BHARAT PETROLEUMS Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) IN this reference at the instance of the assessee, the following question has been referred for the opinion of this Court:

(2.) THE facts giving rise to this reference are as follows: The assessment years under consideration are 1968 69 and 1969 70, the relevant accounting years being Samvat Years 2023 and 2024. The assessee is a partnership firm carrying on business as dealers in diesel oil engines, machinery spare parts, equipment, etc. The firm was carrying on business in the name and style of M/s Bharat Petroleums with its head office at Rajkot and branches at Bhavnagar, Ahmedabad, Anand, Mehsana and Bhuj. The partnership was constituted under a deed of partnership dated November 2, 1964. There were six partners of the firm. By a deed dated June 27, 1968, the business of the partnership at Bhuj branch was transferred to a new independent firm styled Bharat Petroleums, Bhuj. In that new firm at Bhuj, along with the six original partners of the assessee firm, six other partners were taken up and the separate firm at Bhuj came into existence w.e.f. June 21, 1968. All the assets and liabilities of the Bhuj branch of the original parent firm as on June 26, 1968, were taken over by the new firm at Bhuj and it was stipulated that the business of the separate firm at Bhuj should have no connection whatsover with the business carried on by the original parent firm at Rajkot, Bhavnagar, Ahmedabad, Anand and Mehsana. By another agreement dated May 31, 1969, the partners of the assessee firm agreed that the business at each of the other remaining centres should be carried on as an independent business through separate firms under different names and styles as agreed therein. Under cl. (1) of the agreement of May 31, 1969, the business of Bharat Petroleums was to be so reconstituted that there should be a separate firm for carrying on the said business at each of the centres, namely, Rajkot, Ahmedabad, Bhavnagar, Anand and Mehsana, and the reconstitution was to come into effect from June 1, 1969. The parties to the agreement, that is, the partners of the assessee firm, decided by separate deeds of agreement, the terms and conditions on which partnerships at the respective centres were to be formed and also the names of persons who would be the partners in the respective firms and their shares therein. In the previous year, that is, Samvat Year 2023 relevant to the asst. year 1968 69, the assessee claimed development rebate on plant and machineries installed at Mehsana and Bhuj. Similarly, in Samvat Year 2024, that being the previous year relevant to the asst. year 1969 70, the assessee had claimed development rebate on the plant and machinery installed at Rajkot and Ahmedabad. The ITO declined to grant development rebate claimed by the assessee on its plants and machineries on the ground that the machineries on which the development rebate was claimed had been sold to the newly constituted partnership firms which was within a period of eight years and, therefore, the conditions laid down in S. 34 of the IT Act were not fulfilled for claiming development rebate. Appeals by the assessee before the AAC failed as the AAC held that since one of the conditions for allowance of such development rebate required that the amount of reserve created should be utilised for the business of the undertaking for a period of eight years and that, in the instant case, the assessee firm was dissolved and was split up into different entities, the condition was incapable of being fulfilled and, therefore, the disallowance of the assessee's claim for development rebate was justified. The AAC relied on the order of the Tribunal in Laxmi Weaving Factory's case decided by the Tribunal on November 15, 1971. The AAC further held that, though the proper procedure would be that, in the first instance, the ITO should grant development rebate to the assessee in the relevant years and later on withdraw it by virtue of the provisions of S. 155 (5), as the ITO had knowledge of the subsequent dissolution of the firm and its being split up into different entities at the time of assessment, there was nothing wrong in the ITO straightaway disallowing the claim in the assessments.

(3.) IN our decision in Laxmi Weaving Factory vs. Addl. CIT (Income tax References Nos. 1and 2 of 1973 See p. 80 infra) we relied upon a decision of this High Court in Special Civil Application No. 1502 of 1973, which is now reported as Abdul Rehman Haji Miya vs. V. P. Minocha (1977) 106 ITR 821 (Guj). In that case, at p. 827 of the report, it has been pointed out: