http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 2  

PETITIONER: MAHABIR COLD STORAGE

       Vs.

RESPONDENT: COMMISSIONER OF INCOME TAX, PATNA

DATE OF JUDGMENT07/12/1990

BENCH: RAMASWAMY, K. BENCH: RAMASWAMY, K. KULDIP SINGH (J)

CITATION:  1991 AIR 1357            1990 SCR  Supl. (3) 469  1991 SCC  Supl.  (1) 402 JT 1990 (4)   754  1990 SCALE  (2)1226

ACT:     Income Tax Act,  1961--Section 31(1)--Development rebate entitlement to unity of ownership and use of asset in  busi- ness not to be disrupted.

HEADNOTE:     The appellant-assessee is a registered firm. It  started functioning  w.e.f.  May  3, 1956 at Purnea  as  the  branch office of the partnership firm M/s Prayagchand and  Hanuman- mal  Periwal  with  its Head Office at  Calcutta.  The  firm consisted of two partners Prayagchand Periwal and Hanumanmal Periwal.     The partners had taken loan from Periwal & Co. Pvt.  Ltd for  erection of cold storage at Purnea and for its  running capital. Later, Periwal & Co. was taken as a partner in  the Purnea  Branch for better management and  financial  assist- ance.  The newly constituted partnership  obtained  separate registration under the Income Tax Act, 1922 as well as under the  income Tax Act, 1961 and was separately  assessed  from the assessment year 1960-61.     In  the assessment year 1959-60  Prayagchand  Hanumanmal installed  machinery  of  the value of  Rs.5,80,055  in  Sri Mahabir  Cold Storage. For one reason or the other  develop- ment rebate on the capital asset, namely, the machinery, was not  claimed till the assessment year 196263 in  which  year the  appellant  claimed development rebate.  The  Income-tax Officer, and on appeal the Assistant Appellate Commissioner, disallowed  the claim on the finding that the new  firm  had neither  inherited  the claim as a transferee,  nor  did  it amount  to a succession. But on second appeal, the  Tribunal held  that the appellant firm was nothing more than the  old firm  of  M/s. Prayagchand Hanumanmal with a change  in  the constitution, and the continuity of the business remained in tact;  hence  the appellant was the owner of the  plant  and machinery installed in the assessment year 1959-60.     The  High Court answered the question referred to it  in favour of the Revenue. The High Court held that the business at  Purnea was carried on by the newly constituted  partner- ship firm which itself 470 claimed to be a separate identity under the Income Tax  Act,

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 2  

and  had  obtained  separate registration.  The  High  Court observed that in respect of the plant or machinery installed by  the  old partnership firm at Calcutta, the new  firm  at Purnea. a distinct and different assessable identity.  could not claim ’development rabate either under the repealed  Act or the 1961 Act.     Before  this Court it was inter alia contended that  (i) M/s. Prayagchand Hanumanmal consisting of original partners, had  taken  M/s. Periwal and Co. merely for the  purpose  of better  management  and financial assistance; (ii)  the  old partnership  had been continuing to have its identity as  an assessable  entity  whose  character had not  been  lost  by taking as new partner M/s Periwal and Co. (Pvt) Ltd. for the purpose  of benefit of profits only, and hence the  assessee was  entitled to the development rebate under section 33  of the Income-Tax Act.     On  befall  of  the Revenue it was  contended  that  the appellant  was  not  "the assessee", nor the  owner  of  the machinery and plant; the owner was M/s. Prayagchand Hanuman- mal and as such the assessee was not entitled to the  devel- opment rebate. Dismissing the appeal, this Court,     HELD:  (1)  Under both the repealed Act as well  as  the 1961  Act two conditions precedent were required to be  ful- filled  for entitlement to development rebate,  namely,  the new  machinery or plant installed must be (1) owned  by  the assessee and (2) used wholly for the purpose of the business carried  on by him. There must exist unity of ownership  and use in the business. [475A, F]     (2)  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. [475G]     (3) When the unity of ownership and use of the asset  in the business is disrupted or a branch of an earlier business is taken over by a new rum 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. [475H]     (4)  The appellant assessee is a new identity under  the Act.  it is not a successor in interest of the old  firm  as per the provisions of the Act. [476G] 471     (5) 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  he the owner of the ship or plant  or  machinery during  the relevant previous assessment year/years and  the owner  alone is entitled to the development rebate  till  it becomes nil. [476H-477A]

JUDGMENT: