THE COMMISSIONER OF INCOME TAX versus M/S. NARANG DAIRY PRODUCTS

Citation: [1996] 2 S.C.R. 1168 · Decided: 28-02-1996 · Supreme Court of India · Bench: B.P. JEEVAN REDDY

Judgment (excerpt)

A 
THE COMMISSIONER OF INCOME TAX 
v. 
MIS. NARANG DAIRY PRODUCTS 
FEBRUARY 28, 1996 
B 
[B.P. JEEVAN RADDY AND K.S. PARIPOORNAN, JJ] 
Income Tax Act, 1961: Sections 2(47), 33((1)(a) and 34(3)(b) 
Development rebate-Granted for entire machine1y owned by assessee 
C and used for its business--S:1bsequently pmt of machine1y sold and remaining 
leased out-Within prohibited statut01y peliod--Consequently entire develop-
ment rebate withdrawn-Held : such lease covered by expression "otlwwise 
transfen·ed''--H ence, withdrawal of entire development rebate j~tstified. 
Development rebate-Entitlement to-Conditions for-Held 
D Machi1wy or plant must not only be owned but also exclusively used by 
assessee for the business. 
Words and Phrases : 
"Transfer''-"Othe1wise transfe11"ed''-Meaning of-Jn the context of Sec-
E 
tion 34(3)(b) of the Income Tax Act, 1961. 
The respondent-assessee was a registered firm. In respect of its as-
sessment for the assessment year 1965-66, the Income Tax Officer allowed 
development rebate for the entire machinery and plant owned by it. A part 
of the machinery was subsequently sole and the machinery that was left was 
F 
let out by the assessee on lease. In the circumstances, the Income Tax 
Officer withdrew the development rebate. The appeal filed by the assessee 
was dismissed by the Appellant Assistant Commissioner. Its further appeal 
was allowed by Income Tax Appellate Tribunal. It also refused the 
Revenue's application for reference to the High Court. Therefore Revenue 
G filed an application under S. 256(2) before the High Court, which was also 
dismissed. Hence this appeal. 
On behalf of the Revenue it was contended that by entering into the 
lease transaction the assessee had "otherwise transferred" the machinery 
or plant before the expiry of eight years as prescribed by Section 34(3)(b) 
H of the Income Tax Act, 1961 from the year of acquisition and installation 
1168 
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C.l.T. v. NARANG DAIRY PRODUCTS 
1169 
and, therefore, the withdrawal of development allowance was justified. 
A 
On behalf of the assessee it was contended that under Section 
34(3) (b) read with Section 2( 47) of the Act this was not a case of any "sale" 
or "transfer otherwise" extinguishing its rights in the machinery or plant. 
Allowing the appeal, this Court 
HELD : 1. It is not only the ownership of the plant or machinery, but 
also its exclusive user by the assessee for the purpose of its business, that 
B 
is essential to enable the assessee to get the development rebate under 
Section 33(1)(a) of the Income Tax Act, 1961. In cases where an assessee 
disables himself for such continued exclusive user of the plant or C 
machinery for the specified period, the consequences specified in_ Section 
34(3) (b) of the Act will follow, provided the machinery or plant is "otherwise 
transferred". It is true that there is no sale; nor is there any complete 
extinguishment of the right of the assessee in the machinery or plant by the 
grant oflease; but the exclusive possession and t:njoyment of the machinery D 
or plant by the assessee no longer exists or survives. It is a case where the 
machinery or plant is "otherwise transferred" by the assessee to any person 
before the expiry of eight years from the end of previous year in which it 
was acquired. Even assuming that the transaction may not be a "transfer" 
as defined under Section 2(47) of the Act, the definition section is an 
inclusive one and does not exclude the contextual or the ordinary meaning E 
of the word, "transfer". (1174-D-G] 
2. Keeping in view the purpose for which the relief by way of develop-
ment rebate is afforded under Section 33(1)(a) of the Act, in cases where the 
machinery or plant is not used by the assessee for the purpose of business 
carried on by him, for the.specified period, and such user is given over to 
another, it can be safely stated that the machinery or plant is "otherwise 
transferred" by the assessee to another person. Hence, the withdrawal of the 
development rebate by the Income Tax Officer is justified. [1175-B-C] 
F 
Blue Bay Fisheries (P) Ltd. v. Commissioner of Income Tax, 161 ITR G 
1, approved. 
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 388 (NT) 
of 1978. 
From the Judgment and Order dated 1.8.77 of the Allahabad High H 
1170 
SUPREME COURT REPORTS 
[1996] 2 S.C.R. 
A 
Court in LT.A. No. 194 of 1977. 
B 
Dr. V. Gauri Shankar, Manoj Arora and S.N. Terdol for the Appel-
lants. 
Ms. S. J anani for the Resp

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