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PETITIONER:

M/S SOUTH INDIA STEEL ROLLING MILLS, MADRAS

Vs.

RESPONDENT:

COMMISSIONER OF INCOME TAX, MADRAS

DATE OF JUDGMENT: 25/02/1997

BENCH:

S.C. AGRAWAL, G.B. PATTANAIK

ACT:

HEADNOTE:

JUDGMENT:

J U D G M E N T

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

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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"

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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

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(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

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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)

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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.