Y.V. Anjaneyulu, J.
1. This is a reference at the instance of the Commissioner of Income-tax under section 256(1) of the Income-tax Act, 1961 (hereinafter referred to as 'the Act'). Two questions are referred for the consideration of this court and they are :
'(1) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is correct in holding that there is no case for withdrawal of development rebate when a partner pools his individual assets as part of his capital with the firm's property and it is neither a sale nor a transfer
(2) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is correct in law in holding that the Income-tax Officer had no jurisdiction to proceed under section 155(5) of the Income-tax Act so as to withdraw the development rebate ?'
1. The matter relates to the assessment years 1974-75 and 1975-76. In the income-tax assessments for the years 1974-75 and 1975-76 of the assessee, development rebate was allowed under section 33 of the Act in the computation of the total income. Section 34 sets out the conditions governing the grant of development rebate. According to section 34(3)(b) of the Act, if the machinery or plant in respect of which development rebate was allowed is sold or otherwise 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 of the Act shall be deemed to have been wrongly made for the purpose of the Act and the provisions of section 155(5) come into operation. In the present case, it appears, the assets in respect of which development rebate was allowed for the years 1974-75 and 1975-76 were transferred to a partnership firm known as 'Liberty Industries' consisting of the assessee to whom development rebate was originally granted and another person. The assets in respect of which development rebate was allowed were thrown into the partnership stock, so that those assets were henceforth regarded as partnership property under section 14 of the Indian Partnership Act. The income-tax Officer was of the opinion that when an individual throws his assets in respect of which development rebate was allowed into the common stock of the partnership, there is a transfer within the meaning of section 34(3)(b). The provisions of section 155(5) were applied and the development rebate allowed was withdrawn. The Income-tax Officer passed two separate orders withdrawing the development rebate for the assessment years 1974-75 and 1975-76.
2. The assessee filed appeals before the Commissioner of Income-tax (Appeals) against the orders of the Income-tax Officer withdrawing the development rebate which was allowed for the two years under consideration. The Commissioner (Appeals) allowed the assessee's appeal holding that when the assessee threw the assets in respect of which development rebate was allowed into the common stock of the partnership, there was no unconditional parting with the assets. Learned Commissioner held that the assessee continued to retain some form of interest in the assets. In that view, the provisions of section 2(47) of the Act, the Commissioner held, were not attracted and withdrawal of the development rebate was not justified in law. The Income-tax Officer's orders withdrawing the development rebate originally allowed were accordingly cancelled by the Commissioner.
3. The Revenue filed appeals before the Income-tax Appellate Tribunal questioning the correctness of the Commissioner's orders. The Tribunal held that both legally and factually, the assessee ceased to be an individual owner of the assets once he threw them into the common stock of the partnership. The Tribunal did not accept the Commissioner's view that there was no unconditional parting of the assets by the assessee when he formed the partnership firm. On the question whether a transfer is involved in the transaction, the Tribunal referred to the relevant provisions of law and also judicial pronouncements and held that the extended definition in section 2(47) of the Act relating to the 'transfer in relation to a capital asset', cannot be invoked for the purpose of withdrawal of development rebate, as the extended definition will be applicable only in connection with the computation of capital gain on the transfer of an asset. The Tribunal, therefore, held there is no case for withdrawal of development rebate when a partner pools his individual assets as part of his capital with the firm's property. Such a transaction is neither a 'sale' nor a 'transfer otherwise'. The Tribunal noticed that there is conflict of judicial opinion and felt that the benefit of doubtful interpretation should go in favour of the assessee, as pointed out by the Supreme Court in the case of CIT v. Vegetable Products Ltd. : [1973]88ITR192(SC) . The Tribunal also examined the further question raised by the assessee that although the Income-tax Officer purported to have passed the order under section 155(5), the provisions of section 154 should also be simultaneously satisfied, as indicated in section 155(5) itself. The Tribunal held that not only the provisions of section 155(5) should be satisfied so that if there is any debatable point of law, it cannot be said to be a mistake which could be rectified under section 154 of the Act as held by the Supreme Court in T. S. Balaram, ITO v. Volkart Brothers : [1971]82ITR50(SC) . The Tribunal finally held that unless 'the event envisaged in section 155 of the Act is self-evident and unambiguous, that section cannot be invoked'. Having regard to the aforesaid views, the Tribunal upheld the order of the first appellate authority and dismissed the Revenue's appeals.
