JOSHI D S Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THIS is an assessee's reference relating to his assessment for the asst. yrs. 1964 65 to 1970 71. The assessee, it is common ground, has been purchasing new machinery year after year on which he claimed and was allowed development rebate as under : Assessment year Amount allowed. Rs. 1964 65 23,717

(2.) BY a deed of partnership dated January 1, 1970, he converted his business into a partnership and contributed the business hitherto run by him as proprietor by way of his capital contribution. Thereafter, his entire business, including the assets on which development rebate was allowed to him from year to year, became the property of the partnership firm in which he was also a partner. By applying the provisions of S. 155(5) of the IT Act, the ITO withdrew the development rebate allowed to him in the earlier years under S. 34 (3) (b) holding that it was a case of transfer of assets within eight years of installation. The appeals filed by the assessee before the AAC and the Tribunal failed.

(3.) MS . Patel, learned counsel for the assessee, fairly admitted that the Supreme Court, in the case of Sunil Siddharthbhai vs. CIT (1985) 49 CTR (SC) 174 : (1985) 156 ITR 509 (SC), held that when a partner brings in his personal assets to a partnership firm of which he becomes a partner by way of capital contribution, such an act on the part of the partner may not amount to sale of assets to the partnership firm, but it certainly amounts to transfer of the assets by the individual to the firm. However, according to her, this judgment is not applicable in this case as the said judgment was delivered in the context of "transfer" of a capital asset for the purpose of capital gains and not for the purpose of S. 34(3)(b). She submitted that the Madras High Court's decision in the case of CIT vs. Vijaya Productions (P) Ltd. (No. 1) (1985) 152 ITR 613 (Mad), was squarely applicable in this case and, therefore, the questions must be answered in favour of the assessee.