1. In this reference at the instance of the assessee, the following question has been referred for the opinion of this court :

"On the facts and in the circumstances of the case, whether the Tribunal was right in law in holding that the provisions of s. 155(5) were attracted and, therefore, the assessee was not entitled to the development rebate ?"

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 Messrs. 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 with effect from 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 whatsoever 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 clause (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 assessment 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 assessment 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 i.t. 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 straightway disallowing the claim in the assessment.

3. The assessee took the matter in further appeals before the Appellate Tribunal and it was contended that the case of Laxmi Weaving Factory was distinguishable from the facts in the assessee's case. Ultimately, the Tribunal, relying on its own decision in Laxmi Weaving Factory's case, dismissed the appeals of the assessee and, thereafter, at the instance of the assessee, the question set out hereinabove has been referred for our opinion. It may be pointed out that, against the decision of the Tribunal in Laxmi Weaving Factory's case, there was a reference to this High Court, being Income Tax References Nos. 1 and 2 of 1973 and, by our decision dated October 24, 1974 (Laxmi Weaving Factory v. Addl. CIT - See page 80 infra), the reference was decided in favour of the assessee and against the revenue and the view taken by the Tribunal in Laxmi Weaving Factory's case was not accepted by this High Court. In that case, it was held that when on the distribution of the assets of a partnership, surplus assets are distributed amongst the partners, there is no utilisation in the voluntary sense, since utilisation means converting to use or turning to account. It was further held that development rebate allowed to the partnership cannot be withdrawn under s. 34(3)(b) read with s. 155(5) because surplus assets of the partnership are distributed amongst the partners. There cannot be said to be utilisation of the assets in respect of which the development rebate was allowed otherwise than for the purpose of the business of the undertaking nor the business can be said to be

"otherwise transferred"

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

"Similar is the provision in almost identical terms under s. 155(5)(ii)(c) of the 1961 Act read with s. 34(3)(a) of the Act of 1961. We are unable to accept this contention of Mr. Kaji because when one examines the provisions of s. 35(11) of the Act of 1922, one finds that each one of the modes of utilisation referred to in cls. (a) and (b) of clause (ii) of s. 35(11) refers to voluntary utilisation of the amount credited to the reserve account. The three modes of utilisation which are prohibited are : (a) for distribution by way of dividends or profits : or (b) for remittance outside India as profits or for the creation of any asset outside India; or (c) for any other purpose which is not a purpose of the business of the undertaking. It must be borne in mind that a distinction has been made in s. 35(11)(ii) between the assessee and the undertaking or the business of the undertaking in respect of which the development rebate has been allowed. The assessee may be the same but he may have different undertakings; for example, the assessee may be running an ice factory and a textile factory and in respect of the ice factory machinery, he may have been allowed development rebate. He may also have been allowed development rebate in respect of the machinery installed for his textile factory. But the business of each of these two undertakings is distinct and separate and, therefore, the development rebate allowed in respect of the ice factory machinery cannot be permitted to be used for the other undertaking of the assessee, namely, the textile factory. The illustration clearly explains what the legislature has meant to emphasize by the use of the words 'business of the undertaking'. However, the main ground for rejecting this particular contention on behalf of the revenue is that in each of the two cases referred to in sub-cls. (a) and (b) of s. 35(11)(ii), the use is a voluntary use and, therefore, when it comes to clause (c), on the principles of ejusdem generis, the utilisation for any other purpose which is not a purpose of the business of the undertaking must be also a voluntary utilisation. When on the distribution of the assets of the partnership, the surplus assets are distributed amongst the partners, there is no utilisation in the voluntary sense."

5. In view of these two decisions, namely, Abdul Rehman v. V. P. Minocha (1977) 106 ITR 821 (Guj) and Laxmi Weaving Factory v. Addl. CIT (See page 80 infra), it is clear that in the instant case, the Tribunal was in error when if dismissed the appeal following its own earlier decision in Laxmi Weaving Factory's case. The AAC has rightly pointed out that in the concerned previous year relevant to each of the two assessment years under consideration, the business had belonged to the assessee concern. It was only in the subsequent year that the rearrangement of the business of partnership had taken place and it was by the invoking of s. 155(5)(ii)(c) or any other similar provision of s. 155(5) that the ITO, after allowing development rebate, if at all, could have, under the deeming provision of s. 155(5), withdrawn the development rebate already granted for the assessment years under consideration.

6. However, since there was no voluntary utilisation but there was non utilisation of the development rebate reserve in the instant case because non-utilisation, if any, had taken place by virtue of the rearrangement of the business, it cannot be said that clause (c) of s. 155(5) could be invoked.

7. We, therefore, hold that the Tribunal was in error in law in holding that the provisions of s. 155(5) were attracted to the facts and circumstances of this case. We, therefore, answer the question referred to us in the negative, that is, in favour of the assessee and against the revenue. The Commissioner will pay the costs of this reference to the assessee.