Law:

Section:

Section 33, read with sections 34(3)(b) and 155(5) of the Income-tax Act, 1961 – Development rebate – Assessment year 1964-65 – ITO disallowed assessee's claim for development rebate under section 33 mainly on ground that machinery and plant had been transferred to a firm within eight years – AAC upheld disallowance – Tribunal, however, allowed assessee's claim holding that when partnership was formed for first time and one of members of partnership brought into firm his individual assets, there was no transfer so as to attract section 34(3)(b) – Whether on conversion of property of an individual into property of a firm of which he is a partner, there is transfer of interest of individual to partnership and sections 34(3)(b) and 155(5) are attracted in such a case – Held, yes – Whether, therefore, assessee having treated his individual assets as property of partnership firm became disentitled from claiming development rebate – Held, yes FACTS For the relevant assessment year the assessee ‘M' was not allowed development rebate by the ITO on two grounds,—(i) that the assessee had not created the necessary reserve; and (ii) that the machinery and plant had been transferred to a firm within eight years. On appeal, the AAC upheld the ITO's order on the latter ground, namely, that the proprietary concern of the assessee which owned the assets in respect of which development rebate was claimed, had been converted into a partnership in which the assessee was also a partner and the said assets had become the partnership assets. He, however, held that the first ground on which the ITO had disallowed the rebate was not available. The Tribunal allowed the appeal holding that when a partnership was formed for the first time and one of the members of the partnership brought into the firm his individual assets, there was no transfer in the eye of law which attracted section 34(3)(b). On reference: HELD When Parliament intended that amongst the several kinds of transfers only a sale should be considered as an event altering the liability to tax it used the word ‘sold' in the course of the Act: vide section 32(1)(iii ) andExplanation. (2) thereto. The words ‘otherwise…

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