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Commissioner of Income-tax, Tamil Nadu-i Vs. Vijaya Productions Pvt. Ltd. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtChennai High Court
Decided On
Case NumberT.C. Petition Nos. 404 to 411 of 1980
Judge
Reported in[1985]152ITR613(Mad)
ActsIncome Tax Act, 1961 - Sections 155(5)
AppellantCommissioner of Income-tax, Tamil Nadu-i
RespondentVijaya Productions Pvt. Ltd.
Appellant AdvocateJ. Jayaraman, Adv.
Respondent AdvocateM. Uttam Reddi, Adv.
Excerpt:
- - cit [1976]104itr520(mad) which has clearly determined the nature of the process, we think that there would be no scope at all for asking for a reference on the ground that the question of law is referable question properly calling for a decision by this court......installed in the business. at the time of the installation, the business was carried on by a sole proprietor. subsequently, he took in partners and continued the same business as a partnership business with the aid of the same machinery. the ito invoked his power under s. 155(5) of the i.t. act to withdraw the development rebate already granted on the score that on the formation of the partnership there has been a sale or transfer of the plant and machinery by him in favour of a third person. the tribunal held that when a sole proprietor coverts the business into a partnership by taking in other persons, there is no transfer involved either of the business or the assets thereof. on that ground, they disagreed with the ito's action under s. 155(5) of the act. 3. this court had had.....
Judgment:

Balasubrahmanyan, J.

1. The Commissioner of Income-tax has prayed for a direction to the Tribunal to state a case and refer the following question of law arising out of the order of the Tribunal in appeal :

'Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in canceling the order of the Income-tax Officer withdrawing the development rebate already allowed for the assessment years 1965-66 to 1972-73 consequent to the conversion of the assessee's proprietary business into a partnership firm ?'

2. The point involves the correctness of the action of the ITO in withdrawing the development rebate already allowed for the plant and Machinery installed in the business. At the time of the installation, the business was carried on by a sole proprietor. Subsequently, he took in partners and continued the same business as a partnership business with the aid of the same machinery. The ITO invoked his power under s. 155(5) of the I.T. Act to withdraw the development rebate already granted on the score that on the formation of the partnership there has been a sale or transfer of the plant and machinery by him in favour of a third person. The Tribunal held that when a sole proprietor coverts the business into a partnership by taking in other persons, there is no transfer involved either of the business or the assets thereof. On that ground, they disagreed with the ITO's action under s. 155(5) of the Act.

3. This court had had occasion to consider the jural position in cases where a sole proprietorship of a business gets covered into partnership and the person who was formerly its sole proprietor figures there afters as a partner along with others. This court had held in Kanniah Pillai v. CIT : [1976]104ITR520(Mad) , that in such a situation no transfer whatever of any business assets is involved in the process. Since this position is establish as one of principle, and there can be no exception taken to the legal consequences of the conversion of a proprietary concern into a partnership, the invocation by the ITO go there provisions under s. 155(5) was rightly held against by the Tribunal. The attempt of the Department to weave a question of law out of the order of the Tribunal and to seek a reference on that question cannot be justified on the basis of the law laid down by this court in Kanniah Pillai v. CIT : [1976]104ITR520(Mad) . We, therefore, reject this petition on the ground that no referable question of law arises out of the order of the Tribunal.

4. Learned counsel for the Department submitted that in Malabar Fisheries Co. v. CIT : [1979]120ITR49(SC) , the Supreme Court had left open the question whether any transfer is involved when a sole proprietor coverts his business into a partnership business and thereby renders the assets of the sole proprietary concerns as the assets of the partnership. But, so long as there is the decision of this court in Kanniah Pillai v. CIT : [1976]104ITR520(Mad) which has clearly determined the nature of the process, we think that there would be no scope at all for asking for a reference on the ground that the question of law is referable question properly calling for a decision by this court. The petition is accordingly dismissed with costs. Counsel's fee Rs. 250 (one set).


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