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Commisioner of Income Tax Vs. S. Krishna Rao - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtAndhra Pradesh High Court
Decided On
Case NumberR.C. No. 245 of 1978
Judge
Reported in(1985)44CTR(AP)232
ActsIncome Tax Act, 1961 - Sections 34(3) and 155(5); Partnership Act - Sections 14
AppellantCommisioner of Income Tax
RespondentS. Krishna Rao
Appellant AdvocateM.S.N. Murthy, Adv.
Respondent AdvocateM.J. Swamy, Adv.
Excerpt:
.....rebate cannot be withdrawn by applying provisions of section 155(5) - partition of assets of joint family did not amount to transfer under law and consequently there was neither sale nor transfer within meaning of section 34 (3) (b) of act - no application of provisions of section 155 (5) - held, order passed under 155 (5) is erroneous. - motor vehicles act (59 of 1988)section 149 (2): [v. gopala gowda & jawad rahim, jj] insurers entitlement to defend the action joint appeal by insured and insurer - held, the language employed in enacting sub-section (2) of section 149 appears to be plain and simple and there is no ambiguity in it. it shows that when an insurer is impleaded and has been given notice of the case, it is entitled to defend the action only on grounds enumerated in..........of s. 34(3)(b) ?' 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 for 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 10-5-1972, 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 reasons of the partition of the joint family assets including the properties, there was.....
Judgment:

Y.V. Anjaneyulu, J.

1. The following two questions of law are referred to this court for its opinion u/s. 256(1) of the IT Act, 1961.

'(1) Whether, on the facts and in the circumstances of the case the Appellate Tribunal is justified in holding that the development rebate cannot be withdrawn by applying the provisions of s. 155(5).

(2) Whether, on the facts and in the cirumstances of the case, the Appellate Tribunal is justified in holding that there is no transfer or sale within the meaning of s. 34(3)(b) ?'

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 for 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 10-5-1972, 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 reasons 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 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 withdraw the development rebate originally granted. The assessee appealed to the AAC challenging the correctness of the withdrawal of the development rebate u/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 law and consequently there was neither a sale nor 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 transfer, the ITO was 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 ITAT. It was urged before the Tribunal that in any event, the partition where on 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 partition of property by metes and bounds between 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 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 above mentioned questions for the opinion of this court.

3. It is settled law that, so far as partition of the joint family assets is concerned, it does not amount to a transfer at all. Reference may be invited to the decision of the Supreme Court in CIT v. M. K. Stremann : [1965]56ITR62(SC) where the Supreme Court clearly held that the partition of the assets of a joint family does not amount to a transfer in the eye of law. The same view was taken in a number of other cases and it is not necessary to multiply authorities for this purpose. It, therefore, follows that when the machinery, in respect of which development rebate was allowed, was partitioned between the coparceners of the joint family, there was in law no transfer. As regards the contention that, in any event, there was a transfer when the dividend coparceners threw the same machinery again into the common stock of the partnership, the position here again is fairly settled. When a person throws his individual property into the common stocks of partnership abandoning his separate rights over the same with the intention or treating such property as the property of the partnership firm under s. 14 of the Indian Partnership Act, there is no transfer by the partner to the partnership firm. This proposition flows directly from the judgment of the Supreme Court in Narayanappa v. Bhaskara Krishnappa : [1966]3SCR400 . Reference may also be invited to the decision of this court in CIT v. A. V. Bhanoji Rao : [1983]142ITR706(AP) wherein this court has taken the same view that, when a partner impresses his individual property with the character of partnership property, there is in law no transfer and much less a sale. It must, therefore, be said that, even when the divided coparceners threw the machinery, which fell to their respective shares, into the common stock of partnership, there is neither a sale nor transfer within the meaning of s. 34(3)(b) of the Act and consequently, the provisions of s. 155(5) of the Act have no application.

4. There is also another difficulty in accepting the revenue's contention regarding the application of s. 155(5) of the Act. Moreover, before s. 155(5) of the Act could be applied, the transfer or sale has to be effected by the assessee to whom development rebate was initially allowed and by any other person. Section 155(5) does not comprehend cases where the transfer is not effected by the assessee to whom development rebate was initially allowed, but by some other person to whom the assets have been allotted, as in the present case, by partition. When a partition is effected between the members of the joint family, having gone out of existence as far as the asset in question was concerned, there could not be any sale or transfer of the asset by the joint family. Consequently, the assessee family in the present case could not be subjected to an order under 155(5) of the Act, inasmuch as the transfer by the dividend members, assuming that there is a transfer, did not attract the provisions of s. 155(5). The above view finds support in the decision of the Supreme Court in Malabar Fisheries Co. v. CIT : [1979]120ITR49(SC) and also the decision of the Madras High Court in CIT v. S. Balasubramanian : [1982]138ITR815(Mad) .

5. For the aforesaid reasons, we hold that the Tribunal was correct in coming to the conclusion that the order passed by the ITO under 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.


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