- (1.) The following question was referred to the High Court of Madras under Section 256 (1) of the Income-tax Act, 1961 : "Whether on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the provisions of Section 155 (5) of the Income-tax Act, 1961 are not applicable to the facts of the case and that the Development rebate allowed for assessment years 1960-61 to 1965-66 cannot be withdrawn by the Income-tax Officer -
(2.) The assessee at the material time, was a Hindu undivided family of which one Srinivasa Iyer was the Karta and his son, the respondent, was a coparcener. The joint family carried on business. For the assessment years 1960-61 to 1965-66 development rebate was allowed to the joint Hindu family on new machinery and plant installed by joint Hindu family for the purpose of its business. On 1-8-1967, there were a partial partition of the joint family and the plant and machinery which had been the subject matter of development rebate was allotted to the two coparceners at written down value. After the partition, the two members sold the machinery and plant allotted to them respectively to a third party on 1st of October, 1967.
(3.) On coming to know of the sale within a period of eight years from the installation of the said plant and machinery, the Income-tax Officer by his letter dated 6th of February, 1961, proposed to withdraw the development rebate granted to the assessee on the ground that the machinery had been sold within the statutory period. It was contended on behalf of the assessee that the person to whom the development rebate had been allowed was the Hindu undivided family. The Hindu undivided family did not sell or transfer the plant or machinery and hence Section 155 (5) of the Income-tax Act, 1961 would not be attracted. This contention has been upheld by the Tribunal as well as by the High Court. The High Court further held that the Hindu undivided family had not merely not sold the machinery or plant itself, or transferred it, but it had also not ceased to utilise the amount credited to the reserve fund as contemplated by Section 34 (3). As a result, the withdrawal of the development rebate by the Income-tax Officer was held to be wrong.;