1. The following question has been referred to this Court under S.256(1) of the Income Tax Act, 1961 at the instance of the Commissioner of Income Tax.

"Whether on the facts and in the circumstances of the case, the distribution of the assets of the partnership on dissolution between the partners is a transfer or sale as contemplated by the proviso to S.10(2)(vi) (b) of the Indian Income Tax Act, 1922"

2. A Division Bench of this Court consisting of K. K. Mathew and T. S. Krishnamoorthy Iyer JJ. heard this reference but came to different conclusions; K. K. Mathew J. answering the question as (refrained) in the affirmative, that is against the assessee and Krishnamoorthy Iyer, J. in the negative. In view of this difference of opinion the case has been placed before me in accordance With S.259(2) of the Income Tax Act, 1961. The assessee is a firm consisting of two partners. The partnership was engaged in the business of plying buses and lorries. In the assessment for the year 1959-60 the Income Tax Officer had allowed development rebate on three new buses purchased during the year 1958 amounting to Rs. 26,292/-. The relevant previous year for the assessment year 1959-60 is that Which ended on 31-12-1958. The firm was dissolved with effect from 1-3-1961 and the assets and liabilities were divided between the parties. On the dissolution of the firm the Income Tax Officer initiated proceedings under S.155(5) of the Income Tax Act, 1961 to withdraw the development rebate granted to the firm and passed an order rectifying the assessment for 1959-60 by Withdrawing the rebate. In appeal before the Appellate Assistant Commissioner the assessee contended that there was no transfer of the assets and therefore the development rebate should not have been withdrawn. This contention was negatived by the Appellate Assistant Commissioner who took the view that there was a transfer of the assets as contemplated by the proviso to S.10(2)(vi)(b) of the Indian Income Tax Act, 1922 and accordingly dismissed the appeal. The assessee however Succeeded in further appeal before the Appellate Tribunal. The Tribunal relying on the decision of the Supreme Court in C.I.T v Dewas Cine Corporation 1968 (68) ITR 240 upheld the contention of the assessee that the distribution of surplus assets for the purpose of adjustment of the rights of the partners consequent on the dissolution of the firm did not amount to transfer of assets.

3. The question that Was referred was reframed as it did not reflect the issue that arose for decision before the Tribunal. The reframed question runs thus:

"Whether on the facts and in the circumstances of the case the distribution of the assets of the partnership on dissolution between the partners is a sale or transfer as contemplated by S.34(3)(b) read with S.155(5) of the Income Tax Act, 1961 "

The question was so reframed on the ground that the development rebate allowed under the Indian Income Tax Act, 1922 for the assessment year 1959-60 could after coming into force of the Income tax Act, 1961 be Withdrawn only under the provisions of S.34(3)(b) read With S.155(5) of the Income Tax Act, 1961. Both the Judges have concurred in this view and the point does not arise therefore before me.

4. The only point arising for decision therefore is whether action can be taken under S.155(5) of the Income Tax Act, 1961 to withdraw the development rebate allowed for the year 1959-60 on the ground that the lorries in question had been "otherwise transferred by the assessee to any person". I may extract S.155(5).

"Where an allowance by way of development rebate has been made wholly or partly to an assessee in respect of a ship, machinery or plant installed after the 31st day of December 1957, in any assessment year under S.33 or under the corresponding provisions of the Indian Income Tax, Act, 1922 (XI of 1922), and subsequently --

(i) at any time before the expiry of eight years from the end of the previous year in which the ship was acquired or the machinery or plant was installed, the ship, machinery or plant is sold or otherwise transferred by the assessee to any person other than the Government, a local authority, a corporation established by a Central, State or Provincial Act or a Government company as defined in S.617 of the Companies Act, 1956 (I of 1956), or in connection with any amalgamation or succession referred to in sub-s.(3) or sub-s.(4) of S.33; or

(ii) at any time before the expiry of the eight years referred to in sub-s.(3) of S.34, the assessee utilises the amount credited to the reserve account under clause (a) of that sub-section --

(a) for distribution by way of dividends or profits; or

(b) for remittance outside India as profits or for the creation of any asset outside India; or

(c) for any other purpose which is not a purpose of the business of the undertaking; the development rebate originally allowed shall be deemed to have been wrongly allowed, and the Income Tax Officer may, notwithstanding anything contained in this Act, recompute the total income of the assessee for the relevant previous year and make the necessary amendment; and the provisions of S.154 shall, so far as may be, apply thereto, the period of four years specified in sub-s.(7) of that Section being reckoned from the end of the previous year in which the sale or transfer took place or the money was so utilised."

There is no case that the lorries had been sold. The lorries were purchased during the year 1958 and therefore S.155(5) Would apply as the purchase was after the 31st day of December, 1957.

5. The Supreme Court had to consider the question whether the distribution of the assets on dissolution of a firm would amount to a sale so as to attract the second proviso to S.10(2)(vii) of the Indian Income Tax Act, 1922 in C.I.T. v Dewas Cine Corporation 1968 (68) ITR 240. [LQ/SC/1967/321] Their Lordships observed:

"On dissolution of the partnership, each theatre must 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. The expressions "sale" and "sold" are not defined in the Income Tax Act: those expressions are used in S.10(2)(vii) in their ordinary meaning. 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."

