian. It was held in that case that utilisation of development rebate reserve i.e., contemplated under section 155(5)(ii)(c) can only be by the assessee, who got the rebate, continuing to exist and if the assessee, who got the rebate did not utilise the reserve for the business but for certain other purp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tition of HUF, dissolution of firm etc., it would not be a case fit for withdrawal of investment allowance or development rebate. 6.1 The various benches of the Tribunal have taken the view that under such facts and circumstances, the amount of development rebate or investment allowance granted to the assessee cannot be withdrawn, where the assets and liabilities are allocated, allotted or distributed amongst the partners upon dissolution of a firm and has been held that provisions of section 155A(4) are not applicable in such cases. For instance the ITAT, Jaipur in the case of D.K. Trivedi & Sons and ITAT, Ahmedabad Bench in the case of Nipa Twisting Works v. ITO [1985] 11 ITD 387 (TM) took a similar view on similar facts. The provisions relating to withdrawal of investment allowance are in pari materia with the provisions governing the withdrawal of development rebate. The judgment of Hon'ble Supreme Court in the case of Malabar Fisheries. Co. fully supports the view taken by the CIT(A). 7. The Gujarat High Court in the case of Lakshmi Wvg. Factory v. Addl. CIT [1979] 116 ITR 80 has also taken a similar view while dealing with the question relating to withdrawal of developmen ..... X X X X Extracts X X X X X X X X Extracts X X X X
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