Investment allowance under section 32A-Tea companies-Creation of reserve - Income Tax - 324/1982

Investment allowance under section 32A-Tea companies-Creation of reserve Circular No. 324 Dated 3/2/1982 To All Commissioners of Income-tax. Sir, Subject: Investment allowance under section 32A-Tea companies-Creation of reserve. Attention is invited to the provisions of section 32A of the Income-tax Act, 1961, which provide for the grant of investment allowance in respect of new machinery and plant installed, inter alia, for the purposes of construction, manufacture or production of articles or things not included in Schedule XI to the Income-tax Act. The allowance which is equal to 25 per cent. of the cost of the machinery and plant is permissible in the year of installation or the immediately succeeding year, if put to use in that year, if certain conditions are fulfilled. One such condition prescribed under section 32A(4)(ii) is that an amount equal to 75 per cent. of the amount to be actually allowed as investment allowance is debited to the profit and loss account of the previous year in respect of which deduction is to be allowed, and credited to a reserve account. 2. A clarification has been sought from the Board regarding the manner in which the amount to be credited to the investment allowance reserve account should be determined in the case of tea companies in whose cases only 40 per cent. of the income is liable to income-tax. A similar question was examined by the Board in the past with regard to the quantum of reserve to be created for the grant of development rebate in respect of new machinery and plant installed by tea companies. It was clarified by the Board's Circular letter F. No. 1(8)-58-PL dated 1st November, 1958, that in the case of a tea company, it would be sufficient compliance if the tea company created a reserve equal to 75 per cent. of the amount of development rebate actually allowed in the assessment of the tea company. 3. Since the conditions regarding the creation of reserve for the grant of investment allowance under section 32A are identical to those prescribed with regard to the creation of reserve for claiming the grant of development rebate, it is clarified that the reserve required to be created for claiming investment allowance should be calculated at 75 per cent. of the amount which is actually allowed by way of investment allowance, i.e., 75 per cent. of 40 per cent. of the investment allowance debited to the profit and loss account. 4. This clarification may please be brought to the notice of all officers in your charge. Yours faithfully, (Sd.) P. Saxena Secretary, Central Board of Direct Taxes.