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M/S. Jupiter Radios (Regd.) v. Dcit Special Range X
Factual and Procedural Background
These are two appeals under Section 260A of the Income Tax Act, 1961, filed by M/s. Jupiter Radios (Regd.), a partnership firm, relating to Assessment Years 1986-87 and 1987-88. The appeals were admitted for hearing on 7 November 2006 on two substantial questions of law concerning (1) whether there was a "transfer" within Section 2(47) attracting Sections 32A(5)/34(3)(b), and (2) whether a situation where an individual takes assets into a partnership on becoming a partner is analogous to a partner leaving a firm and taking assets.
During the relevant period the partnership consisted of Joginder Singh, Man Mohan Singh and Raja Singh. In the original returns for AY 1986-87 and AY 1987-88 the appellant claimed development rebate/investment allowance under Sections 32A/34(3) in respect of land, building, plant and machinery. Within eight years (in AY 1991-92) plant and machinery of value Rs. 5,20,838 on which investment allowance/development rebate of Rs. 1,30,210 had been claimed and allowed was "transferred" to Raja Singh; this fact is admitted.
Legal Issues Presented
- Whether on the facts and in the circumstances of the case, the Tribunal was justified in holding that there was "a transfer" within the meaning of Section 2(47) of the Act and that the provisions of Section 32A(5)/34(3)(b) were attracted?
- Whether on the facts and in the circumstances of the case, the Tribunal was justified in holding that the case where an individual takes an asset into a partnership and becomes a partner in the firm is analogous to a partner going out of a partnership firm and taking certain assets with him?
Arguments of the Parties
Appellant's Arguments
- Counsel for the appellant submitted that Raja Singh, being a partner, always had right, title and interest in the machinery; the machinery was given to him on his retirement.
- The appellant relied on decisions of the Supreme Court: Malabar Fisheries Co., Calicut v. Commissioner Of Income Tax, Kerala and Sunil Siddharthbhai v. Commissioner Of Income Tax, Ahmedabad, Gujarat.
Revenue's Arguments
- Counsel for Revenue submitted that the machinery belonged to the partnership firm and was an asset of the firm; within eight years it was transferred to Raja Singh who, on retirement, ceased to have any connection with the firm.
- Revenue relied on decisions of the Supreme Court: Commissioner Of Income Tax, Lucknow v. Narang Dairy Products, Lucknow and South India Steel Rolling Mills v. Commissioner of Income Tax.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Malabar Fisheries Co., Calicut v. Commissioner Of Income Tax, Kerala, (1979) 4 SCC 766 | Cited and relied upon by counsel for the appellant. | The decision was cited by the appellant's counsel, but the Court's ultimate ruling did not rest on this precedent; the Court decided the appeals on the absence of evidence or assertion that the machinery remained in use by Raja Singh for the required period. |
| Sunil Siddharthbhai v. Commissioner Of Income Tax, Ahmedabad, Gujarat., Ahmedabad, (1985) 156 ITR 509 (SC) | Cited and relied upon by counsel for the appellant. | The decision was cited by the appellant's counsel; the Court did not base its disposition on this case but on lack of evidence/claim regarding continued use under Section 35A. |
| Commissioner Of Income Tax, Lucknow v. Narang Dairy Products, Lucknow., (1996) 219 ITR 478 (SC) | Referred to by counsel for Revenue. | The decision was cited by Revenue; the Court nonetheless disposed of the appeals on the factual/legal basis that there was no assertion or evidence that the machinery remained in use by Raja Singh for the statutory period, and upheld withdrawal of the allowance under Section 155(4A). |
| South India Steel Rolling Mills v. Commissioner of Income Tax, (1997) 224 ITR 654 (SC) | Referred to by counsel for Revenue. | The decision was cited by Revenue; the Court's conclusion did not turn on this precedent but on the admitted transfer and absence of evidence that the machinery continued to be used by Raja Singh as required by Section 35A. |
Court's Reasoning and Analysis
The Court examined the parties' contentions and determined that denying the benefit of investment allowance/development rebate to the assessee was correct, although not for exactly the reasons given by the Tribunal. The Court emphasized that there was no evidence on record, nor any claim by the appellant, that Raja Singh continued to use the machinery for the balance of the statutory period required by Section 35A of the Act. No such contention had been made before the Assessing Officer or the appellate authorities, and therefore it was unknown whether the machinery had remained in Raja Singh's custody and use for the requisite period.
Given the admitted fact of transfer of machinery (value Rs. 5,20,838) on which investment allowance/development rebate (Rs. 1,30,210) had been claimed and allowed, the Assessing Officer was justified in withdrawing the benefit by passing an order under Section 155(4A) of the Act upon learning of that transfer. Because the appellant made no assertion (oral or written) that the machinery remained in use by Raja Singh for the statutory period, the Court held that the appellant could not succeed.
