R.R. Rastogi, J.
1. These three references arise out of the same set of facts and are inter-related. Hence, all of them are being disposed of by this common judgment.
2. The assessees, Sarvasri G. N. Khanna, N. K. Khanna, M. N. Khanna, S. K. Khanna, K. N. Khanna, are partners in M/s. Annapurna Biscuit Manufacturing Company, Kanpur. The assessment year involved in the cases of G. N. Khanna and M. N. Khanna are 1971-72 and 1972-73, while in the cases of others the year involved is 1972-73. The dispute in the assessments to wealth-tax for these assessees related to the addition of their respective shares in the development rebate reserve as appearing in the books of the firm. In the balance-sheets of the firm relevant for the years under consideration under the head ' development rebate reserve account ' on the liabilities side the following figures were shown :
Assessment year Amount
3. The WTO in the case of each of these assessees made an addition ofthe amount corresponding to their shares respectively by relying on Section 7(2)(a) of the Wealth-tax Act (hereinafter referred to as ' the Act')read with Rule 2F of the Wealth-tax Rules, 1957 (hereinafter referred to as' the Rules ').
4. The appeals before the AAC having failed, further appeals were filed before the Appellate Tribunal. The submissions made before the Tribunal on behalf of the assessee were that the provisions contained in Section 4(1)(b) and Section 4(2) of the Act and Rule 2(1) of the Rules being special provisions would have preference over Section 7(2)(a) read with Rules 2A to 2G of the Rules for the purpose of evaluating the interest of a partner in a partnership firm. The secondsubmission made was that it would be Section 7(1)(a) and not Section 7(2)(a) which could be applicable and the last submission made was that for the purpose of finding the value of the interest of a partner in a firm for the purposes of assessment to wealth-tax a notional dissolution of the partnership is to be assumed and since in the event of dissolution and distribution of assets of the firm including the development rebate reserve, the firm have to pay extra tax under Section 155(5)(ii)(c) of the I.T. Act, 1961, that amount should be deducted from the development reserve with a view to arrive at the correct amount of that reserve which would be liable to be included in the hands of the partners. The Appellate Tribunal agreed with the assessees' contention that the value of the interest of a partner in a firm has to be included under Section 4(1)(b) of the Act in the prescribed manner. For that purpose, the Central Board of Revenue framed Rule 2 which is almost in conformity with Section 48 of the Partnership Act. On the basis of these provisions, the development rebate reserve which is neither a debt nor a liability but belongs to the partners of the firm is to be included along with the capital contributed by the partners. Thus, the proportionate share of each partner in the development rebate reserve is to be included to determine the value of the interest of the partners in the firm. The Tribunal did not, however, agree with the assessees' submission that this case was covered by Section 7(1) and not by Section 7(2) of the Act. The Tribunal also did not agree with the assessees that the tax which the firm may be called upon to pay under Section 155(5)(ii)(c) of the I.T. Act was to be taken into consideration because the fiction created by Section 4(1)(b) is only for the limited purpose of evaluating the interest of a partner in a firm as on the relevant evaluation date. Apart from this,,unless there is an order made under Section 155(5)(ii)(c) of the I.T. Act, no deduction of any such tax can be allowed and, lastly, that such deduction is not permissible in view of the decision of the Supreme Court in Pandit Lakshmi Kant Jha v. CWT : 90ITR97(SC) . Now, at the instance of these assessees, the following question has been referred to us :
' Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the assessee's share in the development rebate reserve of the firm, M/s. Annapurna Biscuit Mfg. Co., was includible in entirety while estimating the value of the assessees' interest in the said partnership firm for assessment years 1971-72 and 1972-73 '
5. In Wealth-tax Reference No. 320 of 1977, in which the assessee is M. N. Khanna and which relates to the assessment year 1971-72, after the word ' includible ', the words ' in entirety ' do not find a place. However, there was no controversy before us that the assessee's share in the development rebate reserve is liable to be included while computing the value of his interest in the firm. The controversy is confined only to the question as to whether the entire development rebate reserve is to be included or the tax which the firm might be called upon to pay under Section 155(5)(ii)(c) of the I.T. Act should be deducted therefrom.
6. It would not, however, be necessary to reproduce the submission made before us at the bar in any detail because we find that this controversy stands concluded by a judgment of the Supreme Court in Malabar Fisheries Co. v. CIT : 120ITR49(SC) . The question that came up for consideration in that case was whether the distribution of the assets of a firm consequent on its dissolution amounts to a transfer of assets within the meaning of the expression 'otherwise transferred' occurring in Section 34(3)(b) of the I.T. Act, having regard to the definition of ' transfer ' in Section 2(47) of that Act. Section 33 of the I.T. Act provides for development rebate and Section 34(3), in so far as it is material for our purposes, reads :
' 34. (3)(a) The deduction referred to in Section 33 shall not be allowed unless an amount equal to seventy-five per cent, of the development rebate to be actually allowed is debited to the profit and loss account of the relevant previous year and credited to a reserve account to be utilised by the assessee during a period of eight years next following for the purposes of the business of the undertaking, other than-
(i) for distribution by way of dividends or profits ; or
(ii) for remittance outside India as profits or for the creation of any asset outside India :.........
