Untwalia, C.J

1. This is a reference under Section 256(1) of the Income Tax Act, 1961 (hereinafter called " the 1961 Act "), made by the Income Tax Appellate Tribunal, Patna Bench, on the following question of law :

" Whether, in the facts and circumstances of the case, the order of the Tribunal holding that the conditions under Section 33(1) of the Income Tax Act are satisfied, is legal and proper "

2. At the outset I may state the facts from the statement of the case. The assessee in this case is Mahabir Cold Storage, Purnea. It is a registered firm and derives income from business of cold storage. Originally, Prayag-chand Periwal and Hanumanmal Periwal started a partnership business under the name and style of M/s. Prayagchand Hanumanmal with the head office at Calcutta and a branch office at Purnea, The said partnership was started with effect from May 3, 1956. The branch office at Purnea of the same partnership carried on business under the name and style of Shri Mahabir Cold Storage. The two partners took loan from a private limited company named Periwal and Co. (P.) Ltd. for the erection and running capital of the cold storage. Subsequently, the company aforesaid was taken as a partner for better management and financial assistance for business of cold storage at Purnea. A fresh partnership deed was executed on November 10, 1958. According to this deed, Prayagchand had 25% share, Hanumanmal also had 25% share and the private limited company was allotted 50% share in the profits of the newly constituted partnership. This newly constituted parnership of Shri Mahabir Cold Storage was granted a separate registration under Section 26A of the Indian Income Tax Act, 1922, (hereinafter called " the 1922 Act "). It was separately assessed for the assessment year 1960-61 and thereafter.

3. The original firm consisting of the two partners, Prayagchand Periwal and Hanumanmal Periwal, had installed mschinery of the value of Rs 5,80,055 in the accounting year relating to the assessment year 1959-60. After the new partnership firm came into existence with three partners from November 11, 1958, it claimed development rebate in the assessment year 1959-60 in respect of the cold storage plant and machinery. The Income Tax Officer disallowed the claim and held that as the assets transferred to the new firm constituted transfer as contemplated in Section 34(3)(b) of the 1961 Act, corresponding to Section 10(2)(vib), proviso to Explanation 2 of the old Act, the old firm was not entitled to any claim of development rebate. He also held that the new firm had not inherited this claim as the transfer in this case did not amount to a succession, as contemplated in the 1961 Act. A copy of the order of the Income Tax Officer is annxure " A " to the statement of the cass. By the order of the Appellate Assistant Commissioner, a copy of which is annexure " B " to the statement of the case, its appeal was dismissed. It took the matter in further appeal to the Tribunal. The Tribunal thought that only two conditions were required to be fulfilled under Section 33(1) of the 1961 Act for allowing development rebate for the new machinery or the plant, namely :

(i) whether the new machinery or plant was owned by the assessee ; and

(ii) whether it was wholly used for the purpose of the business carried on by it.

4. There was no dispute regarding the fulfilment of condition No. 2; and in regard to condition No. 1 the Tribunal recorded the following finding, as quoted in paragraph 7 of the statement of the case :

"It is no doubt true that the machinery was installed by M/s. Prayagchand Hanumanmal but the firm has bsen reconstituted with the three partners under the name and style of M/s. Mahabir Cold Storage, the appellant herein. The firms legal personality will burvive its reconstitu-tion. Reconstitution of the firm does not bring into existence a different legal entity nor can it be stated that the original identity of the firm is lost as a result of reconstitution. The business as a unit continued unbroken and it was only the iiterest of the partners that came to be altered as a result of the reconstitution of the firm. Since the appellant firm is nothing more than the old firm of M/s. Prayagchand Hanuminmal with a change in the constitution and the continuity of the business remained intact, we have no hesitation in coming to the conclusion that the appellant is the owner of the plant and machinery installed in the assessment year 1959-60. "

5. The Tribunal, accordingly, allowed the claim of the assessee for the unabsorbed development rebate coming forward from the earlier years. A copy of the order of the Tribunal is annexure " C " to the statement of the case. Upon the facts aforesaid, the question of law afore-mentioned has been referred to this court for its opinion.

6. Before I proceed to discuss the law on the point I may state that, at the time of argument, learned counsel for the department and learned counsel for the assessee were at issue whether the present assessee had claimed development rebate in the assessment years 1960-61 and 1961-62. The Tribunal has not recorded any finding in that regard. Reference to this matter ia the order of the Income Tax Officer is not clear. I, therefore, do not propose to answer the question on the footing that the assessee had not claimed any development rebate in the years 1960-61 and 1961-62. I shall assume in favour of the assessee that it claimed development rebate in those years also. But one thing is clear that, due to one reason or the other, no development rebate in any of those years was allowed.