4. The Commissioner of Income-tax, aggrieved by the order of the Tribunal, applied for and obtained this reference under section 256(1) of the Act. We have already indicated the two questions referred for the consideration of this court in paragraph 1 (at p. 243) supra.
5. We have heard learned standing counsel for the Revenue, Shri M. S. N. Murthy, and Shri M. J. Swamy, learned counsel for the assessee. On the facts referred to above, the following questions do arise for consideration in this reference :
'(i) Whether there is a transfer of property according to general law when an individual throws his property into the common stock of a partnership firm of which he is a partner
(ii) If under general law, there is no transfer, whether the definition contained in section 2(47) of the Income-tax Act, 1961, will have application to cases other than those relevent for the purpose of determining capital gain, if any, on the sale of capital assets under section 45 of the Income-tax Act
(iii) If the said definition is applicable, whether there is a transfer of property within the extended meaning of section 2(47) of the Income-tax Act when an individual throws his property into the common stock of a partnership firm
(iv) Whether, on the facts and in the circumstances of the case, development rebate already granted can be withdrawn under section 155(5) of the Income-tax Act ?'
6. We shall first consider the question whether there is a transfer of property according to general law when an individual throws his property into the common stock of a partnership firm of which he is partner. The question has come up for consideration before courts and it will be profitable to refer to the views enunciated by different courts in the matter. In CIT v. C. M. Kunhammed : [1974]94ITR179(Ker) , the matter was considered by the Kerala High Court. That was also a case where development rebate originally granted had been withdrawn acting under section 155(5). Adverting to the decisions of the Supreme Court in CIT v.Dewas Cine Corporation : [1968]68ITR240(SC) and CIT v. Bankey Lal Vaidya : [1971]79ITR594(SC) , the Kerala High Court observed (headnote) :
'It is impossible to hold that there had been a sale, or a transfer otherwise, of the machinery by the formation to the partnership, for the principles of the said decisions which held that there was no transfer of assets on the dissolution of a partnership and distribution of assets, must apply with equal force to the formation of a partnership.
As there was no transfer of the machinery, the development rebate allowed could not be withdrawn under section 155(5) of the Income-tax Act, 1961.'
7. It is obvious that the Kerala High Court had considered the question not only from the point of view of sale but also from the point of view of 'transfer otherwise', as the expression used in section 34(3)(b) of the Act was 'sold or otherwise transferred'. The Kerala High Court came to the conclusion that when an individual throws the assets in respect of which development rebate was originally allowed, there is neither a sale nor a transfer otherwise and, consequently, there is no contravention of the provisions contained in section 34(3)(b) of the Act. In that view, section 155(5) was held to be inapplicable for the purpose of withdrawing the rebate originally granted.
8. We may refer to the decision of the Calcutta High Court in CIT v. Hind Construction Ltd. : [1970]78ITR664(Cal) . This was a case where two individuals transferred certain machinery to a partnership firm, of which they have become partners, at a value far greater than the value of that machinery according to the books of the two individuals. The question arose as to whether the two individuals are liable to be taxed on the surplus arising on the transfer of the machinery to the partnership firm. The Calcutta High Court had referred to a number of authorities in order to consider the question whether the transaction could be considered to be a sale of machinery by the individuals to the partnership firm, or whether the transaction could otherwise be considered to be a transfer resulting in gain to the individual partner. The High Court held (at p. 676) :
'Thus, the assessee and Patel Engineering Co. have only transferred their respective interests in the disposal machinery to their own firm. The transfer, if at all, is transfer to itself or to its own account. We are convinced that the nature of the transaction could at best be described as a readjustment of their assets in such a way that they can do their business in a different way. There is no question of ownership being transferred from one distinct person to another nor was there any consideration received by one individual from the other. Thus, there is no question of the assessee making any profit or gain and, therefore, the mere fact that the assessee transferred its interest to the assessee's firm at an appreciated value does not make the assessee liable to pay tax on the difference between the original price and the appreciated price.'
