M/s. Mahabir Cold Storage Vs. C.I.T., Patna
Section 33(1) – AY 1962-63 – Development rebate – Conitions preceent – New machinery must be owne an wholly use by the assessee – If unity of ownership an use of the asset in the business is isrupte, the benefit uner the section is not available – Assessee i not bring on recor necessary material to establish ownership – Decision of High Court answering the question in favour of the revenue uphel – Inian Income-tax Act, 1922, section10(1).
1. This appeal by the assessee is irecte against the jugment of the Division Bench, Patna High Court mae in Tax Case No.30 of 1972 ate September 11, 1974 answering in favour of the Revenue an against the assessee the question reframe thus :
“Whether on the facts an in the circumstances of this case the orer of the Tribunal allowing the unabsorbe evelopment rebate in respect of the plant an machinery not installe by the assessee, uner section 33(1) of the Income Tax Act was legal an proper”.
2. The Tribunal referre the question, at the instance of the Revenue, to the High Court uner section 256(1) of the Income-tax Act, 1961 (for short ‘the Act’) which reas thus :-
“Whether in the facts an circumstances of the case, the orer of the Tribunal holing that the conitions uner section 33(1) of the Income Tax Act are satisfie, is legal an proper”.
3. The appellant-assessee is a registere partnership firm uner a ee execute an registere on November 10, 1958 between Prayagchan Periwal an Hanumanmal Periwal an M/s. Periwal an Co. Pvt. Lt. having its business at Purnea in Bihar State. It erives income from the business of col storage. M/s. Prayagchan Hanumanmal, partnership firm consists of Prayagchan an Hanumanmal Periwal with 50 per cent share each an starte its business with its Hea Office at Calcutta an a Branch Office at Purnea. It starte functioning w.e.f. May 3, 1956. The Branch Office at Purnea carrie on the business in the name an style of Shri Mahabir Col Storage. The partners ha taken loan from Periwal & Co. Pvt. Lt. for erection of Col Storage an for its running capital. Later the Company was taken as a partner for better management an financial assistance. Prayagchan an Hanumanmal each has 25 per cent an Periwal an Co. (P) Lt. has the remaining 50 per cent shares in the profits of the newly constitute partnership M/s. Mahabir Col Storage at Purnea. The new partnership also obtaine registration uner the Inian Income-tax Act 1922 (for short ‘the repeale Act’ an later uner the Act. It file voluntary returns an it was separately assesse from the assessment year 1960-61 an thereafter.
4. In the assessment year 1959-60 M/s. Prayagchan Hanumanmal installe machinery of the value of Rs.5,80,055/- in Sri Mahabir Col Storage. For one reason or the other evelopment rebate on the capital asset, namely, the machinery was not claime till the assessment year 1962-63 in which year the appellant claime evelopment rebate. The Income-tax Officer an on appeal the Asstt. Appellate Commissioner isallowe the claim on the fining that the new firm ha neither inherite the claim as a transferee, nor it amounts to a succession. But on secon appeal, the Tribunal hel in favour of the appellant with the following fining :-
“It is no oubt that the machinery was installe by M/s. Prayagchan Hanumanmal but the firm has been reconstitute with the three partners uner the name an style of M/s. Mahabir Col Storage, the appellant herein. The firm’s legal personality will survive its reconstitution. Reconstitution of the firm oes not bring into existence a ifferent legal entity, nor can it be state that the original ientity of the firm is lost as a result of reconstitution. The business as a unit continue unbroken an it was only the interest of the partners that came to be altere as a result of the reconstitution of the firm. Since the appellant firm is nothing more than the ol firm of M/s. Prayagchan Hanumanmal with a change in the constitution an the continuity of the business remaine intact, we have no hesitation in coming to the conclusion that the appellant is the owner of the plant an machinery installe in the assessment year 1959-60”.
5. At the request of the Revenue the Tribunal referre the question as inicate above an the High Court reframe the question extracte hereinbefore an answere with the fining in favour of the Revenue an against the assessee with the reasoning that the ol firm retaine its ientity carrying on its business separately at Calcutta. It was a separate entity for the purpose of taxation. The whole firm was not reconstitute. The business at Purnea was carrie on by a new reconstitute partnership firm which itself claime to be a separate ientity uner the Income-tax Act an claime separate registration an was separately assesse to Income-tax. An assessee who installe the new plant or machinery must carry on the business with him in orer to get evelopment rebate an it must not transfer them before the expiry of 8 years. If the ientity of the two firms was ifferent, an assessable ientity was clearly so, then it was plain that in respect of the plant or machinery installe by the ol partnership firm at Calcutta, the new firm at Purnea, a istinct an ifferent assessable ientity, coul not claim evelopment rebate either uner the repeale Act or the Act. The appellant which ha not installe the new machinery an plant was not entitle to any evelopment rebate in respect of machinery an plant worth Rs.5 lakhs an o installe in the previous year relating to the assessment year 1959-60 by M/s. Prayagchan Hanumanmal.
6. Shri B. Sen, learne Sr. Counsel for the appellant raise two fol contentions. Accoring to the learne counsel M/s. Prayagchan Hanumanmal consisting of original partners Prayagchan Periwal an Hanumanmal Periwal, merely ha taken M/s. Periwal an Co. (P) Lt. for the purpose of better management an financial assistance. The ol partnership amittely having starte its branch at Purnea in Col Storage business has been continuing to have its ientity as an assessable entity whose character has not been lost by taking new partner M/s. Periwal an Co. (P) Lt. for the purpose of benefit of profits only. Therefore, the assessee is entitle to the evelopment rebate uner section 33 of the Act. Alternatively it is contene that in the books of account of M/s. Prayagchan Hanumanmal as a creitor with a sum of Rs.3,50,000/- in all on two ates in its accounts for the year ene October 31, 1959 ebite the amount of the three partners of the assessee as they stoo in the books of the ol firm. Corresponingly the new firm also in its turn transferre Rs.3,50,000/- to the creit of the partners account by ebiting the account of the ol firm showing the opening balance of Rs.4,25,606/-. It woul, thus, show that there is a transfer of the capital asset to the appellant an thereby the appellant is an owner uner section 33 of the Act. Accoringly it is entitle to evelopment rebate. Shri Bhatnagar, the learne counsel for the Revenue contene that the appellant is not “the assessee”, nor the owner of the machinery an plant. The owner is M/s. Prayagchan Hanumanmal an as such the assessee is not entitle to the evelopment rebate.
7. To appreciate the contentions it is necessary to see the relevant provisions uner the repeale Act an the Act. Development rebate was first introuce by the Finance Act, 1955 with effect from 1st April, 1955, clause (vib) of sub section (2) of Section 10 of the repeale Act was introuce by Section 8 of the sai Finance Act, which was subsequently amene by Section 7 of the Finance Act, 1958 with effect from 1st April, 1958 an then again it was amene by Section 6 of Finance Act, 1961 with effect from 1st April, 1961 which is relevant for the purpose of this case, rea thus :-
(2) Such profits or gains shall be compute after making the following allowances, namely :
(vib) In respect of a new ship acquire or new machinery or plant installe after the 31st ay of March, 1954, which is wholly use for the purposes of the business carrie on by the assessee, a sum by way of evelopment rebate in respect of the year of acquisition of the ship or of the installation of the machinery or plant, equivalent to”
Section 33 (1) of the new Act reas :-
“33(1) In respect of a new ship acquire or new machinery or plant (other than office appliances or roa transport vehicles) installe after the 31st ay of March, 1954, which is owne by the assessee an is wholly use for the purposes of the business carrie on by him, a sum by way of evelopment rebate, equivalent to -“
8. The other sub-sections are not relevant. Hence omitte.
9. Uner both the repeale Act as well as the Act two conitions preceent are require to be fulfille for entitlement to evelopment rebate, namely, a new ship acquire or new machinery or plant installe must be (1) owne by the assessee an (2) is wholly use for the purpose of the business carrie on by him. It is an amitte case that the plant an machinery was wholly use for the purposes of col storage business carrie on by the original firm M/s. Prayagchan Hanumanmal an also by the appellant. The only ispute is whether the appellant owne the plant an machinery purchase an erecte as a part of the capital asset to run the col storage business by M/s. Prayagchan Hanumanmal. In the context of Section 33(1) of the Act the ownership consists of bunle of rights, namely, title to; possession of an beneficial enjoyment thereof. It is an inisputable legal position that the sum to be allowe by way of evelopment rebate was to be only such amount as was sufficient to reuce the total income to nil. If the evelopment rebate to the extent to which it ha not been allowe in the previous assessment year or succeeing years, the aforesai sum was to be carrie forwar to the following year or years upto a maximum of 8 years uring which time the entire amount investe is compute in the manner prescribe uner the Act to nil. The object thereby is that the evelopment rebate in the manner specifie uner the repeale Act or the Act was to be allowe in full. If any, resiue remains after the expiry of eight years, that amount was not to be ajuste an no balance coul be carrie forwar to the 9th year.