7. The dispute in this case is regarding the claim of the balance of the development rebate in respect of the machinery worth Rs. 5,00,000 and odd installed by the old partnership firm, constituting two partners only. It would appear from the order of the Appellate Assistant Commissioner that a separate claim for registration was filed for the new firm and a voluntary return was also filed separately. The coming into existence of the separate firm was accepted by the Income Tax Officer and assessments were made for the year 1960-61 and subsequent year. Even though no conventional entries for the transfers were made, the entries referred to in the order of the Appellate Assistant Commissioner would show that what was shown in the capital account of the old partnership was shown in the name of that partnership firm as creditor of the new partnership. The old firm credited the account of the new partnership, M/s. Mahabir Cold Storage, with a sum of Rs. 3,50,000 in all on two dates for the year ending January 31, 1959, by debiting the accounts of the three partners of the new firm as they stood in the books of the old firm. Correspondingly, the new firm in its turn transferred Rs. 3,50,000 to the credit of the partners account by debiting the account of the old firm showing the opening balance of Rs. 4,25,000 and odd. It would thus be seen that what actually happened was that the old partnership firm maintained its separate identity, carried on its business separately at Calcutta, but so far as its business at Purnea was concerned, it was taken over by the new partnership consisting of three partners. The old firm continued separately, as found by the Appellate Assistant Commissioner, and the new firm also had its separate existence. In that view of the matter, the Appellate Assistant Commissioner held that the new partnership firm was not entitled to claim development rebate in respect of the machineries and plant which had not been installed by it but had been installed by another partnership firm.

8. When the matter went up before the Tribunal it seems to have been chiefly carried away by its earlier order given in the case of Prayagchand Hanumanmal. Development rebate of Rs. 14,898 was allowed to this firm in respect of the plant and machinery in the assessment year 1959-60. In the assessment year 1960-61 when the new firm Mahabir Cold Storage came to be assessed separately and became a separate unit, the Income Tax Officer concluded that there was a transfer of machinery from Prayagchand Hanumanmal to Mahabir Cold Storage, and development rebate allowed to Prayagchand Hanumanmal was accordingly withdrawn under Section 155(5) of the 1961 Act. When the matter finally came to the Tribunal, the Tribunal held:

(1) When the two partners took over a third partner by reconstituting the firm, there was no transfer or sale involved as the two original partners had not been divested of their interest. The partnership deed dated November 10, 1958, had only brought about a reconstitution in the firm. There was no sale or transfer of the assets so as to attract the provision contained in Section 155(5).

(2) Instead of two co-owners, Mahabir Cold Storage, as a result of the constitution of the firm under the partnership deed dated November 10, 1958, had three co-owners and there was no sale or transfer involved.

9. The third finding recorded by the Tribunal in the earlier appellate order was that M/s. Prayagchand Hanumanmal and Mahabir Cold Storage may be treated as separate units for the purpose of assessment but they could not be treated as separate legal entities for the purpose of bringing about a legal transfer. There was an identity of interest between the transferor and the transferee and the co-ownership of Mahabir Cold Storage with the two partners came to be enlarged into a co-ownership consisting of three partners. From the three findings aforesaid, the Tribunal in the present appellate order concluded that the present assessee was the owner of the plant and machinery installed by Prayagchand Hanumanmal in 1959-60. The Tribunal took the view that the firm Prayagchand Hanumanmal had been reconstituted with the three partners under the name and style of Mahabir Cold Storage. The firms legal personality survived even after its reconstitution. Reconstitution did not bring into existence a different legal entity, nor could it be stated that the original identity of the firm was lost as a result of reconstitution. It, therefore, held that under Section 33(1) of the 1961 Act the claim for unabsorbed development rebate was fit to be allowed.

10. Apart from the mistake of law committed by the Tribunal in its present appellate order, I may, in passing, just remark that even in the earlier appellate order the Tribunal made some confusions of law. It missed the distinction between co-partners and co-owners, a well-established concept of law both in England and in India. It also made a confusion in saying that the two firms could be separate units for the purpose of assessment but they could not be treated as separate legal entities. It is to be pointed out here that a pirtnership firm is not a legal entity under the partnership law. Yet, the partners are not the co-owners of the partnership property ; the partnership property belongs to the partnership firm. It is only under the Income Tax law that a partnership firm is a unit and an entity which is different from the partners for the purposes of taxation. Partners may be taxed or the firm may be taxed or both.

