1984 (10) TMI 57 - AT - Income Tax

Summary

Issues Involved:

1. Delay in filing the appeal.
2. Withdrawal of investment allowance.
3. Interpretation of Section 32A(5) of the Income Tax Act.
4. Applicability of Supreme Court and High Court decisions.
5. Difference of opinion among Tribunal members.

Detailed Analysis:

1. Delay in Filing the Appeal:

The appeal before the Tribunal was delayed by 35 days. The assessee submitted an application for condonation of the delay supported by an affidavit. After hearing both parties, the Tribunal condoned the delay and proceeded to hear the appeal on its merits.

2. Withdrawal of Investment Allowance:

The primary issue in the appeal was the withdrawal of the investment allowance of Rs. 20,899 granted to the assessee in the year the plant and machinery were installed. The assessee, a firm, was assessed for the year 1979-80, with the relevant previous year ending on June 30, 1978. The firm was dissolved on June 30, 1980, 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.

3. Interpretation of Section 32A(5) of the Income Tax Act:

The CIT(A) upheld the ITO's action, stating that the issue was not the transfer of assets but the utilization of the reserve. According to Section 32A(5)(c), if the reserve is used for purposes other than the business of the undertaking, the investment allowance can be withdrawn. The CIT(A) noted that the reserve was transferred to the partners' accounts and not utilized for the business of the undertaking, thus justifying the withdrawal of the investment allowance.

4. Applicability of Supreme Court and High Court Decisions:

The assessee relied on the Supreme Court decision in Malabar Fisheries Co. vs. CIT and the Gujarat High Court decision in Abdul Rehman Haji Miya vs. V.P. Minocha, ITO & Ors., arguing that no transfer of assets occurred upon the firm's dissolution, and hence, the provisions of Section 32A(5) could not be attracted. The Tribunal considered these decisions and found that the stand taken on behalf of the assessee was unassailable. The Tribunal noted that the dissolution of a firm and the subsequent distribution of assets among partners do not constitute a transfer of assets, as per the cited judicial precedents.

5. Difference of Opinion Among Tribunal Members:

There was a difference of opinion among the Tribunal members. The Judicial Member held that the assessee was entitled to the investment allowance, while the Accountant Member disagreed, emphasizing that the conditions for the allowance under Section 32A were not identical to those for development rebate and that the reserve was not utilized as required. Due to this disagreement, the matter was referred to a Third Member.

The Third Member, considering the facts and judicial precedents, held that the assessee was entitled to the investment allowance. The Third Member noted that the reserve was not utilized for non-business purposes and that the dissolution of the firm and distribution of assets did not violate the conditions of Section 32A(5). The Third Member also emphasized that the reserve continued in the business of the new firms formed by the partners, thus satisfying the statutory requirements.

Conclusion:

The Tribunal, by majority decision, directed the ITO not to withdraw the investment allowance of Rs. 20,899 and to modify the assessment accordingly. The appeal was allowed, and the assessee was granted the benefit of the investment allowance.