10. The capital asset, namely, the ship, plant or machinery shoul be owne by the assessee uring the relevant accounting year an wholly use in the business carrie on by the assessee uring the previous year in question. There must exist unity of ownership an use in the business. The emphasis for entitlement to rebate accrues from the use of the machinery or the plant by the owner for the purpose of its business resulting in the manufacture of the goos or service. It is not the ownership of the goos or the resultant en prouct of the raw materials use that is relevant. The only relevant consieration is that uring the previous year or part of the relevant perio ownership of the asset shall remain with the assessee. Only the successor in interest of the business, in accorance with the provisions of the Act, so long as the twin requirements uner section 33(1) are fulfille is alone entitle to the benefit. But when the unity of ownership an use of the asset in the business is isrupte or a branch of an earlier business is taken over by a new firm which exists simultaneously with the other branches of the ol business, the benefit of evelopment rebate uner section 33(1) oes not exten to either firm. Take for instance, an assessee leases the asset to another person uring the previous accounting year, the use of the plant an machinery is not for the business of the assessee for which the evelopment allowances were accore uner section 33(1) since the machinery was not wholly use by the assessee for his/its business uring the previous accounting year. Suppose a plant or machinery was use for a purpose other than the business of the assessee, even then also the assessee is not eligible for evelopment rebate, obviously for the reason, that the plant or machinery was not use for the purpose of the business of the assessee in the previous accounting year or a portion thereof.
11. The crucial question, therefore, is whether the appellant is the owner of the machinery an plant in the relevant assessment year 1962-63. Acquisition of ownership is a conition preceent to avail of the evelopment rebate uner section 33(1) of the Act. It is now fairly clear from the statement of facts that the ol an the new partnership firms are separately registere uner the Act an the ol one was oing its business at Calcutta an the new one at Purnea. They have been separately being assesse as inepenent assessable entities. Only the new firm alone was reconstitute consisting of the two partners of the ol firm M/s. Prayagchan Hanumanmal an Periwal & Co. (P) Lt. Prayagchan an Hanumanmal iniviually are entitle to 25 per cent shares each for the profits in the appellant firm an Periwal & Co. (P) Lt. has 50 per cent shares of profit. Uner the Inian Partnership Act, 1932 the partnership firm registere thereuner is neither a person nor a legal entity. It is merely a collective name for the iniviual members of the partnership. A firm as such cannot be a partner in another firm though its partners may be partners in another firm in their iniviual capacity. Either uner the repeale Act or the Act a firm is liable to be separately assesse to tax as well as all its partners in their capacity as iniviuals if they have taxable income. The appellant is separately registere uner section 26A of the Act an assesse to tax from the assessment year 1960-61 an onwars. There is no re-constitution of the original firm Prayagchan Hanumanmal inucting Periwal & Co. (P) Lt. as its partner. Thus it is clear that the appellant assessee is a new ientity uner the Act. It is not a successor in interest of the ol firm as per the provisions of the Act. The question then is whether the assessee is entitle to evelopment rebate uner section 33(1) of the Act. (uner section 10(1) (vib) of the repeale Act). Section 33(1) gives right to evelopment rebate only to the owner who has acquire the ship or installe the machinery or plant. The necessary implication is that the assessee who claims evelopment rebate shoul continue to remain to be the owner of the ship or plant or machinery uring the relevant previous assessment year/years an the owner alone is entitle to the evelopment rebate till it becomes nil in the relevant previous assessment year or the succeeing assessment years carrie forwar upto 8 years an not thereafter.
12. The entries in the books of accounts of the appellant woul amount to an acknowlegement of the liability to M/s. Prayagchan Hanumanmal within the meaning of Section 18 of the Limitation Act, 1963 an exten the perio of limitation for the ischarge of the liability as ebt. Section 2(47) of the Act efines ‘transfer’ in relation to a capital asset uner clause (i) the sale, exchange or relinquishment of the asset or (ii) the extinguishment of any right thereof or – (Clauses (iii) to (vi) are not relevant hence omitte). Unfortunately the assessee i not bring on recor the necessary material facts to establish that he became owner by any non-testamentary instrument acquiring right, title an interest in the plant an machinery nor the point was argue before the High Court an we o not have the benefit in this regar either of the Tribunal or of the High Court. In this view we ecline to go into the question but confine to the first question an agree with the High Court answering the reference in favour of the revenue an against the assessee that the appellant is not entitle to the evelopment rebate uner section 33(1) of the Act. The appeal is accoringly ismisse with costs quantifie at Rs.5,000/-.