- (1.) THE Income-tax Appellate Tribunal, Jaipur, has referred the following question of law for the opinion of this court which arises out of the order of the Tribunal in ITA No. 860/JP of 1986, dated November 17, 1998. "Whether, on the facts and in the circumstances of the case, the Tribunal was legally justified in setting aside the order passed by the Commissioner of Income-tax (Appeals) and in holding that investment allowance granted to the assessee cannot be withdrawn ?"
(2.) THE facts of the case are that the respondent-assessee which is a registered firm had installed new machinery during the relevant previous year of the value of Rs. 2,07,017 on which investment allowance under Section 32A was claimed which came to Rs. 51,754. As required under law, the assessee had created reserve for Rs. 39,000 for the purpose of making the above claim for investment allowance. This allowance was allowed, while computing the assessment originally made under Section 143(3) on March 31, 1980. After the close of the previous year relating to the assessment year 1979-80, the firm was dissolved on October 22, 1979, and the assets and liabilities of the firm were distributed amongst the four partners, namely, Jetha Lal D. Trivedi, Jitcndra D. Trivcdi, Jaswant D. Trivedi and Ravindra D, Trivedi. THE outgoing partners started their own business separately. On the distribution of the firm, the amount in the credit of the investment allowance reserve was also distributed between the two partners, namely, Jetha Lal D. Trivedi and Jitendra D. Trivedi, in the sum of Rs. 24,000 and 15,000, respectively. THE distribution of investment allowance was done in the third year after the investment allowance was allowed for the assessment year 1979-80. THE Assessing Officer holding it to be in contravention of the provisions of Section 32A(5)(c) of the Income-tax Act, 1961, invoked the provisions of Section 155(4A)(c) for the purpose of making necessary amendment in the assessment order of the assessment year 1979-80 by withdrawing the investment allowance. Aggrieved by the said order under Section 155(4A), read with Section 154 of the Income-tax Act amending the assessment order for the year 1979-80 in the aforesaid manner, the assessee carried the matter before the Commissioner of Income-tax (Appeals). He confirmed the view taken by the Income-tax Officer. Being aggrieved, the assessee further appealed before the Tribunal. The Tribunal taking note of a decision of the Supreme Court in the case of Malabar Fisheries Co. v. CIT [1979] 120 ITR 49 and the decision of the Madras High Court reported in CIT v. S. Balasubramanian [1982] 138 ITR 815, allowed the appeal and held that the distribution of assets on the dissolution of a firm does not amount to utilisation of the amount of reserve fund in contravention of the provisions of Section 32A(4). In the aforesaid facts and circumstances, the Tribunal has raised the above question of law and referred it to this court for its decision. We have heard Mr. Sandeep Bhandawat, learned counsel for the Revenue, and Mr. Vineet Kothari, learned counsel for the assessee. The relevant provision of Section 32A(5)(c) of which breach is alleged reads as under : "If at any time before the expiry of the ten years aforesaid, the assessee utilises the amount credited to the reserve account under Sub-section (4) for distribution by way of dividends or profits or for remittance outside India as profits or for the creation of any assets outside India or for anyother purpose which is not a purpose of the business of the undertaking, and the provisions of Sub-section (4A) of Section 155 shall apply accordingly."
(3.) CONSEQUENCE of breach of condition for awarding benefit of claiming deduction of any sum as "investment allowance" has been provided under Section 155(4A) of the Act of 1961. Sub-section (4A) of Section 155, to the extent relevant, reads as under : "(4A) Where an allowance by way of investment allowance has been made wholly or partly to an assessee in respect of a ship or an aircraft or any machinery or plant in any assessment year under Section 32A and . . . (c) at any time before the expiry of the ten years referred to in Clause (b), the assessee utilises the amount credited to the reserve account under Sub-section (4) of Section 32A-- (i) for distribution by way of dividends or profits ; or (ii) for remittance outside India as profits or for the creation of any asset outside India ; or (iii) for any other purpose which is not a purpose of the business of the undertaking, the investment allowance originally allowed shall be deemed to have been wrongly allowed, and the Assessing Officer may, notwithstanding anything contained in this Act, recompute the total income of the assessee for the relevant previous year and make the necessary amendment ; and the provisions of Section 154, shall, so far as may be, apply thereto . .." The question, therefore, falls for consideration is whether distribution of assets on the dissolution of a firm amongst partners amounts to utilisation of amount credited to the reserve account under Sub-section (4) of Section 32A for distribution by way of dividends or profits or for any other purpose which is not a purpose of the business of the undertaking so as to invoke the provision for deeming the investment allowance having been wrongly allowed enabling the Assessing Officer to rectify the assessment order in terms thereof. ;