CIT Vs. NATARAJ MOTOR SERVICE

JUDGEMENT

(1.) THE following question has been referred to this Court under S.256(1)of the Income Tax Act,1961 at the instance of the Commissioner of Income Tax.

(2.) A Division Bench of this Court consisting of K.K.Mathew and T.S.Krishnamoorthy Iyer JJ.heard this reference but came to different conclusions;K.K.Mathew J.answering the question as(refrained)in the affirmative,that is against the assessee and Krishnamoorthy Iyer,J.in the negative.In view of this difference of opinion the case has been placed before me in accordance With S.259(2)of the Income Tax Act,1961.The assessee is a firm consisting of two partners.The partnership was engaged in the business of plying buses and lorries.In the assessment for the year 1959 -60 the Income Tax Officer had allowed development rebate on three new buses purchased during the year 1958 amounting to Rs.26,292/ -.The relevant previous year for the assessment year 1959 -60 is that Which ended on 31 -12 -1958.The firm was dissolved with effect from 1 -3 -1961 and the assets and liabilities were divided between the parties.On the dissolution of the firm the Income Tax Officer initiated proceedings under S.155(5)of the Income Tax Act,1961 to withdraw the development rebate granted to the firm and passed an order rectifying the assessment for 1959 -60 by Withdrawing the rebate.In appeal before the Appellate Assistant Commissioner the assessee contended that there was no transfer of the assets and therefore the development rebate should not have been withdrawn.This contention was negatived by the Appellate Assistant Commissioner who took the view that there was a transfer of the assets as contemplated by the proviso to S.10(2 )(vi )(b)of the Indian Income Tax Act,1922 and accordingly dismissed the appeal.The assessee however Succeeded in further appeal before the Appellate Tribunal.The Tribunal relying on the decision of the Supreme Court in C.I.T v Dewas Cine Corporation 1968(68)ITR 240 upheld the contention of the assessee that the distribution of surplus assets for the purpose of adjustment of the rights of the partners consequent on the dissolution of the firm did not amount to transfer of assets. The question that Was referred was reframed as it did not reflect the issue that arose for decision before the Tribunal.The reframed question runs thus:

(3.) THE only point arising for decision therefore is whether action can be taken under S.155(5)of the Income Tax Act,1961 to withdraw the development rebate allowed for the year 1959 -60 on the ground that the lorries in question had been "otherwise transferred by the assessee to any person " ;.I may extract S.155(5 ).