Law: Income Tax Act, 1961

Section: 33,34

Income-tax----Development rebate---Withdrawal of development rebate---Condition precedent---Transfer of asset---Destruction of machinery by fire and receipt of compensation from insurance company---No transfer of machinery--¬Development rebate cannot be withdrawn---Indian Income Tax Act, 1961, Ss.33 & 34. A plain reading of sections 34(3)(b) and 155(5) of the Income Tax Act, 1961, makes it clear that the development rebate allowed to an assessee under section 33 can be withdrawn if the machinery is "sold or otherwise transferred by the assessee to any person" within the stipulated period. For a transfer, the asset must exist on the date when the transfer is said to have taken place. Destruction of an asset by fire and payment of compensation by the insurance company on account thereof to the assessee cannot be termed a "transfer" within the meaning of section 34(3)(b) of the Act. In the event of destruction, the third party, viz., insurance company, does not come into the picture till the destruction has taken place. After the destruction, there is nothing available to transfer. Hence, it is difficult to hold that in case of destruction or damage, complete or partial or loss of the property, there can be any transfer by the assessee in favour of the third party. In the assessment year 1969-70, the assessee had been allowed development rebate on its PAN-reactor. This PAN-reactor was destroyed by fire in the year 1973 relevant to the assessment year 1974-75. The assessee received compensation for the loss from the insurance company. The Income Tax Officer initiated proceedings for withdrawal of the development rebate. The Tribunal held that the development rebate could not be withdrawn. On a reference: Held, that the development rebate could not be withdrawn. Vania Silk Mills (P.) Ltd. v. C.I.T. (1991) 191 ITR 647(SC) rel. JUDGMENT DR. B.P. SARAF, J. ---By this reference under section 256(1) of the Income Tax Act, 1961, made at the instance of the Department, the Income Tax Appellate Tribunal has referred the following question of law to this Court for opinion: "Whether, on the facts and in the circumstances of the case, the Income Tax Officer was justified…

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