2007 (12) TMI 6 - SC - Income Tax

Investment allowance - Question arises whether assessee is entitle for investment allowance in one assessment year or several assessment year - HC order through which allowed in several assessment year is set aside and remit the matter for fresh adjudication

Summary

Issues Involved:
1. Allowability of investment allowance under Section 32A of the Income Tax Act, 1961.
2. Applicability of Section 43A(1) concerning the valuation of assets due to foreign exchange fluctuations.

Issue-wise Detailed Analysis:

1. Allowability of Investment Allowance under Section 32A:
The core issue in these appeals pertains to the allowability of investment allowance under Section 32A of the Income Tax Act, 1961, for the assessment years 1989-90, 1991-92, and 1992-93. The assessing officer held that the investment allowance should be allowed only in one assessment year and not across multiple years. However, the Tribunal and the High Court had proceeded on the basis that Section 43A(1) of the Act allowed for the investment allowance to be granted in different assessment years.

Section 32A(1) of the Act specifies that a deduction is allowed for a ship, aircraft, or machinery or plant used for business purposes, equal to twenty-five per cent of the actual cost. The section also outlines specific conditions and exceptions under which the allowance is applicable, such as the type of machinery or plant and the nature of its use.

2. Applicability of Section 43A(1):
The appellant contended that Section 43A(1) relates to the impact of foreign exchange fluctuations on the valuation of assets and does not address whether the investment allowance can be spread over multiple years. The High Court had relied on its earlier decision in Southern Asbestos Cement Ltd. v. Commissioner of Income Tax (259 I.T.R. 631), which the appellant argued was not applicable to the present case.

The respondent's counsel conceded that Section 43A(1) is indeed related to foreign exchange fluctuations and not to the issue of investment allowance distribution over multiple years.

Conclusion:
Given the above, the Supreme Court set aside the High Court's order and remitted the matter back to the High Court for fresh adjudication. The High Court is directed to re-examine the case after formulating the appropriate question of law involved. The appeals were allowed to this extent, with no costs awarded.