9. Thus, the Calcutta High Court was of the view that when plant and machinery belonging to an individual is thrown into the common stock of a partnership firm of which the individual has become a partner, there is neither a sale yielding any profit nor is there a transfer to a different entity other than the individual in order to yield any profit or gain to the individual.
10. The aforesaid decision of the Calcutta High Court was affirmed by the Supreme Court in CIT v. Hind Construction Ltd. : [1972]83ITR211(SC) . It may be significant to point out that the Supreme Court examined the question only from the point of view of sale and upheld the Calcutta High Court's view that there was no sale when an individual partner throws machinery belonging to him individually into the common stock of a partnership firm. The following observations of the Supreme Court are relevant (at p. 214) :
'The finding of the Tribunal was that there was no sale either at the time when the assessee inflated the price of the machinery which fell to its share at the time of the division or-at the time when the new partnership was created. Same is the finding of the High Court. We agree with these findings The machinery that fell to the share of the assessee was never sold. Therefore, there was no question of the assessee making any profit out of them. No one can sell his goods to himself. A sale contemplates a seller and a purchaser. If a person revalues his goods and shows a higher sold these goods and made profits therefrom. Nor can a person by handing over his goods to a partnership of which he is a partner and that as his share of capital be considered as having sold the goods to the partnership. It is difficult to appreciate the arguments advanced on behalf of the Department that there was a sale either at the time when the assessee showed an inflated price of the machinery that fell to its share at the division or when that machinery was used as the capital of the new firm of which he was a partner.'
11. It would thus be seen that the Supreme Court affirmed the view that there is no sale. The further question 'whether there is a transfer otherwise' was not considered by the Supreme Court, although the Calcutta High Court had specifically held that the nature of the transaction could at best be described as a readjustment of the assets and even if there is a transfer, it is a transfer to itself or to its own account. As the question was not examined by the Supreme Court, it must be held that the Supreme Court did not disapprove the view of the Calcutta High Court that the transaction did not involve a transfer.
12. We may now notice the oft-quoted decision of the Madras High Court in CIT v. Janab N. Hyath Batcha Sahib : [1969]72ITR528(Mad) . That was a case where the assessee transferred three lorries belonging to him individually to the partnership firm of which he became a partner. In consideration of the transfer of the three lorries, the assessee's account was credited with Rs. 15,000. In the assessee's books, the written down value of the three lorries was only Rs. 2,558. The question was whether the difference of Rs. 12,242 (Rs. 15,000 - Rs. 2,558) could be assessed as profit in the hands of the assessee. The Madras High Court considered this transaction from the point of view of a sale by the individual to the partnership firm and also from the point of a transfer generally. The Madras High Court held that the impugned transaction was not a sale. It further considered and held that the impugned transaction also did not involve a transfer. The following observations of the Madras High Court may be referred to (at p. 532) :
'But we are inclined to think that the assessee, having regard to the circumstances in which he entered into the partnership, did not intend a transfer of the lorries with a view to completely divest himself of his interest therein. Whatever may be the position when an association of persons converts itself into an incorporated company, in the case of one or more persons forming a firm of partnership, the question of transfer does not meet with any corporate character and the necessity to pierce its veil. Once we regard a firm as not a legal entity, we fail to recognise any half way house. It should follow, therefore, that when A, as an individual, hands over his property to A and B constituting a firm of partnership, there is no transfer of property involved.'
13. The Madras High Court further observed at pages 533-534 :
'Section 14 of the Indian Partnership Act shows the different processes or methods by which a firm or partnership may come to possess property. The section says 'the property of the firm includes all property and rights and interests in property originally brought into the stock of the firm or acquired, by purchase or otherwise, by or for the firm'. This is, of course, subject to the contract between the parties. When a partnership is formed for the first time and one of the members of the partnership brings into the firm assets, they become the property of the firm, not by any transfer, but by the very intention of the parties evinced in the agreement between them to treat such property belonging to one or more of the members of the partnership as that of the firm. This view receives support from Firm Ram Sahay v. Bishwanath, : AIR1963Pat221 , Prem Raj Brahmin v. Bhani Ram Brahmin, 1946 1 ITR 191 and CIT v. Dewas Cine Corporation : [1968]68ITR240(SC) . In the last of these cases, the Supreme Court expressed the view :
'When the two partners brought in the theatres of their respective ownership into the partnership, the theatres must be deemed to have become the property of the partnership...'Sale,' according to its ordinary meaning, is a transfer of property for a price, and adjustment of the rights of the partners in a dissolved firm is not a transfer, nor it is for a price.'