11. On the facts of this case it is clear, and no contrary finding has been recorded by the Tribunal, that the old firm had its partnership business at Calcutta as also at Purnea. The old firm retained its identity ; it was a separate entity for the purposes of taxation. The whole of the firm was not reconstituted. The alleged reconstitution was in respect of the branch business carried on at Purnea. The business at Purnea was carried on by a new partnership firm which itself claimed to be a separate unit under the Income Tax law, claimed a separate registration, and was separately assessed to Income Tax. On these facts it is difficult to appreciate how the two firms can be said to be one and the same. The notion of reconstitution of a partnership firm and the same unit continuing the business is that by mere change of partnership, either in-coming or out-going, the firm does not become a different entity. Similarly, in the case of a Hindu undivided family, it has been repeatedly pointed out that the unit for the purpose of taxation, namely, the Hindu undivided family, continues, irrespective of the deaths and births in the family. But it is difficult to understand the logic of the Tribunals order that even though two separate units came into existence on constitution of a different new firm, still the new firm could be said to be a reconstitution of the old firm I have not come across a case, nor was any cited, where a partnership firm can be partly reconstituted and can partly remain the old firm. In this background, I now proceed to refer to the relevant provisions of the law.

12. The provisions relating to the grant of development rebate have been amended many a time. The assessment year in question being 1962-63, the provisions contained in Section 33(1) of the 1961 Act, as originally enacted, govern the case. Sub-section (1) provides :

"(1) In respect of a new ship acquired or new machinery or plant (other than office appliances or road transport vehiclts) installed after the 31st day of March, 1954, which is owned by the assessee and is wholly used for the purposes of the business carried on by him, a sum by way of development rebate, equivalent to--..."

13. The relevant provision in the 1922 Act is Section 10(2)(vib). It read as follows :

"(2) Such profits or gains shall be computed after making the following allowances, namely :--......

(vib) in respect of a new ship acquired or new machinery or plant installed after the 31st day of March, 1954, which is wholly used for the purposes of the business carried on by the assessee, a sum by way of development rebate in respect of the year of acquisition of the ship or of the installation of the machinery or plant, equivalent to,--......"

14. Under Explanation 1(i) of the said provision, the sum to be allowed by way of development rebate for that year was to be only such amount as was sufficient to reduce the said total income to nil, and under Clause (ii) of the said Explanation the amount of the development rebate, to the extent to which it had not been allowed as aforesaid, wss to be carried forward to the following year, and the development rebate to be allowed for the following year was to be such amount as was sufficient to reduce the total income of the assessee for that year, computed in the manner aforesaid, to nil, and the balance of the development rebate, if any, still outstanding was to be carried forward to the following year and so on, so however, that no portion of the development rebate was to be carried forward for more than eight years. In other words, the development rebate at the rates specified was to be allowed fully. If it could not be allowed in the first year when the new machinery and plant was installed; the balance could be carried to the second year or to the third and fourth year and so on, until the whole amount of the development rebate was adjusted. The maximum period to which the carry-forward could take place was eight years. If within eight years the development rebate was not adjusted, no balance could be carried forward to the ninth year. Similar is the provision in Sub-section (2) of Section 33 of the 1961 Act. Reading these provisions together, it would be noticed that the assessee who instals the new machinery or plant, who remains the owner of them and uses them wholly for the purpose of the business, is entitled to the development rebate either in one year or the other. If in the meantime the assessee transfers the machinery and plant 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, then any allowance made under Section 33 of the 1961 Act or the corresponding provision of the 1922 Act in respect of that machinery or plant shall be deemed to have been wrongly made in view of the provisions contained in Clause (b) of Sub-section (3) of Section 34 of the 1961 Act. The amount of development rebate allowed can be withdrawn under Sub-section (5) of Section 155 of that Act. It would thus be seen that the same assessee who installed the new plant or machinery must carry on the business with them in order to be entitled to get development rebate, and he must not transfer them before the expiry of eight years. If he does so, the development rebate granted is cancelled. In the instant case, if the identity of the two firms was different, as assessable indentity was clearly so, then it is plain that in respect of the plant and machinery installed by the old partnership firm at Purnea, the new firm, a distinct and different assessable entity, could not claim development rebate either under the 1922 Act or under the 1961 Act. Whether the rebate granted to the old firm in year 1959-60 was rightly withdrawn or wrongly withdrawn is not relevant for the purpose of considering the question of allowing rebate to the new firm. I am not concerned in the present reference to find out whether the order of the Tribunal in an appeal arising out of Section 155(5) proceeding was right or wrong. For the purpose of withdrawing the rebate it may well be, I shall assume to be so at the moment, that there was no sale or transfer within the meaning of Section 34(3)(b) of the 1961 Act. But I fail to understand how that fact by itself will entitle this new and distinct assessee to claim rebate in respect of the plant and machinery not installed by it but by another firm, the identity of which continued and was in existence even on the day the new firm was making the claim for development rebate. In order to bring about a clear distinction between granting of the rebate and the withdrawal of the rebate, I may hazard an example. Supposing A installed the new machinery, used it for his business purposes, was granted development rebate, some amount remained, the full amount was not adjusted ; thereafter he allowed B, a distinct and different individual, to use the machinery as a licensee, run his business and earn income. In such a situation, there was no sale or transfer by A to B. Therefore, the development rebate granted to the former could not be withdrawn, but it is plain that B would not be entitled to claim any development rebate for himself.

