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PETITIONER: THE COMMISSIONER OF INCOME TAX,LUCKNOW

       Vs.

RESPONDENT: M/S. NARANG DAIRY PRODUCTS,LUCKNOW.

DATE OF JUDGMENT:       28/02/1996

BENCH: PARIPOORNAN, K.S.(J) BENCH: PARIPOORNAN, K.S.(J) JEEVAN REDDY, B.P. (J)

CITATION:  1996 SCC  (7) 700        JT 1996 (2)   679  1996 SCALE  (2)509

ACT:

HEADNOTE:

JUDGMENT:                       J U D G M E N T Paripoornan.J.      The Commissioner  of Income  Tax, Lucknow (the Revenue) having obtained special leave of this Court in Special Leave Petition (Civil)  No. 3204 of 1977 by order dated 21.2.1978, has filed  the Civil  Appeal against  the order of Allahabad High Court  dated 1.8.1977,  rendered in ITA No. 194 of 1977 rejecting the application filed by the Revenue under Section 256(2) of the Income Tax Act (hereinafter referred to as the Act).  The   Revenue  required   the  Income  Tax  Appellate Tribunal, Allahabad  Bench, to  refer the following question of law  under Section  256(1) of the Act for the decision of the High Court:-      "Whether the  Tribunal was  in  law      justified  in   holding  that   the      amendment order  made by the I.T.O.      was not  sustainable to  the extent      to which  it purported  to withdraw      development  rebate  admissible  to      the assessee  in  respect  of  that      part of  the machinery/plant  which      was  the   subject  matter  of  the      hiring agreement dated 27.8.1969."                      (emphasis supplied) The Appellate  Tribunal rejected  the  said  application  by order dated  20.10.1976. It is, thereafter the Revenue filed the application  under Section 256 (2) of the Act before the High Courts which was rejected by order dated 1.8.1977. 2. The  facts of  this case  are in  a narrow  compass.  The respondent-assessee is  a registered firm. It carried on the business of  manufacture of  "milk powder". We are concerned herein with  the assessment year 1965-66. For the said year, the Income  Tax Officer,  by order  dated 29.6.1968, allowed development rebate  for the entire machinery and plant owned by the assessee and used for the said business in the sum of

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Rs. 1,00,093/-.  A part  of the  machinery was  subsequently sold. The  machinery that was left entitling the assessee to the development  rebate for  the said year was determined at of Rs.  85,222/-. This machinery was let out by the assessee on 27.8.1969 to M/s. Hindustan Lever Limited for a period of three years  with a  provision for  further renewal  of  the agreement or  for outright  purchase. In  the circumstances, the  Income   Tax  Officer,  by  an  amendment  order  dated 30.3.1970, withdrew the development rebate of Rs. 1,00,093/- The appeal  filed by  the  assessee  was  dismissed  by  the Appellate Assistant  Commissioner, In further  appeal before the Income  Tax Appellate  Tribunal, it  was contended  that there was  no "sale"  or   "transfer" within  the meaning of Section 34  (3) (b) of the Act, permitting withdrawal of the development rebate of Rs. 1,00,093/-, granted earlier and in this view  the amendment  order passed  by  the  Income  Tax Officer was improper and unjustified. The Appellate Tribunal followed its  earlier decision  rendered for  the assessment year 1979-71  and held  that no transfer was involved by the lease agreement  and so  Section 34(3)(b) of the Act was not attracted. The  appeal filed  by the  assessee was  allowed. Thereafter the Revenue required the Appellate Tribunal in RA No.   131/1976-77, to  refer the  question of law formulated hereinabove for  the  decision  of  the  High  Court.    The Tribunal  declined  the  request  of  the  Revenue  and  the application filed  by the Revenue before the High Court also met with  the same  fate. It  necessitated  the  Revenue  to approach  this  Court  by  special  leave.  After  obtaining special leave  in SLP(C)  No. 3204/77,  the above appeal has been filed. 3.   We heard counsel. The original assessment order for the year 1965-66  was rendered on 29.6.1968. The amendment order withdrawing the  development rebate was passed by the Income Tax Officer  on 30.3.1970.  In view  of the  pendency of the matter for  over two  decades we  intimated counsel  on both sides that  we propose  to finally adjudicate the matter and in that  behalf, we withdraw the entire matter from the High Court, to this Court. 4.   It is  common ground  that for  the  year  1965-66  the assessee was  allowed  development  rebate  for  the  entire machinery and  plant owned and used by it for the purpose of business in  the sum  of Rs.1,00,093/-. Later, a part of the machinery  was   sold.  The   assessee  became  entitled  to development rebate  only in  the sum  of Rs. 85,222/-. It is common ground that the machinery was let out by the assessee on 27.8.1969 to M/s. Hindustan Lever Limited for a period of three years  with the  provision for  further renewal of the agreement or  for outright  purchase. The sole question that arises for  consideration is,  whether in the circumstances, Section 34(3)(b) of the Income Tax Act is attracted enabling the Income  Tax Officer  to pass  the amendment  order as he did, dated  30.3.1970, withdrawing the development rebate of RS. 1,00,093/-? 5. Dr.  Gauri Shankar,  senior  counsel  appearing  for  the appellant,  submitted   that  by  entering  into  the  lease transaction the  assessee has  "otherwise  transferred"  the machinery or plant before the expiry of eight years from the end of  the previous  year in  which  it  was  acquired  and installed and  so the allowance made under Section 33 of the Act, in  respect of  the machinery or plant should be deemed to have  been wrongly  made for  the  purpose  of  the  Act. Counsel for  the assessee  Smt. S.  Janani,  submitted  that Section 34(3)(b)  of the  Act should  be read along with the definition contained  in Section  2(47) of  the Act,  and so read, this  is  not  a  case  of  any  "sale"  or  "transfer

