1. Since the question involved in both these references is the same question though arising in different sets of circumstances, we will dispose of both these references by this common judgment. The assessee concerned in each of these references was originally a partnership firm and the question is as to what is to happen to development rebate allowed to the partnership firm during its subsistence after the partnership firm is dissolved and the surplus assets of the partnership are distributed amongst the partners. The revenue contends that on the distribution taking place, the development rebate granted to the firm can be withdrawn and the necessary rectification proceedings either under s. 155(5) of the I.T. Act, 1961, or s. 35(11) of the Indian I.T. Act, 1922, can be adopted, whereas the assessee in each of these cases contends that it cannot be withdrawn in this manner.
2. In Income-tax Reference No. 1 of 1973, the following question has been referred to us by the Tribunal at the instance of the assessee.
'Whether, on the facts and in the circumstances of the case, the development rebate allowed to the assessee in the accounting years relevant to the assessment years 1959-60 to 1965-66 was liable to be withdrawn under the provisions of s. 34(3)(b) read with s. 155(5) of the I.T. Act, 1961 ?'
3. The facts leading to this reference are as follows : The assessment years under consideration are 1959-60 to 1965-66. The assessee-firm was constituted under an instrument of partnership dated July 2, 1959. It was carrying on business in the name and style of Laxmi Weaving Factory, Prop. M/s. Manganlal Chhotalal Bachkaniwala. During the previous year relevant for the assessment years under consideration, the assessee-firm had installed certain items of new machinery on which development rebate as permissible under the law was allowed for the relevant assessment years. The assessee-firm was dissolved on November 14, 1965, and this date fell within the previous year relevant for the assessment year 1966-67. The assessee-firm closed down its factory styled as Laxmi Weaving Factory with effect from October 22, 1965. Thereafter, the partnership business was completely closed down with effect from November 14, 1965. Accounts till that date were settled and adjusted between the partners by unanimous agreement. The assessee-firm prior to its dissolution possessed 78 powerlooms. These powerlooms and other machineries and accessories belonging to the partnership were distributed as part of the surplus assets amongst the partners. 48 powerlooms fell to the share of two partners, Chhotalal Maganlal and Shambhulal Maganlala, while 30 powerlooms came to the share of Balwantbhai Chhotalal and Ramanlal Balwantlal. The parties to whose share the powerlooms came, utilised them for their business subsequent to the dissolution of the assessee-firm. Adjustment entries were also made in regard to the development rebate reserve created in the assessee's books. The parties who got the powerlooms made in their respective books necessary adjustment entries in regards to the development rebate reserve pertaining to the powerlooms which fell to their share. Subsequently, the partners of the assessee-firm formed new firms and created development reserves of similar amounts in the books of accounts of the respective new firms by debiting the accounts of the partners concerned.
4. The question arose in the rectification proceedings taken up under s. 155(5) of the Act of 1961 whether there was a transfer of the machinery in respect of which the development rebate had been allowed and, secondly, whether on the dissolution of the partnership the assessee, that is, the original partnership firm, had failed to carry out the terms on which the development rebate was allowed and had become liable because of utilisation of the reserve otherwise than in accordance with law, failing to utilise if for the purposes of the undertaking. Before the Tribunal it was urged on behalf of the assessee that there was no transfer of the powerlooms by the assessee and, following the Supreme Court decision in CIT v. Dewas Cine Corporation  68 ITR 240, the Tribunal accepted that contention. However, the Tribunal held that under the scheme of allowance of the development rebate, the rebate must be utilised for the purposes of the business of the undertaking to which the development rebate was allowed and relying on certain observations of the Supreme Court in the case of Indian Overseas Bank Ltd. v. CIT : 77ITR512(SC) and the observations of the Madras High Court in CIT v. Veeraswami Nainar : 55ITR35(Mad) , the Tribunal held that the purpose of allowing development rebate was to develop the assessee's business out of the reserve fund which in turn was meant for the development of the business as a whole and the Tribunal held that when the assessee-firm was dissolved, there could possibly be no utilisation of the reserve for the purpose of the business of the undertaking. Under these circumstances the Tribunal upheld the action of the revenue authorities in withdrawing the development rebate under the provisions of s. 155. Thereafter, at the instance of the assessee the question set out hereinabove has been referred to us.
