These appeals, by certificate granted under Section 261 of the Income Tax Act, 1961 (hereinafter referred to as ’the Act’), Have been filed by the assessee against the judgement of the Madras High Court dated November 2,1981. By the said judgment the High Court has answered the following question referred to it by the Income Tax Appellate Tribunal (hereinafter referred to as ’the Tribunal’) against the assessee and in favour of the Revenue.
"Whether on the facts and
circumstances of the case the
revision of assessment under
Section 263 by the Commissioner for
withdrawing the development rebate
granted for assessment years 1962-
63. 1963-64 1967-68 and 1968-69 is
proper and justified."
The assessee as a partnership firm having been constituted on September 1.1960. It was running a steel rolling mill. Initially, there were four partners, namely, M/s S.L.Nahata, M.S.Bedi, Biharilal and M.K.Raheja, in the assessee firm. Two of the partners Biharilal and M.K.Raheja, subsequently retired from the partnership and the partnership was reconstituted with the remaining two partners continuing the same business. On March 3,1968, Shri M.S. Bedi one of the two partners died. Since only one surviving partner was left the partnership stood dissolved. On March 4,1968 a new partnership was constituted comprising of Shri S.L.Nahata and the Legal heirs of Shri M.S. Bedi to carry on the business under taking previously carried on by the partnership firm of which shri M.S. Bedi was a partner.
In these appeals we are concerned with the partnership firm as it existed prior to its dissolution on March 3, 1968. The assessee firm had obtained the benefit of Development Rebate under Section 33(1) (a) of the Act during the assessment years in question. Since the partnership stood dissolved on March 3, 1968, before the expiry of the period of 8 years the Commissioner of Income Tax, in exercise of the powers conferred on him under Section 263 of the Act withdrew Development Rebate that had been granted to the assessee for the said assessment years. Feeling aggrieved by the said order of the Commissioner, the assessee filed an appeal before the Tribunal which was decided against the assessee. At the instance of the assessee the Tribunal referred the question above mentioned for the opinion of the High Court.
The question raised involves interpretation of the provisions of Section 33(1) (a) and 34(3) which at the relevant time read as under:
"Development Rebate
33(1) (a), In respect of a new ship
or new machinery or plant (other
than office appliances or road
transport vehicles) which is owned
by the assessee and is wholly used
for the purposes of the business
carried on by him, there shall, in
accordance with and subject to the
provisions of this section and f
Section 34, be allowed a deduction,
in respect of the previous year in
which the ship was acquired or the
machinery or plant was installed
or, if the ship , machinery or
plant is first put to use in the
immediately succeeding previous
year, then, in respect of that
previous year, a sum by way of
development rebate as specified in
clause (b):
"conditions for depreciation
allowance and development rebate
34(3) (a), The Deduction referred
to in Section 33 shall no be
allowed unless an amount equal to
seventy five r cent of the
Development Rebate to be actually
allowed is debited to the profit
and loss account of the relevant
previous years and credited to
reserve account to be utilised by
the assessee during a period of
eight years next following for the
purposes of the business
undertaking, other than --
(i) for distribution by way of
dividends or profits; or
(ii) for remittance outside India
as profits or for the creation of
any asset outside India:
Provided that this clause shall not
apply where the assessee is a
company, being a licensee within
the meaning of the Electricity
(Supply) Act, 1948 [54 of 1948], or
where the hip has been acquired or
the machinery or plant has been
installed before the 1st day of
January, 1958.
Provided further that where a ship
has been acquired after the 28th
day of February, 1966 this clause
shall have effect in respect of
such ship s if for the words
"seventy five" , the word "fifty"
had been substituted.
Explanation.- For the removal of
doubts, it is hereby declared that
the deduction referred to in
section 33 shall bot be denied by
reason only that the amount debited
to the profit and loss account of
the relevant previous year and
credited to the reserve account
aforesaid exceeds the amount of the
profit of such previous year (as
arrived at without making the debit
aforesaid ) in accordance with the
profit and loss account.