In principle what applies to dissolution equally applies to the earlier stage of formation of partnership and handing over of assets to the firm by one or more of its members.'
14. We may refer to a more recent judgment of the Madras High Court in Baldevji v. CIT : [1985]156ITR776(Mad) . This was also a cases where on the individual transferring the assets in respect of which development rebate was originally granted, the Revenue withdrew the rebate acting under section 155(5) of the Act. The correctness of the Revenue's action was questioned. The Madras High Court referred to Batcha Sahib's case : [1969]72ITR528(Mad) and referred to the court's finding that the transaction was neither a sale nor a transfer otherwise. The view that it was not a transfer otherwise was not followed by the Madras High Court in Baldevji's case : [1985]156ITR776(Mad) on the short ground that the clear-cut distinction made by the Supreme Court between the legal consequences of the formation of a partnership on the one hand and the dissolution of a partnership on the other was not followed by the court. We may refer to the following observations at page 782 :
'Notwithstanding the clear-cut distinction made by the Supreme Court between the legal consequences of the formation of a partnership on the one hand, and the dissolution of partnership on the other, as respects the jural character of the transactions, this court in CIT v. Janab N. Hyath Batcha Sahib : [1969]72ITR528(Mad) seems to have thought that there was no material difference between the two terminal transactions. For coming to that conclusion, this court not only relied on the observations of the Supreme Court, but set them down verbatim in a question. The quotation, however, is not of a contiguous passage of the Supreme Court's judgment, but widely separated portions of the Supreme Court's judgment taken from different parts of the judgment, and joined together ruling, therefore, we should express our preference, as we must abide by the decision of the Supreme Court rather than be led by the observations contained in the judgment of this court.'
16. It would, therefore, be seen that while the view that the impugned transaction was not a sale was held to be correct, the decision in Baldevji's case : [1985]156ITR776(Mad) recognised that there is a 'transfer otherwise' within the meaning of section 34(3)(b) of the Act and, consequently, section 155(5) of the Act becomes applicable. The Bench held that when an individual throws his individual assets into the common stock of a partnership firm of which he becomes a partner, there is no sale; nevertheless, there is a transfer otherwise. The learned judges deciding Baldevji's case : [1985]156ITR776(Mad) came to the conclusion that the expression 'sold or otherwise transferred' occurring in section 34(3)(b) of the Act is fairly wide and the subject and context of section 155(5) clearly pointed out to the intention of Parliament that the machinery which has obtained a grant of development rebate by reason of its having come under the ownership of the assessee should continue to remain in the same ownership and should not be parted with by him for a period of at least eight years from the date of installation. The High Court held that (headnote) :
'It stands to reason, therefore, that the expression 'otherwise transferred' must be given such wide amplitude of meaning as is consistent with its ordinary connotation.
There cannot be a warrant for cutting down that meaning to any extent.'
17. We then refer to the decision of the Karnataka High Court in Addl. CIT v. M. A. J. Vasanaik : [1979]116ITR110(KAR) . This was also a case of withdrawal of rebate on the ground that the individual to whom the rebate was allowed transferred the asset to a firm of which he became a partner during the prohibited period. The High Court noticed the assessee's contention that on the conversion of an individual business into a partnership in which the owner of the individual business is also a partner and the assets of the individual business being treated as partnership assets, no transfer of the assets of the individual takes place in the eye of law. After examining the relevant provisions of law and also judicial pronouncements, the High Court held (at p. 122) :
'The legal results which flow from the individual's property being converted into partnership property are that the partner to whom the property belonged before becoming partnership property losses his exclusive title to it and the right he thereupon acquires is only the right of a partner in the partnership assets, in accordance with the partnership agreement and the provisions of the Partnership Act. There is virtually a transfer of his right in the property to the partners of the firm including himself. Section 5 of the Transfer of Property Act recognises transfer from an owner to himself and others. But the Transfer of Property Act is not an exhaustive code dealing with all kinds of transfers. As its preamble suggests, it deals with only certain kinds of transfers. It cannot, therefore, be said that any act which transfers right in property but which is not covered by the Transfer of Property Act is no transfer.'
