COMMISSIONER OF INCOME TAX Vs. KRISHNA RAO S

JUDGEMENT

(1.) : The following two questions of law are referred to this Court for its opinion under S. 256(1) of the IT Act, 1961 :

(2.) THE reference relates to the asst. yr. 1970-71. THE assessee was a Hindu joint family consisting of the "Karta" and three major sons. During the accounting year relevant to the asst. yr. 1970- 71, the family purchased new machinery of the value of Rs. 1,38,977 and secured deduction on account of development rebate to the extent of Rs. 48,648. On May 10, 1972, there was a partition of the joint family assets including the business of the family. After the partition, it appears, the four coparceners of the erstwhile joint family constituted themselves into a partnership and carried on the business which was previously carried on by the joint family. THE ITO held the view that, by reason of the partition of the joint family assets including the properties, there was a violation of the conditions of S. 34(3)(b) of the IT Act, 1961 (hereinafter referred to as " the Act"), governing the grant of development rebate and consequently applied the provisions of S. 155(5) of the Act and rectified the assessment of the joint family for the year 1970-71. In the order of rectification, the ITO withdrew the development rebate originally granted. THE assessee appealed to the AAC challenging the correctness of the withdrawal of the development rebate under S. 155(5) of the Act. THE limited plea taken before the AAC was that the partition of the assets of the joint family did not amount to transfer under the law and, consequently, there was neither a sale nor a transfer within the meaning of S. 34(3)(b) of the Act. THE AAC accepted the above contention and held that, inasmuch as the machinery, in respect of which development rebate was allowed, was not the subject- matter of either a sale or a transfer, the ITO was in error in withdrawing the development rebate initially allowed. THE AAC, accordingly, allowed the appeal. Against the order of the AAC, the Revenue filed an appeal before the Tribunal. It was urged before the Tribunal that, in any event, when the machinery, in respect of which development rebate was initially allowed, was thrown into the common stock of the partnership consisting of the four coparceners of the erstwhile joint family, there was a transfer and, consequently, there was a violation of the conditions of S. 34(3) (b) of the Act. THE Tribunal rejected the contention of the Revenue and held that the partition of property by metes and bounds among the members of the joint family did not involve any transfer of property. THE Tribunal did not specifically deal with the contention that there was a transfer of the assets to the partnership firm. THE Tribunal dismissed the appeal filed by the Department. THE CIT applied for a reference under S. 256(1) of the Act and the Tribunal referred the abovementioned questions for the opinion of this Court.

(3.) FOR the aforesaid reasons, we hold that the Tribunal was correct in coming to the conclusion that the order passed by the ITO under S. 155(5) is erroneous. We answer the questions referred to us in the affirmative, i.e., in favour of the assessee and against the Revenue. There shall be no order as to costs.