(b) If any ship, machinery or plant
is sold or otherwise transferred by
the assessee to any person at any
time before the expiry of eight
years from the end of the previous
year in which it was acquired or
installed, any allowance made under
section 33 or under the
corresponding provisions of the
Indian Income-Tax Act, 1922 (11 of
1922) , in respect of that ship,
machinery or plant shall be deemed
to have been wrongly made for the
purposes of this Act, and the
provisions of sub-section (5) of
Section 155 Shall apply
accordingly;
Provided that this clause shall not
apply --
(i) where the ship has been
acquired of the machinery or plant
has been installed before the Ist
day of January, 1958; or
(ii) Where the ship machinery or
plant is sold or otherwise
transferred by the assessee to the
Government, a local Authority, a
corporation established by a
Central, State or provincial Act or
a Government company as defined in
section 617 of the Companies Act,
1956 (1 of 1956): or
(iii) Where the sale or transfer of
the ship, machinery or plant is
made in connection with the
amalgamation or succession,
referred to in sub-section (3) or
sub-section (4) of section 33."
These provisions indicate that under Section 33(1)(a) the benefit of Development Rebate was available in respect of a new sip or new machinery or plant which was (i) owned by the assessee and (ii) was wholly used for the purposes of the business cared on by him. The availability of the said benefit of Development Rebate under Section 33(1) (a) was however, subject to the provisions of Section 34. Under clause (a) of sub-section (3) of section 34 deduction under Section 33 was permissible only if an amount equal to 75% of the amount of Development Rebate that was actually allowed was credited to a reserve account to be utilised by the assessee during a period of eight years next following for the purposes of the business of the undertaking. In clause (b) it was prescribed that in the event of the ship, machinery or plant in relation to which development rebate has been allowed being sold or otherwise transferred by the assessee before the expiry of the period of eight years from the end of the previous year in which it was acquired or installed, the allowance made in respect of it shall be deemed to have been wrongly made and the assessing officer may recompute the total income of the assessee for the relevant previous year and made the necessary amendment under Section 155(5) of the Act . This is, however, subject to the exception contained in the proviso to clause (b).
The High Court has held
"As part of the fundamental
requirement for the grant of
Development Rebate, is a necessary
first step. but that alone is not
enough. The reserve account has
got to be utilised by the assessee
for the purposes of the business of
the undertaking for a period of
eight years running immediately
following the installation of the
machinery . The implication of
these condition are that were the
assessee does not utilises the
reserve account for the purposes of
his business during a period of 8
years , then the very condition on
which the rebate is granted would
remain unfulfilled. Hence the
original grant of Development
Rebate itself must perforce be
regarded as having been made
without the necessary condition
being fulfilled therefor."
The High Court has observed that in the present case the assessee firm became extinct before the expiry of the eight-year period and what came afterwards was different entity even if it comprised only the surviving partner and the deceased partners’ legal representatives, According to the High Court there was a basic failure of the fact situation in the assessee’s case to fit in with the terms of the statutory grant of Development Rebate implicit in the Statutory provisions.
Ms. Janki Ramachandran, the learned counsel appearing for the assessee, has submitted that Development Rebate is granted in respect of a business and that under section 33(1)(a) and Section 34(3)(a) what is required is that the business must be continued for the prescribed period of eight years and that in the present case after the dissolution of the old partnership, the new partnership carried on the same business and therefore, the benefit of the Development Rebate could not be withdrawn. the learned counsel has placed reliance on the decisions of this court in Malabar Fisheries Co.. Vs. Commissioner of income Tax, Kerala, (1979) 120 ITR 49 and commissioner of Income Tax Bangalore vs J.H.Gotla (1985) 156 ITR 323. The learned counsel has also invited our attention to the Statement of Objects and Reasons appended to the Finance Bill, 1958 whereby the provisions relating to grant of development Rebate as contained in Section 10 of the Income Tax Act, 1922 were amended.
