Case: M/s. Mahabir Cold Storage Vs. Commissioner of Income Tax

during which time the entire amount invested is computed in the manner prescribed under the act to nil. The object thereby is that the development rebate in the manner specified under the repealed Act or the Act, was to be allowed in full. If any residue remains after the expiry of eight years, that amount was not to be adjusted and no balance could be carried forward to the 9th yearThe capital asset, namely the ship, plant or machinery, should be owned by the assessee during the relevant accounting year and wholly used in the business carried on by the assessee during the previous year in question. There must exist unity of ownership and user 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 goods or services. It is not the ownership of the goods or the resultant end product of the raw materials used that is relevant. The only relevant consideration is that, during the previous year of part of the relevant period, ownership of the asset shall remain with the assessee. Only the successor-in-interest of the business, in accordance with the provisions of the Act, so long as the twin requirements under section 33(1) are fulfilled, is entitled to the benefit. But, when the unity of ownership and use of the asset in the business are disrupted or a branch of an earlier business is taken over by a new firm which exists simultaneously with the other branches of the old business, the benefit of development rebate under section 33(1) does not extend to either firm. Take, for instance, a case where an assessee leases the asset to another person during the previous accounting year, the use of the plant and machinery is not for the business of the assessee for which the development allowances were accorded under section 33(1) since the machinery was not wholly used by the assessee for his/its business during the previous accounting year. Suppose the plant or machinery was used for a purpose other than the business of the assessee, then also the assessee is not eligible for development rebate, obviously for the reason that the plant or machinery was not used for the purpose of the business of the assessee in the previous accounting year or a portion thereofThe crucial question, therefore, is whether the appellant is the owner of the machinery and plant in the relevant assessment year 1962-63. Acquisition of ownership is a condition precedent for availing of the development rebate under section 33(1) of the Act. It is now fairly clear from the statement of facts that the old and the new partnership firms are separately registered under the Act and the old one was doing its business at Calcutta and the new one at Purnea. They have been separately assessed as independent assessable entities. Only the new firm was reconstituted consisting of the two partners of the old firm, Messrs. Prayagchand Hanumanmal and Periwal and Co. (P) Ltd. Prayagchand and Hanumanmal individually an entitled to 25 per cent share each of the profits in the appellant firm and Periwal and Co. (P) Ltd. has 50 per cent. share of profit. Under the Indian Partnership Act, 1932, the partnership firm registered thereunder is neither a person nor a legal entity. It is merely a collective name for the individual members of the partnership. A firm as such cannot be a partner in another firm though its partners may be partners in the other firm in their individual capacity. Either under the repealed Act or the Act a firm is liable to be separately assessed to tax as well as all its partners in their capacity as individuals if they have taxable income. the appellant is separately registered under section 26A of the 1822 Act and assessed to tax from the assessment year 1960- 61 and onwards. there is no reconstitution of the original firm, Prayagchand Hanumanmal, inducting Periwal and Co. (P) Ltd. as its partner. Thus, it is not a successor-in -interest of the old firm as per the provisions of the Act. the question then is whether the assessee is entitled to development rebate under section 33(1) of the Act (under section 10(2) (vib) of the repealed Act.) Section 33(1) gives right to development rebate only to the owner who has acquired the ship or installed the machinery or plant. the necessary implication is that the assessee who claims development rebate should continue to remain to be the owner of the ship or plant or machinery during the relevant previous assessment year/years and the relevant previous assessment year or the succeeding assessment years carried forward up to eight years and not thereafterThe entries in the books of account of the appellant would amount to an acknowledgment of the liability to Messrs. Prayagchand Hanumanmal within the meaning of section 18 of the Limitation Act, 1963, and extend the period of limitation for the discharge of the liability as debt. Section 2(47) of the Act defines "transfer" in relation to a capital asset under clause (i) as sale, exchange or relinquishment of the asset, or (ii) the extinguishment of any right therein, or - (clauses(iii) to (vi) are not relevant hence omitted). Unfortunately, the assessee did not bring on record the necessary material facts to establish that it became owner by any non testamentary instrument acquiring right, title and interest in the plant and machinery nor was the point argued before the High Court and we do not have the benefit in this regard either of the Tribunal or of the High Court. In this view, we decline to go into the question but confine ourselves to the first question and agree with the High Court answering the reference in favour of the Revenue and against the assessee that the appellant is not entitled to the development rebate under section 33(1) of the Act. 5.

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]Under both the repealed Act as well as the Act, two conditions precedent are required to be fulfilled for entitlement to development to rebate, namely, a new ship acquired or new machinery or plant installed must be (1) owned by the assessee, and (2) wholly used for the purpose of the business carried on by him. It is an admitted case that the plant and machinery was wholly used for the purposes of the cold storage business carried on by the original firm, Messrs. Prayagchand Hanumanmal, and also by the appellate. The only dispute is whether the appellant owned the plant and machinery purchased and erected as a part of the capital asset to run the cold storage business by Messrs. Prayagchand Hanumanmal. In the context of section 33(1) of the Act, the ownership consists of a bundle of rights, namely title to, possession of and beneficial enjoyment thereof. It is an indisputable legal position that the sum to be allowed by way of development rebate was to be only such amount as was sufficient to reduce the total income to nil. The development rebate, to the extent to which it had not been allowed in the previous assessment year or succeeding years, was to be carried forward to the following year or years up to a maximum of eight years during which time the entire amount invested is computed in the manner prescribed under the act to nil. The object thereby is that the development rebate in the manner specified under the repealed Act or the Act, was to be allowed in full. If any residue remains after the expiry of eight years, that amount was not to be adjusted and no balance could be carried forward to the 9th yearThe capital asset, namely the ship, plant or machinery, should be owned by the assessee during the relevant accounting year and wholly used in the business carried on by the assessee during the previous year in question. There must exist unity of ownership and user 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 goods or services. It is not the ownership of the goods or the resultant end product of the raw materials used that is relevant. The only relevant consideration is that, during the previous year of part of the relevant period, ownership of the asset shall remain with the assessee. Only the successor-in-interest of the business, in accordance with the provisions of the Act, so long as the twin requirements under section 33(1) are fulfilled, is entitled to the benefit. But, when the unity of ownership and use of the asset in the business are disrupted or a branch of an earlier business is taken over by a new firm which exists simultaneously with the other branches of the old business, the benefit of development rebate under section 33(1) does not extend to either firm. Take, for instance, a case where an assessee leases the asset to another person during the previous accounting year, the use of the plant and machinery is not for the business of the assessee for which the development allowances were accorded under section 33(1) since the machinery was not wholly used by the assessee for his/its business during the previous accounting year. Suppose the plant or machinery was used for a purpose other than the business of the assessee, then also the assessee is not eligible for development rebate, obviously for the reason that the plant or machinery was not used for the purpose of the business of the assessee in the previous accounting year or a portion thereofThe crucial question, therefore, is whether the appellant is the owner of the machinery and plant in the relevant assessment year 1962-63. Acquisition of ownership is a condition precedent for availing of the development rebate under section 33(1) of the Act. It is now fairly clear from the statement of facts that the old and the new partnership firms are separately registered under the Act and the old one was doing its business at Calcutta and the new one at Purnea. They have been separately assessed as independent assessable entities. Only the new firm was reconstituted consisting of the two partners of the old firm, Messrs. Prayagchand Hanumanmal and Periwal and Co. (P) Ltd. Prayagchand and Hanumanmal individually an entitled to 25 per cent share each of the profits in the appellant firm and Periwal and Co. (P) Ltd. has 50 per cent. share of profit. Underthe Indian Partnership Act, 1932, the partnership firm registered thereunder is neither a person nor a legal entity. It is merely a collective name for the individual members of the partnership. A firm as such cannot be a partner in another firm though its partners may be partners in the other firm in their individual capacity. Either under the repealed Act or the Act a firm is liable to be separately assessed to tax as well as all its partners in their capacity as individuals if they have taxable income. the appellant is separately registered under section 26A of the 1822 Act and assessed to tax from the assessment year 1960- 61 and onwards. there is no reconstitution of the original firm, Prayagchand Hanumanmal, inducting Periwal and Co. (P) Ltd. as its partner. Thus, it is not a successor-in -interest of the old firm as per the provisions of the Act. the question then is whether the assessee is entitled to development rebate under section 33(1) of the Act (under section 10(2) (vib) of the repealed Act.) Section 33(1) gives right to development rebate only to the owner who has acquired the ship or installed the machinery or plant. the necessary implication is that the assessee who claims development rebate should continue to remain to be the owner of the ship or plant or machinery during the relevant previous assessment year/years and the relevant previous assessment year or the succeeding assessment years carried forward up to eight years and not thereafterThe entries in the books of account of the appellant would amount to an acknowledgment of the liability to Messrs. Prayagchand Hanumanmal within the meaning of section 18 ofthe Limitation Act, 1963, and extend the period of limitation for the discharge of the liability as debt. Section 2(47) of the Act defines "transfer" in relation to a capital asset under clause (i) as sale, exchange or relinquishment of the asset, or (ii) the extinguishment of any right therein, or - (clauses(iii) to (vi) are not relevant hence omitted). Unfortunately, the assessee did not bring on record the necessary material facts to establish that it became owner by any non testamentary instrument acquiring right, title and interest in the plant and machinery nor was the point argued before the High Court and we do not have the benefit in this regard either of the Tribunal or of the High Court. In this view, we decline to go into the question but confine ourselves to the first question and agree with the High Court answering the reference in favour of the Revenue and against the assessee that the appellant is not entitled to the development rebate under section 33(1) of the Act.