15. Learned counsel for the assessee in support of his argument that it was a mere reconstitution of the firm and, therefore, the new firm was entitled to claim the development rebate, placed reliance upon the following decisions--Commissioner of Income Tax v. A.W. Figgies and Company, : [1953]24ITR405(SC) , Sitaram Motiram fain v. Commissioner of Income Tax : [1961]43ITR405(Guj) , Hoshiarpur Electric Supply Co. v. Commissioner of Income Tax , Kay Engineering Co. v. Commissioner of Income Tax and Commissioner of Income Tax v. C.M. Kunhammed : [1974]94ITR179(Ker) . In my opinion, the principles laid down in some of these cases recoil adversely on the case of the assessee. In the case of A.W. Figgies : [1953]24ITR405(SC) the Supreme Court pointed out :

" The partners of the firm are distinct assessable entities, while the firm as such is a separate and distinct unit for purposes of assessment. Sections 26, 48 and 55 of the Act fully bear out this position. These provisions of the Act go to show that the technical view of the nature of a partnership, under English law or Indian law, cannot be taken in applying the law of Income Tax. The true question to decide is one of identity of the unit assessed under the Income Tax Act, 1918, which paid double tax in the year 1939, with the unit to whose business the private limited company succeeded in the year 1947. We have no doubt that the Tribunal and the High Court were right in holding that, in spite of the mere changes in the constitution of the firm, the business of the firm as originally constituted continued as tea brokers right from its inception till the time it was succeeded by the limited company and that it was the same unit all through, carrying on the same business, at the same place and there was no cesser of that business or any change in the unit."

16. Here, in the instant case, in the case of the business itself there was a change in the unit, the original unit carrying on business at two places remained the same unit carrying on business at one place, and the business at Purnea was taken over by a new unit and both remaining distinct assessable entities under the Income Tax Act. The decision of the Gujarat High Court in the case of Sitaram Motiram Jain : [1961]43ITR405(Guj) considered the question whether the business of an individual- taken over by a registered firm of which he was a partner remained the same for the purposes of Section 24(2)(ii) of the 1922 Act. The view expressed was that the business continued to be carried on by the individual; for, a business carried on by a firm was a business carried on by the partners of the firm and one person was the agent of the others in carrying on the business. In my opinion, the principles governing the determination of the question for the purposes of allowing the loss are different from those which can be invoked for the purpose of allowing development rebate. The High Court of Punjab and Haryana in the case of Hoshiarpur Electric Supply Co. relied upon the decision of the Supreme Court in the case of A.W. Figgies, : [1953]24ITR405(SC) and on the facts of that case held that the business of the firm originally constituted continued as the electrical undertaking at Hoshiarpur from the very beginning right down to the purchase by the Punjab Government, and it continued to be the same unit throughout, carrying on the same business of supply of electricity at the same place and there was no cesser of the same business or any change in the unit. It would be noticed from the facts of this case that the original partnership was constituted in the year 1928. Thereafter, there were certain changes in the constitution of the firm which was notified to the Government. In spite of the changes in the partnership the assessable unit remained the same. After quoting from the Supreme Court decision their Lordships observed:

" In the present case also the business of the firm originally constituted continued as the electrical undertaking at Hoshiarpur from the very beginning right down to its purchase by the Punjab Government, and it continued to be the same unit throughout, carrying on the same business of supply of electricity, at the same place and there was no cesser of that business or any change in the unit. "

17. It was further observed that under the taxation law " it is the firm which has to be considered as a unit of assessment and seen whether there has been a continuity of its personality throughout, in spite of changes in its constitution from time to time, in that it has continued the very same business right through in the same name and at the same place. " In the instant case, as I have said above, the unit of assessment was broken and a new unit came into existence.

18. The decision of the Punjab and Haryana High Court in the case of Kay Engineering Co. was concerned with the question of withdrawal of development rebate. Four persons started a partnership firm on April 1, 1959, styled Kay Engineering Co., to carry on the business of manufacture and sale of electrical accessories. One of the partners retired on June 9, 1961, and the other three constituteda new firm on Jane 10, 1961, with the same name, their shares changing. This firm was dissolved on March 31, 1964, and the assets were divided in specie among the partners. Two of them formed a new firm named Ram Kay Engineering Co. on April 1, 1964, and carried on the same business. On April 7, 1964, all the assets of the firm, Ram Kay Engineering Co., were taken over by a private company which was constituted by two of the partners. The Income Tax department had allowed development rebate to the firm, Kay Engineering Co., up to the assessment year 1963-64, under the 1922 and 1961 Acts. During the assessment for the assessment year 1964-65, the Income Tax Officer withdrew the development rebate already allowed to the assessee for all the five years by passing orders under Section 155 of the 1961 Act on the ground that the requirement that the firm must be succeeded by a company was not satisfied in the case. It is in this background that the High Court held that distribution of assets among the partners in specie on dissolution of the firm did not amount to sale or transfer within the meaning of Section 10(2)(vib) of the 1922 Act or Section 34(3)(b) of the 1961 Act. It would thus be seen that this case stands on a different footing. Distribution of assets among the partners in specie is not a transfer by the partnership firm to the partners ; the partners are entitled to the division of the surplus assets of the firm in their own right and not by way of transfer. Such a case is not germane to the point at isme in this reference.

19. The case of Commissioner of Income Tax v. C.M. Kunhammed, : [1974]94ITR179(Ker) decided by the Kerala High Court is again a decision on the question of the validity of the order under Section 155(5) of the 1961 Act withdrawing the development rebate granted. In that case, the assessee, an individual, was allowed development rebate in respect of the machinery installed during some years. Later, he formed a partnership with his wife and his manager. Although the transactions entered into by the individual with the partnership firm could come within the definition of transfer under Section 2(47) of the 1961 Act, applying the law as it stood at the relevant time, it was held that it did not constitute transfer and, therefore, withdrawal of the rebate was not justified. In my opinion, the principles for judging the matter of withdrawal of rebate and allowing development rebate may be overlapping to some extent, but surely are not identical. In the instant case, as I have said above, the matter can be put in a simple and plain manner. The present assessee which wanted development rebate under Section 33(1) of the 1961 Act was not the assessee which had installed the new machinery and plant; the assessee which had done so was different. The Tribunal has nowhere found that they were one and the same; that is, the assessable unit remained the same irrespective of the addition of one more person. In the absence of such a finding and on the simple and plain facts of this case, it is difficult to accept the view of the Tribunal as correct. The assessee, in my opinion, in the present case is not entitled to any development rebate in respect of the machinery and plant worth Rs. 5,00,000 and odd installed in the previous year relating to the assessment year 1959-60 by the other partnership-firm.

20. Before finally answering the question, I think it advisable to reframe it in order to bring out clearly the point at issue. I, accordingly, reframe the question as follows :

" Whether, on the facts and in the circumstances of this case, the order of the Tribunal allowing the unabsorbed development rebate in respect of the plant and machinery not installed by the assessee under Section 33(1) of the Income Tax Act was legal and proper "

21. I would answer the reframed question in the negative, against the assessee and in favour of the revenue. I, accordingly, hold that the order of the Tribunal on the facts and in the circumstances of the case allowing development rebate to the assessee under Section 33(1) of the 1961 Act was not legal and proper. The assessee must pay the costs of this reference. Hearing fee is assessed at Rs. 100 only.

S.K. Jha, J.

22. I agree.