18. The High Court had also occasion to consider whether the extended definition of the transfer in relation to a capital asset contained in section 2(47) of the Act is applicable in a case like this. The High Court held (at p. 124) :
'We are of the opinion that in order to hold that on the individual business being converted into partnership business there is a transfer of the assets of the individual to the partnership, it is not necessary to rely on the definition in section 2(47) at all because the said transaction amounts to a transfer in the eye of law even when the word 'transfer' is understood in the ordinary sense and not in the wider sense in which it is defined in section 2(47) of the Act.'
19. Finally, the High Court held (at p. 125) :
'On the conversion of the property of an individual into property of a firm of which he is a partner, there is a transfer of interest of the individual to the partnership and section 34(3)(b) and section 155(5) of the Act are attracted where development rebate has been allowed in respect of the property which becomes partnership property.'
20. The effect of the Karnataka judgment, therefore, is that when an individual transfers assets to a partnership firm, there is a transfer under general law and, consequently, the provisions of section 34(3)(b) read with section 155(5) come into operation. The High Court did not consider that the transaction could be regarded as a transfer by applying only the extended definition in section 2(47) of the Act.
21. We next refer to the Full Bench judgment of the Kerala High Court in A. Abdul Rahim v. CIT : [1977]110ITR595(Ker) . This is also a case where development rebate was withdrawn for similar reasons. The Full Bench referred to the earlier Division Bench judgment in CIT v. Kunhammed : [1974]94ITR179(Ker) , wherein it was held that the impugned transaction is neither a sale nor a transfer otherwise and for that reason it was held that there was no contravention of section 34(3)(b) of the Act and, consequently, section 155(5) could not be applied. The Full Bench did not consider the view of the Division Bench erroneous but came to the conclusion that the impugned transaction is a transfer within the extended definition contained in section 2(47) of the Act. In that view, the Full Bench held there was a transfer of a capital asset within the meaning of section 2(47) of the Act attracting sections 34(3)(b) and 155(5) of the Act.
22. We have reviewed the important cases bearing on the point. Although there are several other cases on the question, we do not consider it necessary to refer to all those cases. We have to finally refer to the decision of the Supreme Court in Sunil Siddharathbhai v. CIT : [1985]156ITR509(SC) . A reference to this case is most essential as the Revenue has heavily relied on this case in support of the withdrawal of the development rebate and the Supreme Court had also considered the decisions of other High Courts to which we have adverted to above. At the outset, it is necessary to remember that the case before the Supreme Court was not one of withdrawal of development rebate but related to the assessment of capital gains allegedly arising out of a transaction under which an individual throws assets into the common stock of a partnership of which he became a partner. While considering this question, the Supreme Court had occasion to consider the decisions of High Courts bearing on the question of withdrawal of development rebate and expressed certain views. The Supreme Court referred to the decisions in CIT v. C. M. Kunhammed : [1974]94ITR179(Ker) , CIT v. Hind Construction Ltd. : [1970]78ITR664(Cal) and CIT v. Janab N. Hyath Batcha Sahib : [1969]72ITR528(Mad) and upheld the view of the respective High Courts that the transaction in question was not a sale. There is, however, no direct reference to the view enunciated by the High Courts that the impugned transaction was not also a transfer under general law or for purposes of section 34(3)(b) of the Act. The Supreme Court did not express disapproval of the Kerala, Calcutta and Madras High Courts' views that the impugned transaction was not a transfer under general law. The Supreme Court thought if fit to consider that these decisions were correct inasmuch as the impugned transactions were not sales. While stating that there is no difficulty in accepting the proposition that the impugned transaction is not one of sale, the Supreme Court considered whether the transaction can be described as 'a transfer of some other kind' and also considered the impact of section 2(47) for that purpose (page 517 of the Report). It was held that when an individual threw his assets into the partnership