9911796707
TMI Blog1983 (11) TMI 98X X X X Extracts X X X X X X X X Extracts X X X X ..... the chairman and managing directors, respectively of the company, will go out of the company and in consideration thereof the assessee-company transferred certain machinery for manufacturing valve seal rings to Voras Engineering (P.) Ltd. The ITO found that on the machinery and plant, transferred by the assessee-company to Voras Engineering (P.) Ltd., development rebate had been allowed for the assessment years 1971-72 to 1976-77 and investment allowance had been allowed for the assessment year 1977-78. The ITO held that since the plant and machinery on which development rebate was allowed in the earlier years had been transferred before expiry of 8 years from the end of the previous year in which the machinery and plant were installed, the development rebate had been wrongly allowed as laid down under the provisions of section 155(5) of the Income-tax Act, 1961 ('the Act'). Similarly, for the assessment year 1977-78, the ITO held that the investment allowance had been wrongly allowed. The ITO, therefore, by orders under section 155(5), withdrew the development rebate for the assessment years 1971-72 to 1976-77 on these items of plant and machinery which was, as already described, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... where there was a transfer of machinery and plant, as a result of the family arrangement, by the co-owners of the plant and machinery to one of them, it could never be the intention of the Legislature that this amounted to an abuse of the incentive of the development rebate earlier allowed and, hence, the development rebate should be withdrawn. Shri Palkhivala submitted that even though the machinery and plant belonged to the assessee-company, the fact remained that the company was owned by the various shareholders and the transfer of plant and machinery, as a result of the family arrangement, was to another company in which some of the shareholders of the assessee-company were also the shareholders, i. e., in other words, they were also the co-owners of the plant and machinery. A point was made that even if a company was a separate entity, it functioned through the instrument of its shareholders, directors, etc., and the question of a sale or transfer only arises where a transfer is by a person who is the owner to another person who was not the owner and not where the transfer is by a set of co-owners to another co-owner. Our attention was invited to the ruling of the Hon'ble Supr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4, read with section 155, the same arguments, as in the case of development rebate, will apply here as well. 5. On the other hand, the learned departmental representative, Shri Mahadeshwar submitted to us that the rulings cited by the assessee's learned counsel, Shri Palkhivala, on the issue of merger of the assessment orders in the order of the appellate authority were in the context of the powers of revision of the Commissioner under section 33B of the Indian Income-tax Act, 1922 ('the 1922 Act'), and section 263 of the 1961 Act, which will not be applicable to the issue of rectification or amendment of the assessment orders, as laid down under section 154 and section 155. He referred to a number of rulings in the cases of Central Indian Insurance Co. Ltd. v. ITO [1963] 47 ITR 895 (MP), Kalooram Tirasilal v. ITO [1966] 59 ITR 308 (MP), Mrs. Freny Rashid Chenai v. ACED [1973] 90 ITR 31 (AP) and Karsandas Bhagwandas Patel v. G. V. Shah ITO [1975] 98 ITR 255 (Guj), wherein their Lordships laid down that even where the assessment order is a subject-matter of appeal, what merges in the order of the appellate authority is only that part of the assessment order which was the subject-ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company or the distribution of the assets of the company in the shape of the dividends, etc., and none of these rare exceptions, apply in the present case. According to Shri Mahadeshwar, even if it is open to the revenue authorities to pierce the corporate veil in order to arrive at the truth and the correctness of the state of affairs, this can only be done where what is suspected is fraud or what is apparent is not the real state of affairs and this too cannot be said to be the case here. He further submitted that the wordings of the provisions of section 34(3)(b) and sub-section (5) of section 155 were very clear and do not lead to any ambiguity or absurdity and, therefore, the meaning and intention of the provisions of section 34(3)(b) and section 155(5) must be collected from the plain and unambiguous expressions used therein rather than from any notions which may be entertained regarding what is just or expedient, as laid down by the Hon'ble Supreme Court in the case of CIT v. Shahzada Nand & Sons [1966] 60 ITR 392. We were taken through the provisions of sub-section (5) of section 155 in order to point out that where there was a transfer of plant and machinery within the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e appearing therein in exercise of his powers under section 154. Even if there was any controversy on this issue, the same has been set at rest by sub-section (1A) of section 154 where it has been specifically laid down that even if an order has been considered and decided in any proceeding by way of appeal or revision, the ITO still has the jurisdiction to amend that part of the order which was not considered or decided by the appellate authority. Viewed in this context, it is not under dispute that the issue of grant of development rebate for the assessment years 1971-72 to 1976-77 and grant of investment allowance for the assessment year 1977-78 was never the subject-matter of consideration or decision by any appellate authority. The ITO's jurisdiction, therefore, to amend the assessment orders on this issue cannot be barred on the ground of the assessment orders having been the subject-matter of appeal to the appellate authorities. 7. We agree with the learned departmental representative that a limited company is a separate and distinct entity from its shareholders both under the general law and under the income-tax law. The properties owned by a limited company, therefore, ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lled, the ship, machinery or plant is sold or otherwise transferred by the assessee to any person other than the Government, a local authority, a corporation established by a Central, State or Provincial Act or a Government company as defined in section 617 of the Companies Act, 1956 (1 of 1956), or in connection with any amalgamation or succession referred to in sub-section (3) or sub-section (4) of section 33 ; or (ii) at any time before the expiry of eight years referred to in sub-section (3) of section 34, the assessee utilises the amount credited to the reserve account under clause (a) of that sub-section --- (a) for distribution by way of dividends or profits ; or (b) for remittance outside India as profits or for the creation of any asset outside India ; or (c) for any other purpose which is not a purpose of the business of the undertaking ; the development rebate originally allowed shall be deemed to have been wrongly allowed, and the Income-tax Officer may, notwithstanding anything contained in this Act, recompute the total income of the assessee for the relevant previous year and make the necessary amendment ; and the provisions of section 154 shall, so far as may be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e] and their Lordships laid down that they were not concerned whether there was any profit resulting from the transaction but whether there was a sale or transfer by the company to the partnership and, therefore, the provisions of section 10(2)(vi-b) will be attracted to this transaction. The facts of the present case, where the sale was by the assessee-company to another limited company whose shareholders were not identical, are very much more unfavourable to the assessee than in the case of Chittoor Motor Transport Co. (P.) Ltd., decided by their Lordships of the Hon'ble Supreme Court. Following with respect, this ruling of the Hon'ble Supreme Court, we have no hesitation in holding that the provisions of section 34(3)(b) and section 155(5) will be applicable to the transfer of plant and machinery under consideration here. The development rebate allowed on these items of plant and machinery for the assessment years 1971-72 to 1976-77 was, therefore, rightly withdrawn by the ITO by the orders under section 154, read with section 155. Since the same reasonings and arguments will apply to the withdrawal of investment allowance for the assessment year 1977-78, we hold, for the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X
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