Law:

Section:

Section 34(3)(b), read with section 155(5)(i), of the Income-tax Act, 1961 - Development rebate - Withdrawal of - HUF business, to which development rebate was granted for assessment years 1966-67, 1968-69 and 1969-70, was, after partition on 31-3-1974, converted into a partnership business and coparceners transferred to partnership their share in the assets including those on which development rebate had been allowed - Whether it was a case of transfer of assets by assessee attracting section 155(5)(i) - Held, no Facts The assessee-HUF, consisting of the karta and his three major sons, was carrying on the business of printing and was allowed development rebate on the machinery used in that business for the assessment years 1966-67 to 1969-70. There was a partition of the HUF on 31-3-1974 whereafter the joint family business was converted into a business of partnership consisting of the karta and his three sons as partners. The ITO took the view that by conversion of the HUF business into a partnership business, the assets which originally belonged to the assessee-HUF became the assets of the partnership firm, involving a transfer of assets as contemplated under section 155(5)(i). Since this alleged transfer had taken place before the expiry of eight years from the time when the development rebate was originally allowed, the ITO withdrew the development rebate allowed in the assessment years 1966-67 to 1969-70. On appeal, the AAC upheld the order of the ITO. However, on second appeal, the Tribunal held that conversion of the HUF business after partition into a partnership business did not involve any transfer to justify the withdrawal of the development rebate. It was also contended by the revenue before the Tribunal that since a portion of the development rebate reserve had been transferred to the female members of the HUF, it amounted to utilisation of the reserve for a non-business purpose, justifying withdrawal of the rebate under section 34(3)(a), read with section 155(5)(ii). The Tribunal, however, found that in view of clear recitals in the partition deed, the contention of the revenue that a portion of the amount credited to the reserve account under…

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