5. In Income-tax Reference No. 2 of 1973 the years under consideration are assessment years 1962-63 to 1965-66. The assessee-firm is a registered partnership firm and consisted of two partners, Chhotalal Maganlal and Ramanlal Balwantlal, each of them having equal shares. The business was started in the previous year relevant to the assessment year 1962-63 and the business consisted of receipts of sizing and dyeing materials on majuri basis. The assessee, for the purpose of carrying on business, purchased some plant and machinery and development rebate was allowed under s. 33 of the I.T. Act, 1961. The firm was, however, dissolved on October 24, 1965, that is, in the previous year relevant to the assessment year 1966-67. On dissolution of the firm, all the plant and machinery of the firm was taken over along with other assets by Ramanlal Balwantlal and necessary adjustment entries were made in the books of accounts. Ramanlal Balwantlal continued the same business which the firm had been carrying on in the name of Messrs. Nita Dyeing and Processing Works and for that purpose he entered into a new partnership with his mother. In this partnership some amount of development rebate was brought forward and necessary entries were made. On these facts the question of withdrawal of the rebate under the provisions of s. 155(5) for the assessment years 1962-63 to 1965-66 was taken up and ultimately the Tribunal took the view as in the case of Income-tax Reference No. 1 of 1973, that the conditions for the granting of the development rebate were violated inasmuch as there was non utilisation of the reserve for the purposes of the business of the undertaking since the partnership firm was dissolved. In this case also, the Tribunal dismissed the appeals of the assessee on the ground that it was not enough that the reserve is utilised for the purpose of the business but it must be utilised for the purpose of the business of the undertaking and the following question has been referred to us at the instance of the assessee :
'Whether, on the facts and the circumstances of the case, the development rebate allowed to the applicant was liable to be withdrawn under s. 34(3)(b) read with s. 155(5) of the I.T. Act, 1961 ?'
6. In Special Civil Application No. 1502 of 1973 decided by us on October 16, 1974 [Abdul Rehman Haji Miya v. V. P. Minocha-since reported in : 106ITR821(Guj) ] we have held that clause (c) of s. 35(11)(ii) must be interpreted ejusdum generis with cls. (a) and (b) and the non -utilisation must be on a voluntary footing. We have observed (page 828) :
'When on the distribution of the assets of the partnership, the surplus assets are distributed amongst the partners, there is no non-utilisation in the voluntary sense. In the first place, 'utilisation', according to its dictionary meaning, means, converting to use or turning to account as shown by the Oxford English Dictionary. Applying that meaning to the facts of the case before us, when the partnership was dissolved with effect from August 31, 1963, and the surplus assets were distributed amongst the partners, there was no conversion to use or turning to account of this machinery by the different partners.'
7. Under these circumstances, we have held in the light of the decisions of the Supreme Court in Dewas Cine Corporation's case : 68ITR240(SC) , CIT v. Bankey Lal Vaidya : 79ITR594(SC) and CIT v. Hind Construction Ltd. : 83ITR211(SC) 'there is no transfer of any asset nor is it possible for us to say that there is any utilisation of the machinery. Each partner gets that which was his own in which he along with the other partners was a joint owner during the subsistence of the partnership and under the scheme of the Partnership Act when the assets are distributed among the partners at the time of dissolution, it cannot be said to amount to utilisation of the machinery in the sense in which the word 'utilised' has been used in s. 35(11)(ii)(c) of the Act of 1922'. (See : 106ITR821(Guj) ). It may be pointed out that the terminology of s. 155(5) and the relevant clause is in the same terms.
8. Following our reasoning in the decision in Special Civil Application No. 1502 of 1973 (Abdul Rehman Haji Miya v. V. P. Minocha, ITO : 106ITR821(Guj) ), we hold in each of these two references that the development rebate allowed to a partnership firm cannot be withdrawn under s. 34(3)(b) read with s. 155(5) of the I.T. Act, 1961, because surplus assets of the partnership are distributed amongst the partners on the dissolution of the firm. 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. We, therefore, answer the question referred to us in each of these cases in the negative and in favour of the assessee in each case. The Commissioner will pay the costs of the reference to the assessee in each of the two cases.