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otherwise" extinguishing  the rights  of the assessee in the machinery or plant. 6. It  will be useful to bear in mind the relevant statutory provisions [Section  2(47), Section 33 and Section 34(3)(b)] applicable to the instant case:-      "Section 2(47)  -  ["transfer",  in      relation  to   a   capital   asset,      includes,-      (i)   the    sale,   exchange    or      relinquishment of the asset; or      (ii)  the   extinguishment  of  any      right therein; or      (iii)  the  compulsory  acquisition      thereof under law; or      (iv) in  a case  where the asset is      converted  by   the  owner  thereof      into, or  is  treated  by  him  as,      stock-in-trade   of    a   business      carried on  by him, such conversion      or treatment;]  [or]      (v) any  transaction involving  the      allowing of  the possession  of any      immovable property  to be  taken or      retained in  part performance  of a      contract of  the nature referred to      in section  53A of  the Transfer of      Property Act, 882 (4 of 1882); or      (vi) any  transaction  (whether  by      way of   becoming  a member  of, or      acquiring shares in, a co-operative      society,       company   or   other      association of persons or by way of      any agreement or any arrangement or      in any  other   manner  whatsoever)      which    has    the    effect    of      transferring,   or   enabling   the      enjoyment   of,    any    immovable      property.      Explanation -  For the  purposes of      sub   clauses    (v)   and    (vi),      "immovable property" shall have the      same meaning  as in  clause (d)  of      section 269UA;"      33(1)(a) In  respect of  a new ship      or new  machinery or  plant  (other      than  office   appliances  or  read      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 of      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)."      34(3)(b) -  If any  ship, machinery      or  plant   is  sold  or  otherwise

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    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  hall  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 or  the machinery or plant      has been  installed before  the 1st      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."                      (emphasis supplied) 7. In  this case,  the machinery  or plant  was not    sold. Admittedly, the  machinery was  let out  by the  assessee to M/s. Hindustan  Lever Limited  on 27.8.1969, within a period of eight years from the end of the previous year in which it was acquired.  The only  question is  whether it can be said that the  machinery or  plant was "otherwise transferred" by the assessee  to any  person.  Under  Section  33(1)(a)  the development rebate  is allowed in respect of the new allowed in respect  of the new machinery and plant which is owned by the assessee  and is wholly used for the purpose of business carried on  by him.  When the  machinery was  let out by the assessee to M/s. Hindustan Lever Limited, it cannot admit of any doubt,  that the  said machinery  or plant could not and was not  used by  the assessee  for the  purpose of business carried on by him. It is not only the ownership of the plant or machinery, but also is its exclusive user by the assessee for the purpose of his business, that is essential to enable the assessee  to get  the development  rebate under  Section 33(1)(a). In  cases where  an assessee disables himself from such continued  exclusive user of the plant or machinery for the purpose  of his  business for  the specified period, the consequences specified  in  Section  34(3)(b)  will  follow, provided the  machinery or plant is "otherwise transferred". It is  true that there is no sale; nor is there any complete extinguishment of the right of the assessee in the machinery or plant by the grant of lease; but the exclusive possession and enjoyment  of the  machinery or plant by the assessee no longer  exists   or  survices.   Such  right   to  exclusive

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possession and  enjoyment vests  in the  lessee and  it is a case where the machinery or plant is "otherwise transferred" to the  lessee. It is a case where the machinery or plant is "otherwise transferred" by the assessee to any person before the expiry  of eight  years from the end of previous year in which it  was acquired.  Even assuming  that the transaction may not  be a  "transfer" as  defined under Section 2(47) of the Act, in our view, the definition section is an inclusive one and  does not  exclude the  contextual or  the  ordinary meaning of the word, "transfer". There are different  shades of meaning  to the  word "transfer",  viz.,  "to  make  over possession of  to another",  "a delivery  of the or property from one  person to  another", "to displace from one surface to another", "removal", "handover", "make over possession of property to  another", "change",  "displace", etc. The words "otherwise transferred" occurring in Section 34(3)(b) should bear an  appropriate meaning,  in the  context of  the  main provision, Section  33(1)(a) of the Act. Section 34(3)(b) is closely linked  to Section  33(1)(a) of  the Act. Keeping in view the purpose, for which the relief by way of development rebate is  afforded under  Section 33(1)(a)  of the  Act, in cases where the machinery or plant is not wholly used by the assessee for  he purpose  of business carried on by him, for the specified  period,  and  such  user  is  given  over  to another, it can be safely stated that the machinery or plant is  "otherwise  transferred"  by  the  assessee  to  another person. In  the above  view of  the matter,  we are   of the view, that  the withdrawal of the development  rebate by the Income Tax Officer in the amendment order dated 30.3.1970 by relying on  Section 34(b)  of the  Act is  justified. We are broadly in  agreement with  the decision  of the Kerala High Court  reported   in  Blue   Bay  Fisheries_(P)   Ltd.   vs. Commissioner   of   Income-Tax   (166   ITR   1),   in   the interpretation of  the crucial  words occurring  in  Section 34(3)(b) of  the Act,  "otherwise transferred". We set aside the decision  of the  Allahabad High  Court and  also of the Appellate Tribunal and answer the question formulated by the Revenue under  Section 256(1) of the Act in the negative, in favour of  the Revenue  and against the assessee. The appeal is accordingly allowed. There shall be no order as to costs.