2001 (11) TMI 259 - AT - Income Tax

Summary

Issues Involved:
1. Entitlement to Investment Allowance under Section 32A.
2. Utilization of Investment Allowance Reserve.
3. Timing and creation of Investment Allowance Reserve.
4. Interpretation of Section 32A and related provisions.

Detailed Analysis:

1. Entitlement to Investment Allowance under Section 32A:
The appellant-company, engaged in the business of plying/chartering ships, claimed an investment allowance for the purchase of ships during the assessment years 1986-87, 1987-88, and 1994-95. The Assessing Officer initially allowed these claims but later withdrew the allowance, invoking sections 155 and 154, on the grounds that the company did not utilize the reserve for acquiring ships within the stipulated ten-year period.

2. Utilization of Investment Allowance Reserve:
The appellant argued that the investment allowance reserve need not be earmarked separately and that the funds could be utilized for acquiring new assets. They contended that the acquisition of ships 'M.V. Tamil Periyar' and 'M.V. Tamil Kamaraj' should be considered as utilization of the reserve created later. The appellant relied on the Supreme Court's decisions in cases like Shri Shubhlaxmi Mills Ltd. and Garden Silk Wvg. Factory, which emphasized a liberal interpretation of beneficial provisions.

3. Timing and Creation of Investment Allowance Reserve:
The Assessing Officer and the first appellate authority held that the investment allowance reserve created later could not be deemed to have been utilized for the acquisition of ships purchased earlier. The requirement under Section 32A is that the reserve must be created at the time of or after acquiring the original asset and then utilized within ten years for acquiring a new eligible asset. The appellant's interpretation was seen as putting the cart before the horse, as the reserve creation cannot precede its utilization.

4. Interpretation of Section 32A and Related Provisions:
The Tribunal emphasized that while Section 32A is a beneficial provision and should be interpreted liberally, this liberal interpretation cannot contravene the explicit conditions laid out in the section. The section requires the creation of an investment allowance reserve at a specified percentage of the cost of the original asset, followed by its utilization for acquiring a new asset within ten years. The Tribunal rejected the appellant's argument that the acquisition of new ships before creating the reserve should be considered valid utilization of the reserve.

Conclusion:
The Tribunal upheld the orders of the Revenue authorities, confirming that the acquisition of ships 'M.V. Tamil Periyar' and 'M.V. Tamil Kamaraj' could not be considered as utilization of the investment allowance reserve created later. The reserve must be created and then utilized within the specified period, and any deviation from this sequence does not comply with the statutory requirements. The withdrawal of the investment allowance for the assessment years 1986-87, 1987-88, and 1994-95 was thus justified.