COMMISSIONER OF INCOME TAX Vs. MAHABIR COLD STORAGE

JUDGEMENT

(1.) THIS is a reference under Section 256(1) of the Income-tax Act, 1961 (hereinafter called " the 1961 Act "), made by the Income-tax Appellate Tribunal, Patna Bench, on the following question of law :

(2.) AT the outset I may state the facts from the statement of the case. The assessee in this case is Mahabir Cold Storage, Purnea. It is a registered firm and derives income from business of cold storage. Originally, Prayag-chand Periwal and Hanumanmal Periwal started a partnership business under the name and style of M/s. Prayagchand Hanumanmal with the head office at Calcutta and a branch office at Purnea, The said partnership was started with effect from May 3, 1956. The branch office at Purnea of the same partnership carried on business under the name and style of Shri Mahabir Cold Storage. The two partners took loan from a private limited company named Periwal and Co. (P.) Ltd. for the erection and running capital of the cold storage. Subsequently, the company aforesaid was taken as a partner for better management and financial assistance for business of cold storage at Purnea. A fresh partnership deed was executed on November 10, 1958. According to this deed, Prayagchand had 25% share, Hanumanmal also had 25% share and the private limited company was allotted 50% share in the profits of the newly constituted partnership. This newly constituted parnership of Shri Mahabir Cold Storage was granted a separate registration under Section 26A of the Indian Income-tax Act, 1922, (hereinafter called " the 1922 Act "). It was separately assessed for the assessment year 1960-61 and thereafter.

(3.) THE dispute in this case is regarding the claim of the balance of the development rebate in respect of the machinery worth Rs. 5,00,000 and odd installed by the old partnership firm, constituting two partners only. It would appear from the order of the Appellate Assistant Commissioner that a separate claim for registration was filed for the new firm and a voluntary return was also filed separately. THE coming into existence of the separate firm was accepted by the Income-tax Officer and assessments were made for the year 1960-61 and subsequent year. Even though no conventional entries for the transfers were made, the entries referred to in the order of the Appellate Assistant Commissioner would show that what was shown in the capital account of the old partnership was shown in the name of that partnership firm as creditor of the new partnership. THE old firm credited the account of the new partnership, M/s. Mahabir Cold Storage, with a sum of Rs. 3,50,000 in all on two dates for the year ending January 31, 1959, by debiting the accounts of the three partners of the new firm as they stood in the books of the old firm. Correspondingly, the new firm in its turn transferred Rs. 3,50,000 to the credit of the partners' account by debiting the account of the old firm showing the opening balance of Rs. 4,25,000 and odd. It would thus be seen that what actually happened was that the old partnership firm maintained its separate identity, carried on its business separately at Calcutta, but so far as its business at Purnea was concerned, it was taken over by the new partnership consisting of three partners. THE old firm continued separately, as found by the Appellate Assistant Commissioner, and the new firm also had its separate existence. In that view of the matter, the Appellate Assistant Commissioner held that the new partnership firm was not entitled to claim development rebate in respect of the machineries and plant which had not been installed by it but had been installed by another partnership firm.