1984 (10) TMI 56 - AT - Income Tax

Summary

Issues Involved:
1. Condonation of delay in filing the appeal.
2. Withdrawal of investment allowance due to dissolution of the firm and distribution of assets.
3. Interpretation of Section 32A(5) of the Income-tax Act, 1961.
4. Applicability of judicial precedents to the current case.

Detailed Analysis:

1. Condonation of Delay in Filing the Appeal:
The Tribunal noted that there was a delay of 35 days in filing the appeal. The assessee submitted an application for condonation of the delay supported by an affidavit. After hearing both parties, the Tribunal condoned the delay and requested submissions on the main issue involved in the appeal.

2. Withdrawal of Investment Allowance Due to Dissolution of the Firm and Distribution of Assets:
The primary issue in the appeal was the withdrawal of the investment allowance of Rs. 20,899, which was initially granted to the assessee when the plant and machinery were installed. The firm was dissolved during the relevant previous year, and its assets were distributed among the partners. The Income Tax Officer (ITO) withdrew the investment allowance on the grounds that the machinery was sold to the partners before eight years, and the reserve was transferred to the partners' accounts, thus not fulfilling the conditions laid down under Section 32A(5) of the Income-tax Act, 1961.

3. Interpretation of Section 32A(5) of the Income-tax Act, 1961:
The Commissioner (Appeals) upheld the ITO's action, stating that the reserve account's closure by transferring one-fourth of the amount to each partner's account could not be considered a purpose of the undertaking as required by Section 32A(5)(c). The Commissioner emphasized that even if the reserve amount stood in the balance sheets of the newly created firms formed by the erstwhile partners, it did not amount to the utilization of the reserve for the assessee-firm's business.

4. Applicability of Judicial Precedents to the Current Case:
The assessee relied on the Supreme Court's decision in Malabar Fisheries Co. v. CIT and the Gujarat High Court's decision in Abdul Rehman Haji Miya v. V.P. Minocha, ITO, arguing that no transfer of assets occurred upon the firm's dissolution, and thus, Section 32A(5) could not be invoked. The Tribunal considered these precedents, noting that the dissolution of a firm does not constitute a transfer of assets as per the cited cases. The Tribunal concluded that the stand taken by the assessee was unassailable based on these judicial precedents.

Separate Judgments:
- Judicial Member's View:
The Judicial Member agreed with the assessee, citing the Supreme Court and Gujarat High Court decisions, and directed the ITO not to withdraw the investment allowance of Rs. 20,899.

- Accountant Member's View:
The Accountant Member disagreed, arguing that the conditions under Section 32A(5) were not met, particularly concerning the utilization of the reserve. He emphasized that the provisions regarding investment allowance differ from those concerning development rebate and that the reserve must be utilized for acquiring new machinery or plant within ten years.

Third Member's Decision:
The Third Member, Vice President, reviewed the differing opinions and the facts of the case. He noted that the assessee had acquired machinery during the year, justifying the investment allowance. He emphasized that the reserve's utilization must be voluntary for Section 32A(5) to apply. Since the reserve continued in the business carried on by the partners post-dissolution, it could not be said that the reserve was utilized for non-business purposes. The Third Member agreed with the Judicial Member that the investment allowance could not be denied, directing the matter back to the Bench for disposal.

Conclusion:
The Tribunal allowed the appeal, directing the ITO not to withdraw the investment allowance of Rs. 20,899, based on the interpretation of Section 32A(5) and relevant judicial precedents. The decision highlighted the importance of voluntary utilization of the reserve for non-business purposes as a condition for withdrawing the investment allowance.