DIVAN, J. - (1.) THE petitioner in this case was, prior to its dissolution on August 31, 1963, a partnership firm registered under the provisions of the Indian Partnership Act. Though the firm has been dissolved with effect from August 31, 1963, as the subject -matter of the writ petition is pending, the said firm is deemed to continue in connection with that subject -matter. All the partners of the petitioner -firm are citizens of India having their domicile in India. The business of the petitioner -firm was to manufacture hosiery goods and sell the same. In the financial years 1959 -60 and 1960 -61, corresponding to the assessment years 1960 -61 and 1961 -62, the petitioner -firm had purchased some new machinery for purpose of its business. The Income -tax Officer, while assessing the petitioner -firm for those assessment years, had allowed development rebate to the extent of Rs. 4,006 for assessment year 1960 -61 and Rs. 7,382 for assessment year 1961 -62. This was done under the provisions of section 10(2)(vib) of the Indian Income -tax Act, 1922 (hereinafter referred to as 'the Act of 1922').
(2.) BY a deed of dissolution executed by the partners of the petitioner -firm on August 31, 1963, the petitioner -firm was dissolved and under the terms of the deed of dissolution, the partners distributed amongst themselves the machinery which had been purchased by the firm in assessment years 1960 -61 and 1961 -62. These items of machinery, along with several other items of machinery, were thus distributed amongst the partners on dissolution. Respondent No. 1, who is the Income -tax Officer in charge of the case of the petitioner -firm, assessed the petitioner -firm for assessment year 1964 -65 after the petitioner -firm was dissolved. During the course of the assessment proceedings for that year, respondent No 1 held that the petitioner had otherwise transferred' the machinery acquired by it in assessment years 1960 -61 and 1961 -62 before the expiry of the statutory period of eight years prescribed under section 34(3)(b) of the Income -tax Act, 1961 (hereinafter referred to as 'the Act of 1961'). Respondent No. 1, thereupon, passed orders under section 155(5) of the Act of 1961 withdrawing the development rebate granted to the petitioner -firm in the assessment years 1960 -61 and 1961 -62. These orders were passed by respondent No. 1 on November 8, 1965. The petitioner -firm contends that even though the machinery was distributed amongst the partners on the dissolution of the firm, as stated above, the first respondent has wrongly treated the machinery which had been the subject -matter of development rebate as 'otherwise transferred'. Against the decision of the first respondent, the Income -tax Officer, the petitioner -firm filed appeals before the Appellate Assistant Commissioner who, by his orders passed on May 4, 1967, dismissed the appeals and confirmed the orders passed by the first respondent, Income -tax Officer. The petitioner -firm filed appeals before the Income -tax Appellate Tribunal but it was held by the Tribunal that though the orders withdrawing the rebate were purporting to have been passed under section 155(5) of the Act of 1961, in reality and substance, they were orders passed under section 35(11) of the Act of 1922 and under the provisions of section 30 of the Act of 1922, no appeals could lie against the orders withdrawing the development rebate since the orders were passed as and by way of rectification. This contention urged on behalf of the revenue was upheld by the Income -tax Appellate Tribunal and the Tribunal held that no appeal lay against the orders passed by the Income -tax Officer withdrawing the development rebate. Thereafter, the petitioner -firm approached the Income -tax Appellate Tribunal for referring certain question of law to the High Court. However, subsequently, those reference applications were withdrawn by the petitioner -firm with the permission granted by the Tribunal. Subsequently, however, the first respondent there in, the Income -tax Officer filed Special Civil Application No. 29 of 1971 [V. P. Minocha, Income -tax Officer v. Income -tax Appellate Tribunal : [1977]106ITR691(Guj) ] under articles 226 and 227 of the Constitution praying for calling the record and proceedings of the orders and setting aside the same and for restoring the order annexure 'A -3' to the petition. This petition was allowed by this High Court by its judgment and order dated October 15, 1973, and the order, annexure 'A -4', to the petition was set aside and the order, annexure 'A -3', was restored. Thereafter, the petitioner has filed this special civil application praying for a declaration that the provisions of clauses (i) and (ii) of section 35(11) and section 30 of the Act of 1922 in so far as the same relate to withdrawal of development rebate and so far as they provide for non -maintainability of appeal against the order of withdrawal of development rebate under section 10(2)(vib) are ultra vires the Constitution as being violative of articles 14, 19(1)(f), 31(1) and 19(1)(g) of the Constitution. He has also prayed for a declaration that the order, annexure 'A -1', passed by the first respondent and the order, annexure 'A -2', passed by the 2nd respondent are ultra vires the Constitution being violative of articles 14, 19(1)(f) 31(1) and 19(1)(g) of the Constitution and are also illegal even if they are not ultra vires. He has prayed for the appropriate orders, writs or directions against the Income -tax Officer and the Appellate Assistant Commissioner may be issued quashing and setting aside the order passed respectively by them in the case of the petitioner and he has prayed for appropriate directions or orders directing the two respective respondents to refund to the petitioner and its partners the amount of the orders passed by respondents Nos. 1 and 2.
(3.) IT must be borne in mind that the partnership firm was dissolved with effect from August 31, 1963, and apart from working out the legal consequences on dissolution, nothing else has been done by the partners of the firm indicating that the plant or machinery in respect of which the development rebate has been allowed in the past has been transferred. As to what is the effect of dissolution of the firm has been analysed by the Supreme Court in Commissioner of Income -tax v. Dewas Cine Corporation : [1968]68ITR240(SC) . In that particular case before the Supreme Court, S. G. Sanghi and Hari Prasad, each of whom owned a cinema theatre, formed a partnership to carry on business in partnership as exhibitors of cinematograph films, bringing the theatres into the books of the partnership as its assets. For the assessment years 1950 -51 to 1952 -53 the Income -tax Officer allowed depreciation aggregating to Rs. 44,380 in the assessment of the partnership in respect of the two theatres. On the dissolution of the partnership on September 30, 1951, it was agreed between Sanghi and Hari Prasad that the theatres should be returned to their original owners. In the books of account of the partnership the assets were shown as taken over at the original price less the depreciation allowed, the depreciation being equally divided between Sanghi and Hari Prasad. The Tribunal held the by restoring the theatres to the original owners there was a transfer by the partnership and the entries adjusting the depreciation and writing off the assets of the original value amounted to total recoupment of the entire depreciation by the partnership and on that account the second proviso to section 10(2)(vii) of the 1922 Act applied. On these facts the Supreme Court held that, on the dissolution of the partnership, each theatre had to be deemed to be returned to the original owner in satisfaction partially or wholly of his claim to a share in the residue of the assets after discharging the debts and other obligations. But, thereby, the theatres were not in law sold by the partnership to the individual partners in consideration of their respective shares in the residue, and, therefore, the amount of Rs. 44,380 could not be included in the total income of the partnership under the second proviso to section 10(2)(vii).;