These three appeals are by assessee directed against order of A C for asst. yrs. 1977-78, 1978-79 and 1979-80. common point involved in all three appeals is whether machinery belonging to firm distributed between partners of firm on dissolution of firm, development rebate allowed on that machinery can be withdrawn under provisions of s. 155 of IT Act. ITO had noted that assessee firm had three partners Shri K. P. Garg, Shri Kailash Chander and Smt. Sohag Wanti. They had share in profit to extent of 50 per cent, 30 per cent and 20 per cent, respectively. In all three years, firm had claimed some investment allowance on machineries installed by firm. ITO while making assessment for asst. yr. 1980-81 found that machinery belonging to firm had been transferred to partners in that year. He also found that reserve created for investment allowance had also been transferred to partners. ITO was of view that machinery had been transferred to partners and, therefore, investment allowance which had been allowed had to be withdrawn under provisions of s. 155(4A) of IT Act, 1961. ITO withdrew development rebate in all three years to extent of Rs. 3,014, Rs. 12,442 and Rs.28,259, respectively. Before AAC, it was contended that investment allowance allowed h d wrongly been withdrawn as there was no transfer of assets when machinery was distributed between partners on dissolution of firm. It was, therefore, contented that there was no sale or transfer within period of 8 years which disentitled person from investment allowance. Reliance was placed on decision of Supreme Court in case of CIT, MP vs. Dewas Cine Corpn. (1968) 68 ITR 240 (SC) and case of CIT vs. Bankey Lal Vaidya (1971) 79 ITR 594 (SC). ld. AAC has not ascertained facts of case but has proceeded to consider legal position and he held that investment allowance had rightly been withdrawn. He observed that when partner brings any capital assets in firm his own right in that asset is extinguished. He referred to definition of 'transfer as given in IT Act and also referred to decision of Gujarat High Court in case of CIT vs. Kartikey V. Sarabhai (1981) 24 CTR (Guj) 184: (1981) 131 ITR 42 (Guj). He relied on decision in case of Kerala High Court in case of Abdul Rahim Travancore Confectionery Works vs. CIT (1977) 110 ITR 595 (Ker) where it was decided that if individual business is converted into partnership of that individual and his son, it would result in transfer as right of that person in asset is extinguished. He was of view that in such situation investment allowance can be withdrawn. On facts he held that there was transfer of asset on dissolution of firm and ITO was justified in withdrawing investment allowance. It has been submitted before us that AAC has not appreciated factual position as well as position in law. It was contended that firm was dissolved by deed of dissolution dt. 10th April, 1980 which became effective from 31st March, 1980. This dissolution deed while dissolving firm decided that final account of partnership had been made and share of each party had been determined. It was also indicated that machineries having written down value of Rs. 1,72,437 was to be allotted between partners while machinery worth Rs. 87,948 was allotted to Shri K. P. Garg who was now carrying on business in name of Agro Engineering Works. other part of machinery having value of Rs. 84,488 was allotted to Shri K. C. Sudhira and Smt. Sohag Wanti. These persons were now carrying that business in name of S. A. Engineering. It was also decided that at end of year, partners had to be debited as partner s advance account for machinery in profit sharing ratio. Out of aforesaid allotment of machinery, their respective accounts under head 'Partner s Advance-Account had been debited by Rs. 75,000, Rs. 45,000 and Rs. 30,000, respectively. balance amount entry was to be made after all other assets were disposed of and liabilities paid. It was also decided that if any balance remained after paying of liability, same was to be divided between parties in profit sharing ratio. Entries were made in books for carrying out terms of dissolution deed. In these circumstances, it has to be decided whether it can be held that machinery which belonged to firm and on which investment allowance had been allowed could be taken as transfer to partners so as to entitle ITO t o withdraw investment allowance. In our view ld. AAC has entirely missed issue and has not applied correct law while deciding issue. In missed issue and has not applied correct law while deciding issue. In present case, it was not to be decided whether there is transfer of asset when partner brings that asset as his contribution to partnership. What has to be determined in this case is effect of dissolution of firm on distribution of machinery between partners. It is not case where machinery has been distributed only to some of partners to exclusion of others. transfer has been made as per agreement and adjustment have been made as per partnership deed and in profit sharing ratio of partners. It has been held by Supreme Court in case of Malabar Fisheries Co. vs. CIT (1979) 12 CTR (SC) 415: (1979) 120 ITR 49 (SC) that there is no transfer of asset involved even in sense of any extinguishment of firm s right in partnership assets when distribution takes place upon dissolution. To same effect is decision of Supreme Court in case of Dewas Cine Corpn. (supra) and Bankey Lal Vaidya (supra) which had been cited before AAC. This legal position has to be applied to facts of case and any other situation where machinery of firm is given to partner by way of sale or other transfer should not be taken into consideration. cases relied upon by departmental representative before us were different on facts. decision of Kerala High Court in case of Abdul Rahim (supra) was case where individual business was converted into partnership and decision of Karnataka High Court in case of A.S, Krishna Setty and Sons vs. Addl. CIT 1975 CTR (Kar) 54: (1975) 100 ITR 587 (Kar) was case where machinery was given to some of partners to exclusion of others. They were not cases of distribution of assets on dissolution of firm. Thus, whole legal position has wrongly been understood by AAC. other aspect of matter which has to be taken into consideration is effect of transfer of reserve to account of partners. law required that reserve which is created should not be used for distribution of profits for period of 8 years. We do not have necessary material or copies of account on basis of which one can say whether these reserves have been abiding by Rule and requirements of law. We have, therefore, clarified legal position and in order to ascertain fuller facts of present case, we would restore matter to AAC who should see whether conditions laid down for withdrawing investment allowance are satisfied in this case as already indicated above, claim should not have been withdrawn on ground that there has been transfer as result of dissolution of firm. For statistical purposes, appeals shall be treated as allowed. *** A. S. ENGINEERING WORKS v. INCOME TAX OFFICER