(b) If any ship, machinery or plant is sold or otherwise transferred by the assessee to any person at any time before the expiry of eight years from the end of the previous year in which it was acquired or installed, any allowance made under Section 33 or under the corresponding provisions of the Indian Income-tax Act, 1922 (11 of 1922), in respect of that ship, machinery or plant shall be deemed to have been wrongly made for the purposes of this Act, and the provisions of Sub-section (5) of Section 155 shall apply accordingly...... '
7. Section 155(5) is a procedural provision enabling the ITO in a case falling under Section 34(3)(b) to recompute the total income of the assessee for the relevant previous year and make the necessary amendments. Under this provision, therefore, he withdraws the development rebate already granted by passing an amending order. There is a period of four years provided for making each order which period is to be counted from the end of the previous year in which the sale or transfer took place.
8. The definition of ' transfer ' as contained in Section 2(47) of the I.T. Act may also be seen. It reads :
' 2. (47) ' transfer ', in relation to a capital asset, includes the sale, exchange or relinquish ment of the asset or the extinguishment of any rights therein or the compulsory acquisition thereof under any law.'
9. As observed in Malabar Fisheries Co. : 120ITR49(SC) , on a plain reading of Section 34(3)(b), it will appear clear that before that provision can be invoked or applied three conditions are required to be satisfied :
(a) that the ship, machinery or plant must have been sold or otherwise transferred ;
(b) that such a sale or transfer must be by the assessee ; and
(c) that the same must be before the expiry of 8 years from the end of the previous year in which it was acquired or installed.
10. It is only when these conditions are satisfied that any allowance made under Section 33 shall be deemed to have been wrongly made and the ITO acting under Section 155(5) will be entitled to withdraw such allowance. It would also be seen that the definition of transfer as contained in Section 2(47) gives an artificial extended meaning to the expression ' transfer ' since it not only includes sale and exchange which in ordinary parlance would mean transfer, but also relinquishment or extinguishment of rights which are ordinarily not included in that concept. The question then is whether the dissolution of a firm extinguishes the firm's rights in the assets of the partnership so as to constitute a transfer of assets under Section 2(47).
11. Their Lordships of the Supreme Court, after discussing several decisions, answered this question by saying (p. 59) :
' Having regard to the above discussion, it seems to us clear that a partnership firm under the Indian Partnership Act, 1932, is not a distinct legal entity apart from the partners constituting it and equally in law the firm as such has no separate rights of its own in the partnership assets and when one talks of the firm's property or firm's assets all that is meant is property or assets in which all partners have a joint or common interest. If that be the position, it is difficult to accept the contention that upon dissolution the firm's rights in the partnership assets are extinguished. The firm as such has no separate rights of its own in the partnership assets but it is the partners who own jointly or in common the assets of the partnership and, therefore, the consequence of the distribution, division or allotment of assets to the partners which flows upon dissolution after discharge of liabilities is nothing but a mutual adjustment of rights between the partners and there is no question of any extinguishment of the firm's rights in the partnership assets amounting to a transfer of assets within the meaning of Section 2(47) of the Act. In our view, therefore, there is no transfer of assets involved even in the sense of any extinguishment of the firm's rights in the partnership assets when distribution takes place upon dissolution.'
11. The court repelled the contention of the revenue that when individual assets are brought into a partnership firm so as to constitute a partnership property there is a transfer of interest of the individual to the partnership and Section 34(3Xb) and Section 155(5) of the 1961 Act are attracted. In support of thatsubmission reliance was placed on a decision of the Karnataka High Court in Addl. CIT v. M. A.J. Vasanaik : 116ITR110(KAR) . The reasons given for rejecting that submission are that the decision of the Karnataka High Court dealt with a converse case and it does not necessarily fall on a parity of reasons that the distribution, division or allotment of partnership assets to the partners of a firm upon its dissolution would amount to a transfer of assets. Secondly, the court did not consider it necessary to express any Opinion on the correctness or otherwise of the view taken by the Karnataka High Court in that case. Yet another reason given is that the second condition required to be satisfied for attracting Section 34(3)(b) cannot be said to have been satisfied. It has been laid down (p. 60) :
'It is necessary that the sale or transfer of assets must be by the assessee to a person. Now every dissolution must in point of time be anterior to the actual distribution, division or allotment of the assets that takes place after making up accounts and discharging the debts and liabilities due by the firm. Upon dissolution the firm ceases to exist, then follows the making up of accounts, then the discharge of debts and liabilities and thereupon distribution, division or allotment of assets takes place inter se between the erstwhile partners by way of mutual adjustment of rights between them. The distribution, division or allotment of assets to the erstwhile partners, is not done by the dissolved firm. In this sense there is no transfer of assets by the assessee (dissolved firm) to any person. It is not possible to accept the view of the High Court that the distribution of assets effected by a deed takes place eo instanti with the dissolution or that it is effected by the dissolved firm '
12. This decision, therefore, sets at rest the controversy and lays down that, in the event of the dissolution of a firm, the distribution, division or allotment of assets to the erstwhile partners does not involve any transfer of assets by the dissolved firm to any person. Section 34(3)(b) read with Section 2(47) is not at all applicable to such a case and no question arises of the withdrawal of any development rebate already granted by passing an amending order under Section 155(5) of the 1961 Act. We agree with the view taken by the Appellate Tribunal and hold that the entire development rebate reserve is to be included while computing the value of a partner's interest in the firm for purposes of the assessment to wealth-tax.
13. We, therefore, answer the question referred by saying that the assessee's share in the development rebate reserve of the firm, M/s. Anna-purna Biscuit Company, was includible in entirety for computing the value of his interest in the said partnership firm for the assessment year under consideration. The question is, thus, answered in the affirmative, in favourof the revenue and against the assessee. In the circumstances oi the case, we make no order as to costs.