Holding and Implications
Holding: The appeals are dismissed. The substantial questions of law were answered accordingly.
Implications: Directly, the appellant-assessee is denied the development rebate/investment allowance previously claimed in respect of the transferred machinery and the Assessing Officer's withdrawal of that benefit under Section 155(4A) is upheld. The Court's decision rests on the absence of any claim or evidence that the machinery continued to be in use by Raja Singh for the statutory period under Section 35A; the opinion does not purport to establish any broader precedent beyond the facts and reasoning set out. The dismissal is recorded with no order as to costs.
Sanjiv Khanna, J. (Oral):— These two appeals under Section 260A of the Income Tax Act, 1961 (Act, for short) are filed by M/s. Jupiter Radios (Regd), a partnership firm, relating to AY 1986-87 and AY 1987-88 and were admitted for hearing vide order dated 7th November, 2006, on the following substantial questions of law:—
“1. Whether on the facts and in the circumstances of the case, the Tribunal was justified in holding that there was “a transfer” within the meaning of Section 2 (47) of the Act and that the provisions of Section 32A(5)/34(3)(b) were attracted?
2. Whether on the facts and in the circumstances of the case, the Tribunal was justified in holding that the case where an individual takes an assets into a partnership and becomes a partner in the firm is analogous to a partner going out of a partnership firm and take certain assets with him?”
2. The appellant, as noticed above, is a partnership firm and during the relevant period consisted of Joginder Singh, Man Mohan Singh and Raja Singh as its partners.
3. In the original returns filed for the Assessment Years 1986-87 and 1987-88, the appellant-assessee had claimed development rebate/investment allowance under Section 32A/34(3) of the Act in respect of land, building, plant and machinery, etc.
4. However, within eight years of acquisition, in the Assessment Year 1991-92, plant and machinery of value of Rs. 5,20,838/- on which investment allowance/development rebate of Rs. 1,30,210/- had been claimed and allowed in the Assessment Years 1986-87 and 1987-88 was “transferred” to the said Raja Singh. This is an admitted fact.
5. Learned counsel for the appellant-assessee has submitted that Raja Singh, being a partner always had right, title, interest in the aforesaid machinery which was given to him on his retirement. He has referred to and relied upon decisions of the Supreme Court in Malabar Fisheries Co., Calicut v. Commissioner Of Income Tax, Kerala, Kerala, (1979) 4 SCC 766 and Sunil Siddharthbhai v. Commissioner Of Income Tax, Ahmedabad, Gujarat., Ahmedabad, (1985) 156 ITR 509 (SC).
6. Counsel for Revenue, on the other hand, submits that in the present appeals, the machinery belonged to the partnership firm and was an asset of the partnership firm. Within eight years of acquisition of the said machinery, it was transferred to Raja Singh, who upon retirement, ceased to have any connection with the partnership firm. He has referred to decisions of the Supreme Court in Commissioner Of Income Tax, Lucknow v. Narang Dairy Products, Lucknow., (1996) 219 ITR 478 (SC) and South India Steel Rolling Mills v. Commissioner of Income Tax, (1997) 224 ITR 654 (SC).
7. We have considered the contentions raised by both the sides and find that in the present case the Tribunal was right in denying benefit of investment allowance/development rebate to the assessee, though not exactly for the reasons stated by them. There is no evidence or material on record and it is not even the claim of the appellant-assessee that Raja Singh had continued to use the said machinery for the balance period to satisfy the mandate of Section 35A of the Act. In fact, no such contention or claim was made before the Assessing Officer and the appellate authorities. This being the position, we do not even know whether or not the machinery had remained in the custody and use of Raja Singh for the period of years as per requirements of Section 35A of the Act. In the absence of even a claim or assertion to the said effect, the appellant-assessee cannot succeed.
8. Accordingly, we would hold that the Assessing Officer had rightly withdrawn benefit of the investment allowance/development rebate by passing an order under Section 155(4A) of the Act, once he came to know that machinery of value of Rs. 5,20,838/- on which the investment allowance/development rebate of Rs. 1,30,210/- was claimed and allowed was “transferred”. In the absence of even oral assertion that Raja Singh had continued using and operating the machinery, the appeal must fail.
9. In view of the aforesaid position, the appeals preferred have to be dismissed in view of the fact that the appellant-assessee has not stated and is not able to establish and show that the machinery had continued to be in use for a period of eight years. The questions of law are answered accordingly. The appeals are dismissed, with no order as to costs.
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