JUDGMENT
T.D. Sugla, J.
1. This is an assessee’s reference relating to his assessment for the assessment years 1964-65 to 1970-71. The assessee, it is common ground, has been purchasing new machinery year after year on which he claimed and was allowed development rebate as under :
Assessment year Amount allowed
Rs.
1964-65 23,717
1965-66 41,683
1965-67 5,770
1967-68 28,066
1968-69 49,488
1969-70 2,265
1970-71 2,835
2. By a deed of partnership dated January 1, 1970, he converted his business into a partnership and contributed the business hitherto run by him, as proprietor by way of his capital contribution. Thereafter, his entire business, including the assets on which development rebate was allowed to him from year to year, became the property of the partnership firm in which he was also a partners. By applying the provisions of section 155(5) of the Income-tax Act, the Income-tax Officer withdrew the development rebate allowed to him in the earlier years under section 34(3)(b) holding that it was a case of transfer of assets within eight years of installation. The appeals filed by the assessee before the Appellate Assistant Commissioner and the Tribunal failed.
3. The Income-tax Appellate Tribunal has referred to this court the following two questions of law under section 256(1) of the Income-tax Act, 1961 :
“(1) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in upholding the withdrawal under section 155(5) of the Income-tax Act, 1961, of the development rebate earlier allowed in respect of the plant and machinery employed in the proprietary concern of the assessee but which the assessee brought into the partnership concern ?
(2) Whether the Tribunal was eight in holding that in the conversion of the proprietary concern of the assessee into a partnership firm, there had been a ‘transfer’ of the plant and machinery employed in the proprietary concern to attract section 34(3)(b) and section 155(5) of the Income-tax Act, 1961 ?”
4. Ms. Patel, learned counsel for the assessee, fairly admitted that the supreme court, in the case of Sunil Siddharthbhai v. CIT , held that when a partner brings in his personal assets to a partnership firm of which he becomes a partner by way of capital contribution, such an act on the part of the partner may not amount to sale of assets to the partnership firm, but it certainly amounts to transfer of the assets by the individual to the firm. However, according to her, this judgments is not applicable in this case as the said judgment was delivered in the context of “transfer” of a capital asset for the purpose of capital gains and not for the purpose of section 34(3)(b). She submitted that the Madras High Court’s decision in the case of CIT v. Vijaya Productions Pvt. Ltd. (No. 1 [1985] 152 ITR 613, was squarely applicable in this case and, therefore, the questions must be answered in favour of the assessee.
5. Dr. Balasubramaniam, learned counsel for the Revenue, on the other hand, stated that question were squarely covered by the Supreme Court decision Sunil Siddharthbhai v. CIT against the assessee and must be answered in favour of the Revenue.
6. We have carefully considered the provisions of sections 45, 2(47) and 34(3)(b). Section 2(47) is a definition section. The definition therein, no doubt. Applies to “transfer” in relation to a capital asset. In the absence of dispute that section 34(3)(b) also uses the word “transfer” and the machinery herein also constitutes capital assets, it is not possible to accept that the definition clause, i.e., section 2(47), does not or will not apply while considering the word “transfer” as used in section 34(3)(b) Moreover, we find that a Full Bench of the Kerala High Court in the case of A. Abdul Rahim, Travancore Confectionery Works v. CIT [1977] 110 ITR 595, and the Karnataka High Court in the case of Addl. CIT v. M. A. J. Vasanaik [1979] 116 ITR 110, considered the purport and scope of the word “transfer” in the context of section 34(3)(b) and held that the contribution by a partner of a capital asset to the firm as capital amounts to transfer. We further find that these two decisions have been specifically approved by the Supreme Court in the case of Sunil Siddharthbhai in the following terms (p. 520) :
“Accordingly, we hold that when the assessee brought the shares of the limited companies into the partnership firm as his contribution to its capital, there was a transfer of a capital asset within the meaning of the terms of section 45 of the Income-tax Act. In this view of the matter, we agree with the conclusion reached by the Kerala High Court in A. Abdul Rahim, Travancore Confectionery Works v. CIT [1977] 110 ITR 595 [FB], the Karnataka High Court in Addl. CIT v. M. A. J. Vasanaik [1979] 116 ITR 110 and by the Gujarat High Court in the judgment under appeal.”
7. In the circumstances, the view taken by the Tribunal appears to us to be in conformity with the view subsequently taken by the Supreme Court. Both the questions of law are, accordingly, answered in the affirmative and in favour of the Revenue.
8. No order as to costs.