stock of a firm of which he is a partner, his exclusive interest is reduced to a shared interest and 'it would seem that there is transfer of interest'. Drawing a line of distinction of cases where partnership assets are distributed on dissolution of the partnership firm (see page 519), the Supreme Court pointed out that the position is different when a partner brings his personal assets into the partnership firm as his contribution to its capital. An exclusive interest in it before it enters the partnership is reduced on such entry into a shared interest. Having made these observations, the Supreme Court referred to the decisions of the Karnataka High Court in Addl. CIT v. M. A. J. Vasanik : [1979]116ITR110(KAR) and the Kerala Full Bench in A. Abdul Rahim v. CIT : [1977]110ITR595(Ker) and expressed the view (page 520) that it would agree with the conclusions reached by the two High Courts. Shri Swamy, learned counsel for the assessee, points out that the Karnataka and Kerala judgments project two different views and it was unlikely that the Supreme Court could agree with both the views. The Karnataka view was that there is a transfer under general law and there is no need to look into the extended definition contained in section 2(47) of the Act or the special expression 'sold or otherwise transferred' occurring in section 34(3)(b) of the Act, inasmuch as there is a transfer of assets under general law and the transaction must be regarded as one of transfer for the purposes of section 34(3)(b) and section 155(5). The Kerala Full Bench did not advance the theory that such a transaction could be regarded as amounting to a transfer under general law. The Full Bench held that it could be held to be a transfer only with reference to the extended definition contained in section 2(47) of the Act. Shri Swamy, therefore, urges that the transaction is either a transfer under general law or is a transfer by reason of the extended definition contained in section 2(47) of the Act and cannot be both. It is in this respect that Shri Swamy contends that the Supreme Court decision in Sunil Siddharthbhai's case : [1985]156ITR509(SC) may not be regarded as having settled the issue firmly that whenever an individual transfers assets to a partnership firm consisting of himself and others, there is a transfer under general law. Shri Swamy contends that the views expressed by the Kerala High Court in CIT v. C. M. Kunhammed : [1974]94ITR179(Ker) , by the Calcutta High Court in Hind Construction Co. : [1970]78ITR664(Cal) and by the Madras High Court in CIT v. Janab N. Hyath Batcha Sahib [1969] 72 ITR 582, referred to above, are still good law as the Supreme Court did not in terms disapprove the view that such a transaction does not amount to a transfer under general law. Shri Swamy, therefore, invites us to hold that the impugned transaction is not a transfer under general law that the extended definition of section 2(47) cannot be applied to cases where development rebate originally allowed has to be withdrawn as that extended definition, according to Shri Swamy, is applicable only to cases relating to capital gains. Logically, therefore, Shri Swamy's contention is that there is no transfer under general law and there is also no transfer under section 2(47) because this is not a case of capital gains and, consequenlty, there is no contravention of the provisions contained in section 34(3)(b) read with section 155(5) of the Act. While we see considerable force in the submission of Shri Swamy, we cannot omit to notice that the Supreme Court in Sunil Siddharthbhai's case : [1985]156ITR509(SC) drew a line of distinction between cases where partnership assets are distributed on dissolution and cases where assets are transferred to partnership firm on formation. Although there is no direct disapproval, it seems to us that the Supreme Court was clearly indicating that a transaction where an exclusive interest is reduced to a shared interest, there is a transfer of interest (see page 517). To this must be added the weight of the Supreme Court's approval of the conclusions in the Karnataka judgment in Addl. CIT v. M. A. J. Vasanaik : [1979]116ITR110(KAR) . The combine effect of all this is to lay down the proposition that when the assets of an individual in respect of which development rebate was originally allowed were thrown into the stock of partnership of which the individual is a partner, there is a transfer under general law or at any rate there is a 'transfer otherwise' within the meaning of section 34(3)(b) of the Act. In that view, the Revenue would be justified in withdrawing the development rebate applying section 34(3)(b) read with section 155(5) of the Act.
