R. Jayasimha Babu, J.
The question is as to whether the appellant-assessee had contravened section 155(4A) and/or section 32A(5) by reason of constitution of new firm comprising of all its original partners except the deceased partner, and the widow of the deceased partner, which firm had taken over all the assets and liabilities of the firm which was dissolved on 26-10-1987 on the death of the father Balakrishna Pillai the founder of the firm that had been founded on 9-11-1976 and had comprised of himself, his three sons and his two daughters. After the demise of the father, the mother was included in his place and the remaining partners together with the mother constituted a new firm and continued to carry on the same business.
2. The firm as it existed between 1976 and 26-10-1987 till the assessment year 1987 had claimed and had been allowed investment allowance to the tune of Rs. 5,80,454. It had made additions to the plant and machineries between 1981-82 and 1988-89, the value of such additions being Rs. 23,63,468. It had thus fully utilised full extent of the investment allowance that had been allowed within the period allowed by law.
3. The Deputy Commissioner, however, by an order made on 26-3-1993 which is captioned as an order under section 155 of the Income Tax Act, withdrew the investment allowance that had been availed against the reconstituted firm on the ground that there had been transfer of assets and liabilities of the old firm to the new firm and therefore, section 155(4A), section 32A(5) of the Act had been contravened.
4. On appeal by the assessee, the Commissioner having noticed the fact that the old firm had fully utilised the allowance by purchasing new machinery within the period allowed by law, held that there was no infringement of the provisions of section 34(3)(a), even prior to the dissolution of the old firm and, therefore, there was no occasion at all for invoking section 155.
5. The revenue having appealed to the Tribunal, the Tribunal has held that as the old firm ceased to exist on dissolution, the new firm cannot be regarded as a continuation of the old one, that there was transfer of assets of the old firm to the new and, therefore, there was contravention of section 155(4A) of the Act. It has gone further and held that there was contravention of section 155(4B) also although that was not a ground on which the Deputy Commissioner has made his order.
6. Learned counsel for the assessee rightly points out that when a firm is dissolved and the rights of the erstwhile partners are mutually adjusted, there is no transfer. That is the law laid down by the Supreme Court in the case of Malabar Fisheries Co. v. CIT : [1979]120ITR49(SC) , a decision rendered by a three-Judge Bench. The court therein considered sections 2(47), 34(3)(b) and 155(5) of the Income Tax Act, 1961 and held that in order to attract section 34(3)(b), it is necessary that the sale or transfer of the assets must be made by the assessee to a person: that the dissolution of a firm must, in point of time be anterior to the actual distribution, division or allotment of the assets that takes place after making accounts and discharging debts and liabilities due by the firm, and that there is no transfer of assets by a dissolving firm to any person.
7. Assessee's counsel places reliance on the decision of the three-Judge Bench in the case of S. V. Chandra Pandian v. S. Sivalinga Nadar : [1995]212ITR592(SC) , wherein the law laid down in the case of Malabar Fisheries Co. (supra) was reiterated and the court held that when a firm is dissolved under an award given by an arbitrator, such an award does not require registration as on dissolution there is no partition, transfer or extinguishment of rights.
8. Question of law considered as set out by the court in that judgment was 'as to whether the distribution of assets of a firm consequent to its dissolution amounts to a transfer of assets within the meaning of expression 'otherwise transferred' under section 34(3)(b), having regard to the definition of transfer in section 2(47) of the Act'.
9. In this case, on the old firm being dissolved, no transfer resulted at the time of dissolution. The dissolved firm of the assessee did not effect any transfer or sale. Clearly there was no contravention of section 155(4A) or section 32A(5) by reason of dissolution of the old firm.
10. Section 155(4A)(b) as also section 32A(5)(b) refer to a situation where the assessee who has received the benefit has failed to utilise the amount credited to the reserve account created under section 32A(4) for the purpose of acquiring a ship, or a new aircraft, or a new machinery. Those provisions have no relevance here, as it has been found by the Commissioner that the amount which had been credited to the reserve had been utilised for the purchase of new machinery within the period allowed by law, by the old firm prior to its dissolution.
11. Counsel for the revenue, however, sought to contend that notwithstanding the three-Judge Bench decision in the case of Malabar Fisheries Co. (supra) the words 'otherwise transferred' in section 34(3)(b) are still attracted to the facts of this case and sought to place reliance on a two Judge Bench decision in the case of CIT v. Narang Dairy Products : [1996]219ITR478(SC) . It was therein held that when an assessee who had received the benefit of development rebate gives exclusive user of the business to another, for the purpose of section 34(3)(b), there is a transfer. That decision does not in any way either water down or override the decision of the larger Bench in the case of Malabar Fisheries Co. (supra).
12. In the case of Narang Dairy Products (supra), the finding was that the machineries had been given on hire and that it is the hiring, which amounted to transfer within the meaning of section 34(3)(b). In that case the court had no occasion to consider the provisions of the Partnership Act or the legal effect of dissolution vis-a-vis properties distributed among the erstwhile partners.
13. Counsel also sought to rely on the decision of this court in the case of Wilson Industries v. CIT : [2003]259ITR318(Mad) , wherein it was held that the assessee referred in section 155 is the assessee who had claimed and obtained the benefit of investment allowance and on whom lay the obligation to utilise the amount credited to the investment reserve. That decision is of no assistance to the revenue. Specific finding recorded by the Commissioner here is that the very assessee who had obtained the investment allowance and who had created the reserve had in fact, utilised the amount.
14. The Tribunal as also the assessing authority have needlessly embarked on a fruitless endeavour without first ascertaining the facts. When once it is found that the investment allowance had been utilised and the machineries had been purchased by the very assessee who had received the benefit of the allowance, and there was nothing to show that the assessee had transferred the assets so acquired, there was no occasion whatever for invoking section 155. In this case, if the partners of the firm, which had been founded by the father had on the death of their father and the consequent dissolution of the firm had decided not to constitute a new firm, there would have been occasion at all for the revenue to withdraw the investment allowance, as when a firm is dissolved, there is no transfer.
15. The subsequent transfer by the erstwhile partner/s is not the same as transfer by the assessee who had received benefit, as what section 155 interdicts is transfer by the assessee who had received the benefit of investment allowance and not by any other.
16. The orders of the Tribunal as also the assessing officer cannot be sustained and are set aside. The appeal is allowed with costs in the sum of Rs. 2,500.