1987 (6) TMI 104 - AT - Income Tax

Summary

Issues involved:
1. Withdrawal of investment allowance granted earlier due to transfer of plant and machinery from a proprietary business to a partnership firm.

Detailed Analysis:
The judgment by the Appellate Tribunal ITAT Jaipur involves the legal question of withdrawal of investment allowance granted earlier due to the transfer of plant and machinery from a proprietary business to a partnership firm. The facts of the case include the assessee carrying on a proprietary business of Marble Industries and being granted investment allowance for certain plant and machinery. Upon forming a partnership firm and transferring the business to the firm, the issue arose regarding the withdrawal of the investment allowance under section 32A. The authorities had concluded that the transfer of plant and machinery to another person necessitated the withdrawal of the investment allowance under section 155(4A). The assessee argued that the term "sale or otherwise transfer" should be interpreted narrowly, relying on various court decisions and statutory provisions. The assessee contended that the transfer to the partnership firm did not fall under section 32A(5) and that the investment allowance should not be withdrawn.

The Appellate Tribunal considered the requirements specified in section 32A(5)(a) for the applicability of the provision. It was noted that the plant or machinery must be sold or transferred by the assessee to another person before the expiry of eight years from acquisition or installation. The Tribunal analyzed the definitions of "assessee" and "person" under the Income-tax Act, emphasizing the distinction between an individual and a firm for assessment purposes. The Tribunal further delved into the concept of transfer, highlighting that the introduction of plant and machinery into the firm resulted in an extinguishment of the assessee's rights, tantamount to a transfer.

The Tribunal rejected the assessee's argument that the term "otherwise transferred" should be construed as a sale only, stating that the Legislature intended either situation. Considering the transfer of plant and machinery to the partnership firm within the stipulated timeframe, the Tribunal concluded that all conditions for invoking section 32A were satisfied. Additionally, the Tribunal dismissed the argument that utilization of investment allowance in a subsequent year should prevent withdrawal, clarifying that section 32A(5) pertains to events post-grant of allowance. The Tribunal referenced court decisions and statutory provisions to support the withdrawal of the investment allowance in cases of conversion from proprietary to partnership business. The Tribunal found no merit in the appeals and upheld the withdrawal of the investment allowance, ultimately dismissing the appeals by the assessee.