Dr. Gauri Shankar, the learned senior counsel appearing for the Revenue, has on the other hand, submitted that the High Court has rightly construed the provisions contained in Sections 33(1) (a) and 34(3)(a) of the Act and the said view taken by the High Court is in consonance with the object sought to be achieved by the said provisions. he has in this context, invited our attention to the report of the Taxation Enquiry commission (1953-54) which was the basis for introducing the provisions relating to development rebate in the Income Tax Act, 1922. It has been pointed that the said report shows that the object underlying the grant of development rebate is that it would afford as a direct stimulus to expansion and quicker replacement and aid the efficiency and competitive power of the industries. The submission is that have regard to the object underlying the said provision the development rebate can be available only to a particular assessee in respect of his business. Dr. Gauri Shankar has also pointed out that wherever the legislature intended to extend a particular tax benefit in circumstances where the partnership stood dissolved, an express provision has been made in that regard and he has invited our attention t o sub-section (5A) of section 32 AB where in express provision has been made for withdrawal of the amount standing to the credit of the assessee in the investment Deposit Account before the expiry of the period of five years from the date of deposit in the event of dissolution of a firm. The learned counsel has urged that since the provisions contained in Sections 33(1)(a) and 34(3)(a) do not make any provision regarding dissolution of a partnership firm and speak of the assessee only, it must be held that the expression "assessee" in these provisions means the partnership firm as it stood before dissolution and would not cover a newly constituted firm after the dissolution of the old firm
Having regard to the words "which is owned by the assessee and is wholly used for the purposes of the business carried on by him," in Section 33(1)(a) it must be held that the benefit of development rebate is available only to the assessee which is owning the machinery or plant and is using it wholly for the purpose of the business carried on by him. Similarly in Section 34(3)(a) the words used are "to be utilised by the assessee during a period of eight years next following for the purposes of the business of the undertaking". The grant of development rebate under Section 33(1) (a) is subject to the condition laid down in Section 34(3)(a) which means that assessee who has obtained the development rebate under Section 33(1)(a) must also be the assessee who should utilise the amount credited to the Reserve Account during the period of eight years next following for the purposes of the business of the undertaking for which the development rebate was given. in other words, the expression " by the assessee" in these provisions refer to the same assessee. The condition for grant of rebate under Section 33 read with Section 34(3)(a) would not b satisfied if the assessee who has availed the rebate ceases to exist before the expiry of the period of eight years.
The decisions on which reliance has been placed by Ms. Ramachandran have no direct bearing on the point in issue. In Malabar Fisheries Co.. (supra) this Court has construed the expression "transfer" in the context of Section 34(3)(b) of the act . In the instant case, we are not concerned with transfer of machinery or plant by the appellant-assesse. Here the assessee firm had ceased to exist as a result of dissolution before the expiry of the period of eight years. In Commissioner of Income Tax V. J.H. Gotla (Supra) this Court, while considering the provisions of Section 16(1)(c) of the Income Tax Act, 1922, has observed t hat where the plain literary interpretation of a statutory provision produces a manifestly unjust result which could never have been intended by the Legislature, the Court might modify the language so as to achieve that intention of the Legislature and produce a rational construction. We are unable to hold that the said principle requires to be invoked while construing Section 33(1)(a) and opinion, has rightly held that in view of Section 34(3)(a) the appellant - assessee could not avail the benefit of development rebate.
The other contention of Ms. Ramachandran was that the Commissioner could not invoke his jurisdiction under Section 263 of the Act and that the matter could be dealt of rectification under Section 155 of the Act. The submission is that since Section 155 is a special provision dealing with the partnership firms, the general provision Contained in Section 263 could not be invoked. It was also contended that the power under Section 263 can only be invoked on the basis of the record as it stood when the order was passed by the Income Tax Officer and that it was not open to the Commissioner to take into account the dissolution of the assessee firm, which took place after the passing of the order, because that circumstance is not disclosed in the the record before the Income Tax officer. As pointed out by the High Court , no question as to the competence of the Commissioner to exercise his power s of decision was raised by the assessee either before the Commissioner or before the Tribunal. Even otherwise there is no merit in this contention. Merely because the Income Tax Officer could have rectified the order, the Commissioner could not be precluded form the exercising the power conferred on him under Section 263 . the power of rectification conferred on the Income Tax officer under Section 155 and the power of revision conferred on the Commissioner under Section 263 are distinct powers. The principle that one is a special provision and the other is a general provision has no application. The revisional power conferred on the commissioner under Section 263 is of wide amplitude . It enables the Commissioner to revise an order passed by the Assessing Officer if he considers it to b erroneous and prejudice to the interests of the Revenue. We find no reason to limit this power by reference to Section 155.
As regards his taking into consideration an event which had occurred subsequent to the passing of the order by the Income Tax Officers, it may be stated that in Explanation (b) in Section 263 there is an express provision wherein it is prescribed that "record shall include and shall be deemed always to have included all records relating to any proceeding under this act available at the time of examination by the commissioner". The death of one of the two partners resulting in the dissolution of the assessee firm on account of such death took place prior to the passing of the order by the commissioner and it could, therefore, be taken into consideration by him for the purpose of exercising his powers under Section 263 of the Act.
For the reasons aforementioned, we do not find any merit in the appeals and the same are accordingly dismissed. But in the circumstances there will be no order as to costs.