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Judgment
Balasubrahmanyan, J.—The Commissioner of Income Tax has prayed for a direction to the Tribunal to state a case and refer the following
question of law arising out of the order of the Tribunal in appeal :
Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in canceling the order of the Income Tax Officer
withdrawing the development rebate already allowed for the assessment years 1965-66 to 1972-73 consequent to the conversion of the
assessee''s proprietary business into a partnership firm ?
The point involves the correctness of the action of the ITO in withdrawing the development rebate already allowed for the plant and Machinery
installed in the business. At the time of the installation, the business was carried on by a sole proprietor. Subsequently, he took in partners and
continued the same business as a partnership business with the aid of the same machinery. The ITO invoked his power under s. 155(5) of the I.T.
Act to withdraw the development rebate already granted on the score that on the formation of the partnership there has been a sale or transfer of
the plant and machinery by him in favour of a third person. The Tribunal held that when a sole proprietor coverts the business into a partnership by
taking in other persons, there is no transfer involved either of the business or the assets thereof. On that ground, they disagreed with the ITO''s
action under s. 155(5) of the Act.
This court had had occasion to consider the jural position in cases where a sole proprietorship of a business gets covered into partnership and
the person who was formerly its sole proprietor figures there afters as a partner along with others. This court had held in D. Kanniah Pillai Vs.
Commissioner of Income Tax, , that in such a situation no transfer whatever of any business assets is involved in the process. Since this position is
establish as one of principle, and there can be no exception taken to the legal consequences of the conversion of a proprietary concern into a
partnership, the invocation by the ITO go there provisions under s. 155(5) was rightly held against by the Tribunal. The attempt of the Department
to weave a question of law out of the order of the Tribunal and to seek a reference on that question cannot be justified on the basis of the law laid
down by this court in D. Kanniah Pillai Vs. Commissioner of Income Tax, . We, therefore, reject this petition on the ground that no referable
question of law arises out of the order of the Tribunal.
Learned counsel for the Department submitted that in Malabar Fisheries Co. Vs. Commissioner of Income Tax, Kerala, , the Supreme Court
had left open the question whether any transfer is involved when a sole proprietor coverts his business into a partnership business and thereby
renders the assets of the sole proprietary concerns as the assets of the partnership. But, so long as there is the decision of this court in D. Kanniah
Pillai Vs. Commissioner of Income Tax, which has clearly determined the nature of the process, we think that there would be no scope at all for
asking for a reference on the ground that the question of law is referable question properly calling for a decision by this court. The petition is
accordingly dismissed with costs. Counsel''s fee Rs. 250 (one set).