23. Shri Swamy invites our attention to the decision of this court in CIT v. S. Krishna Rao : [1985]154ITR643(AP) , where under identical circumstances, it was held that there was no transfer and development rebate cannot be withdrawn. Shri Swamy is right that the aforesaid decision of this court runs counter to what we have earlier observed. It must first be pointed out that the decision of the Supreme court in Sunil Siddharthbhai's case : [1985]156ITR509(SC) was not available at the relevant time. We also note that the matter had not been argued extensively as was done in the present case and that not all the aspects of the matter were brought into focus. That decision cannot, therefore, be taken to be an authority for the proposition that there is no transfer and consequently development rebate originally allowed cannot be withdrawn. It is because of this apparent contradiction that we examined the matter in greater detail and expressed our views taking into consideration the decisions of various courts. As far as the result of that case was concerned, it would not have made any difference because the reference was answered in favour of the assessee taking note of the fact that the development rebate allowed originally to the assessee was sought to be withdrawn by the transfer effected by some other person. Surely that was not permissible.
24. As we had already indicated above, Shri Swamy, learned counsel for the assessee, strenuously urged that if it should be eventually held that the impugned transaction is not a transfer under general law, then it is not open to the Revenue to apply the provisions contained in section 2(47) of the Act. Although in the view that we have taken it is unnecessary to deal with that question, Shri Swamy urged that for the sake of completeness, we may deal with this aspect of the matter and indicate our views. We are afraid there is not much that is left to us in view of the Supreme Court categorically approving the conclusion reached by the Kerala Full Bench in A. Abdul Rahim v. CIT : [1977]110ITR595(Ker) . We have earlier referred to the fact that the Supreme Court in Sunil Siddharthbhai's case : [1985]156ITR509(SC) , clearly indicated that it is in agreement with the conclusion reached by the Kerala Full Bench in Abdul Rahim's case : [1977]110ITR595(Ker) . We have also pointed out that the Kerala Full Bench had taken the view that in relation to the impugned transaction, the extended definition contained in section 2(47) of the Act is applicable. Apart from that, we have also referred to the enquiry by the Supreme Court at page 517 at to whether the impugned transaction can be described as a transfer of some other kind, although it may not amount to a sale. In that connection, the Supreme Court referred to the kinds of transfers provided by clause (47) of section 2. It is, therefore, clear that the Supreme Court is equally exercised by the alternative consideration regarding the application of the extended definition in section 2(47) of the Act. Learned counsel, Shri Swamy, pointed out that before the Kerala Full Bench no argument was advanced that the extended definition in section 2(47) is applicable only to cases of capital gains and not to other cases and that, therefore, the Kerala Full Bench had no occasion to consider the issue. That is so. Shri Swamy, on the other hand, invites our attention to the judgment of the Madras High Court in Baldevji's case : [1985]156ITR776(Mad) , wherein the Madras High Court had taken the view that the extended definition concerning 'transfer in relation to a capital asset' as well as the definition of 'capital asset' contained in section 2(14) have relevance only to the charge of tax under the head 'Capital gains' and not to other categories of cases. The Madras High Court dealt with this aspect at considerable length and expressed the view that if the impugned transaction were to be regarded as a transfer within the extended definition of section were to be regarded as a transfer within the extended definition of section 2(47), then the answer would be in the negative. The Madras High Court was categorical that the definitions in section 2(14) and section 2(47) of the Act refer only to capital gains and have nothing to do with the withdrawal of development rebate under section 34(3)(b) read with section 155(5). It was further held that the impugned transaction can be regarded as a 'transfer otherwise' within the meaning of section 34(3)(b) in view of the wide amplitude of that expression and that it is, therefore, possible to hold that the transaction is transfer for purpose of section 34(3)(b). If that were not so, the claim of the Revenue for withdrawal of development rebate would not succeed. To the same effect is the decision of the Madras High Court (another Division Bench) in CIT v. H. Rajan and H. Kannan : [1984]149ITR545(Mad) , wherein it was held that where a proprietary business is converted into a partnership, there is no transfer as contemplated by section 2(47) of the Income-tax Act, 1961, attracting liability to tax under section 45.
