Judgement

SIKRI, J.: This is an appeal by certificate of the High Court of Andhra Pradesh against its judgment dismissing a petition filed under Art. 226 of the Constitution by the appellant. The appellant is a Private Limited company, hereinafter referred to as the Company, and three persons hold shares of the Company as under:

Shares Amount

Rs.

Sri C. P. Sarathy Mudaliar 2797 27,970

Sri C. P. Singaram 420 4,200

Sri C. P. Doraiswamy 500 5,000

The Company was doing transport business and for the assessment year 1959-60 (Previous year ending 31st March, 1959), it claimed a sum of Rs. 48,600/- as development rebate in respect of the four new buses purchased by it and brought to use during the year. The Income Tax Officer disallowed the amount but the Appellate Assistant Commissioner, on appeal, allowed the entire sum of Rs. 48,600/- as development rebate On May 27, 1959, the three shareholders entered into a partnership and the capital of the firm was as follows:

Rs.

C. P. Sarathy Mudaliar 25,000

C. P. Singaram 10,000

C. P. Doraiswamy 10,000

Total 45,000

On June 30, 1959, the Company passed a resolution transferring a number of motor buses, including the four in respect of which development rebate had been claimed, to the partnership firm for a sum of Rs. 2,52.000. The company was not wound up and is still in existence and carrying on business as a transport company. On February 7, 1962, the Income-tax Officer, purporting to act under S. 35 (11) of the Income-tax Act. 1922, hereinafter referred to as the Act. Issued a memorandum to the appellant stating, inter alia, that

"since the assets were transferred within 10 years I propose to invoke the provisions of S. 35 of the Act and rectify the income by including the rebate allowed as income of the assessee."

He invited the assessee to give his objections if any. The appellant thereupon filed a petition in the High Court on February 19, 1962, praying inter alia that the Income-tax Officer be prohibited from proceeding with the rectification of the Income-tax assessment for 1959-60, as per the memorandum dated February 7, 1962. Two points were taken in the petition: First that S. 10 (2) (vib) of the Income-tax Act was repugnant to Art. 14 of the Constitution; and, secondly, that assuming that S. 10 (2) (vib) was intravires, this transaction did not amount to a sale or transfer.

2. The High Court held that Section 10 (2) (vib) was not repugnant to Art. 14 of the Constitution, and that the transaction amounted to transfer within S. 10 (2) (vib).

3. The learned counsel for the appellant, Mr. Naunit Lal, has reiterated the same points before us. Section 10 (2) (vib) and S. 35 (11) are in the following terms:

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

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(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:-

(i) in the case of ship

(ii) in the case of a ship acquired before the 1st day of January, 1958, and in the case of any machinery or plant, twenty-five per cent of the actual cost of the ship or machinery or plant to the assessee.

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and if any such ship, machinery or plant is sold or otherwise transferred by the assessee to any person other than the Government at any time before the expiry of ten years from the end of the year in which it was acquired or installed, any allowance made under this clause shall be deemed to have been wrongly allowed for the purposes of this Act."

"Section 35 (11): 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 in any year of assessment under Cl. (vib) of sub-s. (2) of S. 10, and subsequently at any time before the expiry of ten years fr