S.C : Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that there was no mistake apparent from record in the grant of development rebate and that the ITO had no jurisdiction to pass a rectification order under s. 155(5) of the IT Act, 1961, to withdraw the development rebate allowed therein ?

Supreme Court Of India

CIT vs. Dalmia Magnesite Corporation

Sections 154, 155(5)

Asst. Year 1960-61, 1961-62

S.C. Agrawal & G.B. Pattanaik, JJ.

Civil Appeals Nos. 1064 to 1067 of 1982

20th March, 1997

Counsel Appeared

V. Gaurishankar with S. Rajappa, C. Radhakrishna and B.K. Prasad, for the Appellants : Hari Harlal & R.K.Maheshwari, for the Respondent

JUDGMENT

By the court :

The Revenue has filed these appeals against the judgment of the Madras High Court dt. 2nd Nov., 1977, in T.C. Nos. 147, 146, 171 and 240 of 1974. The appeals have been filed on the basis of certificate of fitness granted by the High Court under s. 261 of the IT Act, 1961 (hereinafter referred to as “the Act”). The High Court has, however, granted certificate to the Revenue only in respect of the judgment in T.C. No. 147 of 1974 because the questions referred in that case alone were answered against the Revenue. In the other three tax cases the questions referred were answered in favour of the Revenue and certificate of fitness was granted to the assessee. Under a misapprehension appeals have also been filed by the Revenue against the judgment in Tax Cases Nos. 146, 171 and 240 of 1974. The said appeals are dismissed as not maintainable. We would confine ourselves to the appeal against the judgment in Tax Case No. 147 of 1974 wherein the following two questions were referred to the High Court for its opinion by the Tribunal (hereinafter referred to as “the Tribunal”) :

“1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that there was no mistake apparent from record in the grant of development rebate and that the ITO had no jurisdiction to pass a rectification order under s. 155(5) of the IT Act, 1961, to withdraw the development rebate allowed therein ?

2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the ITO’s rectification order was really one under s. 155(5) of the IT Act, 1961, and that, therefore, the assessee’s appeal against such order was competent and maintainable in law ?” The questions relate to the asst. yrs. 1960-61 and 1961-62.

2. Dalmia Magnesite Corporation, Salem, the assessee herein, was a partnership firm having been constituted on 7th Nov., 1956. Originally it was having three partners, namely, (1) Orissa Cement Ltd., (2) Dalmia Cement Ltd. and (3) magnesite Corporation of India Ltd. Each partner had one-third share. The firm was established as an industrial undertaking for prospecting magnesite ores and manufacture of lead burnt magnesite. Production commenced on 1st Jan., 1959. The previous year for the asst. yr. 1960-61 was the period from 1st July, 1958, to 30th June, 1959. On 16th June, 1959, there was a change in the constitution of the firm and two of the partners, viz., Orissa Cement Ltd. and Dalmia Cement Ltd. retired from the firm and Dalmia Cement (Bharat) Ltd., became a partner. In the reconstituted firm, the share of Magnesite Corporation of India Ltd., continued to be one-third while that of Dalmia Cement (Bharat) Ltd. was two-thirds. Under a scheme framed by the Madras High Court by order dt. 16th Nov., 1962, in Company Petn. No. 46 of 1962, the assets of Magnesite Corporation of India L came to be vested in Dalmia Cement (Bharat) Ltd. and Magnesite Corporation of India Ltd., became a wholly owned subsidiary of Dalmia Cement (Bharat) Ltd., w.e.f. 1st Jan., 1963. As a result the shareholding of the partners in the assessee-firm changed and the share of Magnesite Corporation of India Ltd. was reduced to one- tenth while that of Dalmia Cement (Bharat) Ltd. was increased to nine-tenths. A scheme for amalgamation of the two companies (partners in the assessee-firm) was submitted before the Madras High Court in Company Petn. No.27 of 1964 filed under s. 394 of the Companies Act, 1956. The said scheme was approved by the High Court by order dt. 10th July, 1964, w.e.f. 1st Jan., 1964. Under the said scheme, the undertaking of Magnesite Corporation of India Ltd. vested in and became the property of Dalmia Cement (Bharat) Ltd., as on and from 1st Jan., 1964, and Magnesite Corporation of India Ltd. without winding up, stood dissolved on 1st Jan., 1964. The assessee had obtained the benefit of development rebate during the asst. yrs. 1960-61 and 196162 under s. 10(2)(vib) of the Indian IT Act, 1922. On 23rd Dec., 1967, the ITO in exercise of his powers under s. 155(5) of the Act passed orders withdrawing the development rebate that was allowed to the assessee in respect of the asst. yrs. 1960-61 and 1961-62. The said order was affirmed by the AAC on appeal. On further appeal the Tribunal decided in favour of the assessee on the view that there was no mistake apparent from the record in the grant of development rebate and that the ITO had no jurisdiction to pass a rectification order under s. 155(5) of the Act to withdraw the development rebate allowed therein. At the instance of the assessee, the two questions mentioned above were referred by the Tribunal to the High Court for its opinion. While dealing with the first question the High Court has held that in order that cl. (1) of sub-s. (5) of s. 155 of the Act may be attracted there must be a sale or a transfer of the plant installed by the assessee and that such transfer must be by the assessee and that in the present case it could not be said that there has been a transfer by the assessee of the plant or machinery and that any change in the ownership of the assets had been effectuated by virtue of an order passed by the High Court in the company petition whereby the rights of one of his partners in the assets were vested in the other partner. According to the High Court this could, by no stretch of imagination, be treated as a transfer by the assessee of the plant and machinery and, therefore, s. 155(5) could not be attracted and the order passed by the ITO rectifying the original assessment order under s. 155(5) was not sustainable. On the second question the High Court has held that in view of the specific provision made in s.155(5) for rectification of assessment orders, the said provision alone could be invoked and the general provision in s. 154 of the Act was not applicable.

3. Dr. Gauri Shankar, learned senior counsel appearing for the Revenue, in support of the appeal, has urged that in the absence of the winding-up of Magnesite Corporation of India Ltd., the said company had continued to exist and, therefore, it could not be said that the assessee had ceased to exist on 1st Jan., 1964. The said contention of learned counsel, however, runs against para 8 of the scheme, approved by the Madras High Court in Company Petn. No. 27 of 1964, whereunder it is stated thus : “The Magnesite Corporation of India Ltd., will without winding up stand dissolved on the effective date.”

4. The effective date was 1st Jan., 1964. In view of the said provision in the scheme Magnesite Corporation of India Ltd., stood dissolved on 1st Jan., 1964. This provision in the scheme is not open to challenge in these proceedings. It must, therefore, be held that on 1st Jan., 1964, only one partner of assessee-firm, viz. Dalmia Cement (Bharat) Ltd. was left and since a partnership could not continue with one partner the assessee-firm should be treated to have stood dissolved on 1st Jan., 1964.

In the facts and circumstances of this case we do not find any infirmity in the impugned judgment of the High Court whereby the two questions referred to it for opinion have been answered against the Revenue on the basis that in view of the special provision for rectification of an assessment order contained in s. 155(5) the general power of rectification contained in s. 154 was not applicable and that the power under s. 155(5) could not be invoked in the facts of the present case because there was no transfer of plant by the assessee-firm. The appeal, therefore, fails and is accordingly dismissed. No order as to costs.

[Citation: 236 ITR 46]

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