25. If was have a choice, we are inclined to agree with the view expressed by the Madras High Court in Baldevji's case : [1985]156ITR776(Mad) . Section 2(47) contains definition of the expression 'transfer in relation to a capital asset'. The expressions 'capital asset' and 'transfer' occur in section 45 of the Act relating to the assessment of capital gains. In our opinion, it is not permissible to apply the definition in section 2(47) by analogy. Merely because plant and machinery in respect of which development rebate is allowed are capital assets, it does not seem proper to apply the definition of different expression occurring in section 2(47) of the Act. The definition of the expression 'capital asset' occurring in section 2(14) as well as the extended definition occurring in section 2(47) have, in our opinion, reference only to the assessment of capital gains arising on the transfer of capital assets. If the extended definition in section 2(47) is intended to be applied to transfer of plant and machinery constituting business assets, the Legislature could have easily expressed itself to that effect. In the absence of any positive indication to that effect, there is nothing in the terms of section 2(47) to indicate that the Legislature intended to apply that expression to situations totally different from the transfer of capital assets. The Madras High Court observed at page 789 of 156 ITR :
'Having regard to the water-tight compartmentalisation of different heads of income, which is the elementary scheme of the Income-tax Act, it was wholly a far-fetched exercise in statutory construction which the Tribunal undertook when they applied the definition in section 2(47) to do service as an aid to the construction of the expression 'transfer' occurring in section 155(5) of the Act. If there was nothing else in this case excepting to have resort to section 2(47), then we should have differed not only from the reasoning of the Tribunal, but also from the Tribunal's ultimate conclusion.'
26. We fully share the above views of the Madras High Court and feel that the definitions contained in section 2(14) and section 2(47) cannot have application in cases where transfer of business assets like plant and machinery is being considered in connection with the statutory provisions contained in section 34(3)(b) and section 155(5) of the Act. It is true, as Shri Swamy pointed out that this question had not been directly canvassed in any other case except in the Madras case referred to above and it does not also appear that the attention of the Supreme Court has been drawn to this aspect. Be that as it may, we must respectfully follow the view expressed by the Supreme Court in Sunil Siddharthbhai's case : [1985]156ITR509(SC) and hold that the extended definition in section 2(47) of the Act can also be applied to determine whether there is a transfer within the extended meaning of the definition.
27. Only one more argument of Shri Swamy remains to be dealt with. We have referred to the fact that one of the contentions raised by the assessee was that not only section 155(5) should be satisfied but also the requirements of section 154 should be fulfilled. Learned counsel for the assessee contended, therefore, that if there is a debatable question of law involved, the provisions of section 154 become inapplicable and so section 155(5) goes out of operation. As we had indicated earlier, this view prevailed on the Tribunal and the Income-tax Officer's orders were cancelled on the ground that the requirements of section 154 are not satisfied. Shri Swamy contends that in the latter portion of section 155(5), there was a clear reference to section 154. Shri Swamy, therefore, contends that the intention of the Legislature is that before the application of section 155(5), section 154 must also be applicable. If, in a given case, there is no dispute regarding the transfer of machinery, etc., such a case is governed by section 155(5) read with section 154. According to Shri Swamy, if the application of section 155(5) based on the question of transfer of assets to partnership firm is itself doubtful, then section 154 ousts the jurisdiction to rectify the assessment. The language employed in section 155(5) is categorically to the effect that in the event of a transfer of the asset in respect of which development rebate was originally grated, it shall be deemed to have been wrongly allowed and the Income-tax Officer may, notwithstanding anything contained in the Act, recompute the total income of the assessee for the relevant assessment year. This confers an unfettered power on the Income-tax Officer to withdraw the development rebate originally allowed. All that the latter portion of section 155(5) says is that the provisions of section 154 shall, so far as may be, apply thereto. In our opinion, the effect of this provision is that once there is a transfer of asset in the circumstances specified in the first part, then the provisions of section 154 of the Act, without anything more, shall apply. We cannot, therefore, accept Shri Swamy's plea that for the purpose of passing an order under section 155(5) not only the conditions specified therein should be satisfied but also the conditions specified in section 154 of the Act.
28. In the result, we answer question No. 1 referred to us in the negative, that is to say, in favour of the Revenue and against the assessee. We also answer question No. 2 in the negative, that is to say, in favour of the Revenue and against the assessee. There shall be no order as to costs.
29. After the judgment is delivered, learned counsel for the assessee, Shri Swamy, makes an oral application for grant of leave to appeal to the Supreme Court. Having regard to the facts and circumstances, we consider this to be a fit case under section 261 of the Income-tax Act for grant of leave granted accordingly.