1994 (12) TMI 41 - HC - Income Tax

Summary

Issues:
1. Allowance of development rebate for the assessment year 1975-76.
2. Allowance of investment allowance for the assessment year 1977-78.

Development Rebate Issue (Assessment Year 1975-76):
The case involved a private limited company that sold its entire business undertaking, including plant and machinery, to another entity. The Income-tax Officer withdrew the development rebate previously allowed to the assessee, citing sections 34(3)(b) and 155(5) of the Income-tax Act. The Commissioner (Appeals) ruled in favor of the assessee, stating that the provisions did not apply when the entire business was sold as a going concern. However, the Tribunal disagreed, holding that the sale of the entire undertaking included the machinery, leading to the withdrawal of the rebate. The High Court concurred with the Tribunal, emphasizing that the provisions aimed to withdraw benefits if machinery was sold or transferred, which occurred in this case. Therefore, the development rebate withdrawal was justified.

Investment Allowance Issue (Assessment Year 1977-78):
Similarly, the Income-tax Officer withdrew the investment allowance for the assessment year 1977-78 due to the sale of the business undertaking. The Commissioner (Appeals) had canceled the withdrawal, but the Tribunal reinstated it, citing sections 32A(5) and 155(4A) of the Act. The High Court agreed with the Tribunal's interpretation, stating that the machinery's transfer upon the sale of the business invoked the provisions for withdrawing the investment allowance. The Court emphasized the broad scope of "otherwise transferred" in the relevant provisions, encompassing any transfer of assets. Consequently, the withdrawal of the investment allowance was deemed appropriate.

In conclusion, both the development rebate and investment allowance issues were decided in favor of the Revenue, upholding the Income-tax Officer's withdrawal actions. The High Court found the provisions clear and applicable to the scenario where the entire business undertaking, including machinery, was sold, leading to the rightful withdrawal of the tax benefits.