6. The decision in C. I. T. v Dewas Cine Corporation 1968 (68) ITR 240 [LQ/SC/1967/321] was referred to With approval by the Supreme Court in the decision in Commissioner of Income Tax U. P. v. Bankey Lal Vaidya 1971 (79) ITR 594.. [LQ/SC/1971/51] The question that arose there was whether S.12B(1) of the Indian Income Tax Act, 1922 was attracted on the dissolution of a firm and on an agreement between the two partners that the assets of the firm be taken over by one of them and the other paid a sum of Rs. 1,25,000/-. S.12B of that Act provided that tax will be payable by an assessee under head capital gains in respect of any profits or gains arising from the sale, exchange or transfer of a capital asset effected after the 31st day of March, 1946. The question therefore Was whether there was any sale, exchange or transfer of a capital asset on the dissolution of the firm and the taking over of the assets by one of the partners and the payment of the money to the other. Two passages from the judgment may be usefully extracted.

"In the case in hand there is no sale and payment of price, bat payment of the value of share under an arrangement for dissolution of the partnership and distribution of the assets. The rights of the parties were adjusted by handing over to one of the partners the entire assets and to the other partner the money value of his share. Such a transaction is not in our judgment a sale, exchange or transfer of assets of the firm.

In Commissioner of Income Tax v Dewas Cine Corporation, in dealing with the meaning of the expressions sale and sold as used in S.10(2)(vii) of the Income Tax Act, 1922, this court observed that the expression sale in its ordinary meaning is a transfer of property for a price, and adjustment of the rights of the partners in a dissolved firm by allotment of its assets is not a transfer for a price. In that case the assets were distributed among the partners and it was contended that the assets must in law be deemed to be sold by the partners to the individual partners in consideration of their respective shares, and the difference between the written down value and the price realised should be included in the total income of the partnership under the second proviso to S.10(2)(vii). This court observed that a partner may, it is true, in an action for dissolution insist that the assets of the partnership be realised by sale of its assets, but property allotted to a partner in satisfaction of his claim to his share, cannot be deemed in law to be sold to him."

These decisions, I think, must conclude the matter. Mathew, J. however felt that in view of the definition of the term transfer in S.2(47) of the Income Tax Act, 1961 and the definition of the term person in S.2(31) of the 1961 Act it must be held that there has been a transfer as defined in S.2(47) of the 1961 Act and that therefore the depreciation allowance originally allowed should be deemed to have been Wrongly allowed. With great respect I think the definition of the term person in S.2(31) does not affect the question. Even Without such a definition the Supreme Court has held in Commissioner of Income Tax, Madras and another v S. V. Angidi Chettiar 1962 (44) ITR 739 [LQ/SC/1962/1] that the firm is a person for income tax purposes in view of the definition of person in the General Clauses Act. This is what Their Lordships said:

"The expression person is defined in S.2(a) of the Act as including "a Hindu undivided family and a local Authority". That evidently is not an exhaustive definition and recourse is permissible to the General Clauses Act which says in S.3(42) that a person includes any company or association or body of individuals whether incorporated or not. A firm is manifestly a body of individuals and would therefore fall within the definition of person, and may be exposed to an order for payment of penalty in the circumstances set out in clauses (a), (b) and (c) of S.28 of the Income Tax Act."

So by including a firm within the ambit of the definition of person in S.2(31) of the 1961 Act no material change has been made. It is unnecessary to consider the effect of the definition in S.2(47) of the 1961 Act because that definition cannot apply to the dissolution of a firm and the distribution of its assets (which it is contended will amount to a transfer of its assets to its partners) which took place before the 1961 Act came into force. I may repeat that the dissolution of the firm and the distribution of the assets was with effect from 1-3-1961. The assessment order, annexure A states that the deed of dissolution by the partners was on 5-4-1961 and that the partners divided the assets and liabilities among themselves in equal shares. This was an event that took place before the 1961 Act came into force and therefore the definition of the term transfer in S.2(47) of the 1961 Act cannot be applied to that event unless there is an express provision in the Act making the definition applicable to such a transfer or by necessary implication the definition is made applicable to such events. No doubt, S.155(5) which I have already read as well as S.34(3)(b) take note of transfers that took place before the coming into force of the Act. These sections however do not say or provide that what were not transfers at the time they took place shall be deemed to be transfers under the Act. Nor do these sections make the definition in S.2(47) applicable to events that took place before the Act. I may extract S.34(3)(b).

"If any ship, machinery or plant 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 S.33 or under the corresponding . provisions of the Indian Income Tax Act, 1922 (XI of 1922). in respect of that ship, machinery or plant shall be deemed to have been wrongly made for the purposes of this Act, and the provisions of sub-s.(5) of S.155 shall apply accordingly:"

I do not find anything in the above section or S.155(5) which expressly or by necessary implication makes the definition of the term transfer in S.2(47) of the 1961 Act applicable to events that took place before the date on which the Act came into force. It is therefore unnecessary to consider the question Whether any change is intended by introducing S.2(47) in the 1961 Act which deals with a transfer in relation to a capital asset. Whether there was a transfer or not in this case must be decided without reference to S.2(47), because the alleged transfer was before the section came into force. No doubt, if there was a transfer S.155(5) can be applied. But the Supreme Court decisions referred to are clear authorities for the proposition that in the circumstance Such as that obtaining here there can be no transfer.

7. I therefore agree with Krishnamoorthy Iyer J, and answer the question as reframed in the negative, that is in favour of the assessee and against the department.

8. I direct the parties to bear their respective costs.

9. A copy of this judgment under the seal of the High Court and the signature of the Registrar will be sent to the Appellate Tribunal as required by sub-s.(1) of S.260 of the Indian Income Tax Act, 1961.