2001 (2) TMI 83 - HC - Income Tax

Summary

Issues:
1. Interpretation of section 32A(5)(c) of the Income-tax Act, 1961 regarding investment allowance.
2. Application of section 155(4A) in case of distribution of assets on dissolution of a firm.
3. Comparison with a similar provision under section 33 for development rebate.
4. Legal implications of distribution of assets on dissolution of a partnership firm.

Analysis:
1. The main issue in this case revolves around the interpretation of section 32A(5)(c) of the Income-tax Act, 1961 concerning the investment allowance. The question raised was whether the distribution of assets on the dissolution of a firm among partners amounts to the utilization of the reserve account in contravention of the specified purposes under the Act, leading to the withdrawal of the investment allowance.

2. The application of section 155(4A) was crucial in determining the consequences of breaching the conditions for claiming the investment allowance. The Assessing Officer invoked this provision to amend the assessment order for the year in question, leading to a dispute between the Revenue and the assessee regarding the legality of withdrawing the investment allowance.

3. The judgment drew a parallel with a similar provision under section 33 for development rebate and referred to a Supreme Court decision involving the distribution of assets on the dissolution of a firm. The court highlighted that a partnership firm does not have a separate legal entity, and the distribution of assets among partners upon dissolution does not constitute a transfer of assets within the meaning of the Income-tax Act.

4. The legal implications of the distribution of assets on the dissolution of a partnership firm were extensively discussed in the judgment. The court emphasized that the distribution of assets among partners after the dissolution of the firm does not amount to a transfer of assets by the dissolved firm to any person, thereby not triggering the provisions for withdrawing the investment allowance.

In conclusion, the court held in favor of the assessee, stating that the distribution of assets on the dissolution of a partnership firm does not violate the provisions of section 32A(5)(c) regarding the investment allowance. The judgment reaffirmed the principle established by the Supreme Court in a similar context, emphasizing that the distribution of assets among partners post-dissolution does not lead to the withdrawal of the investment allowance.