Law:

Section:

Section 34(3)(b) read with section 155(5) of the income-tax act, 1961-Development rebate-Withdrawal of-Whether dissolution of firm amounted to extinguishment of its rights in partnership assets and thus "transfer" within the meaning of section 2(47)-Held, no-Whether provision of section 34(3)(b) applicable-Held, no Facts The assessee is a dissolved firm represented by one of its erstwhile partners. The firm, as originally constituted on 1-4-1959, consisted of four partners and carried on six different businesses in six different names and styles. The firm was dissolved on 31-3-1963. Under the deed of dissolution, one business concern was taken over by one partner and the remaining five concerns by two other partners and the fourth partner received Rs. 3,81,082 in lieu of his respective shares in the assets of all its businesses. During the four assessment years from 1960-61 to 1963-64, the firm had installed various items of machinery in respect of which it received development rebate in its respective assessments under section 33. On its dissolution on 31-3-1963, the ITO opined that section 34(3)(b) was applicable on the ground that there was a sale or transfer of the machinery by it within the period mentioned in that section and, acting under section 155(5), he withdrew the development rebate allowed for all the four assessment years. The assessee's appeal was dismissed by the AAC. The Tribunal, however, allowed the appeal, holding that there was no question of any sale or transfer within the meaning of section 34(3)(b) in a transaction involving the adjustment of the rights of the partners of a dissolved firm. On reference, the High Court held that a dissolution of a firm amounted to extinguishment of its rights in the partnership assets and, accordingly, was a transfer within the meaning of section 2(47) thereby attracting the provision of section 34(3)( b). On appeal: Held It is not correct to say that the distribution of assets effected by a deed takes place so instanti with the dissolution or that it is effected by the dissolved firm. 1. On a plain reading of section 34(3)(b ), it will be clear that before that provision can be invoked or applied, three…

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