LAKSHMI PAPER INDUSTRIES Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE Income-tax Appellate Tribunal, Madras Bench, under Section 256(1) of the Income-tax Act, 1961, has referred the following question for the opinion of this court:

(2.) THE assessee was a partnership firm consisting of five partners. For the year ending October 18, 1962, relevant assessment year 1963-64, the assessee-firm installed machinery to the value of Rs. 6,76,549 and claimed development rebate to the extent of Rs. 1,69,133 calculated at 25 per cent. of Rs. 6,76,549. THE firm was dissolved by the time the assessment was taken up. THE date of dissolution of the firm was August 20, 1966. As per the dissolution deed the machinery in question was taken over by three of the five partners. THE development rebate reserve created was also taken over as a liability by the said three partners. THE Income-tax Officer in the assessment in question came to the conclusion that the machinery had been sold by the assessee before the expiry of eight years from the end of the previous year in which the machinery was installed and hence the development rebate was not allowable in computing the total income of the assessee in view of Section 34(3)(b) of the Act. On appeal, the Appellate Assistant Commissioner, relying on a decision of the Supreme Court in Commissioner of Income-tax v. Dewas Cine Corporation , held that the machinery cannot be said to have been sold or otherwise transferred on August 20, 1966, when the firm was dissolved and that the assets and liabilities were merely distributed among the partners according to their rights under the partnership deed and that the disallowance of the claim for development rebate was not justified and, therefore, allowed the appeal. Against the order of the Appellate Assistant Commissioner, the department took up the matter in appeal before the Income-tax Appellate Tribunal. THE contention of the department before the Tribunal was that the grant of development rebate was a concession subject to the fulfilment of the conditions prescribed under the Act and that under Section 34(3)(a) of the Act the development rebate reserve created should be such that it should be credited to a reserve account to be utilised by the assessee during a period of eight years for the purpose of the business undertaking and after dissolution the utilisation of the reserve could only be by the partners for the carrying on of the business in their individual capacity and not by the partnership firm for the purpose of its business undertaking, since the partnership firm is a unit of assessment distinct from the partners constituting it, the utilisation by the three partners of the reserve cannot be said to be utilisation of the reserve by the partnership firm and consequently the conditions for making a claim for development rebate had not been fulfilled, with the result the Income-tax Officer was justified in disallowing the claim for development rebate. THE Tribunal accepted this contention advanced on behalf of the department and allowed the appeal preferred by the department. It is the correctness of this conclusion of the Tribunal that is challenged in the form of the question referred to this court and extracted already.