Law:

Section:

Section 32A of the Income-tax Act, 1961 - Investment allowance - Assessment year 1981-82 - During previous year relevant to assessment year under consideration, assessee-firm was dissolved and its assets and reserve credited under section 32A(4) were distributed amongst partners in specie - During assessment proceedings, ITO withdrew investment allowance granted to assessee on ground that on dissolution of firm, machineries and reserve were transferred to partners before 8 years within meaning of section 32A(5) - Whether in cases where an assessee disables himself from continued exclusive user of plant or machinery for purpose of his business for period specified in section 32A(5), consequences specified in said section will follow, provided machinery or plant is 'otherwise transferred' - Held, yes - Whether in cases where machinery or plant is not wholly used by assessee for purpose of business carried on by him for specified period and such user is given over to another, it can be stated that machinery or plant is 'otherwise transferred' by assessee to another person - Held, yes - Whether, therefore, ITO was justified in withdrawing investment allowance granted to assessee - Held, yes Words and phrases - 'otherwise transferred' as occurring in section 32A(5)(a) of the Income-tax Act, 1961 FACTS The assessee-firm was dissolved during the previous year relevant to the assessment year 1981-82 and its assets were distributed amongst the partners in specie. The reserve credited under section 32A(4) was also so distributed. While framing the assessment under section 143(3), the ITO withdrew the investment allowance allowed to the assessee on the ground that on the dissolution of the firm, the machineries were transferred to partners before 8 years within the meaning of section 32A(5) and reserve was also transferred to the partners within the meaning of section 32A(5)(c). On appeal, the Commissioner (Appeals) upheld the action of the ITO taking the view that closing of reserve account by transfer of one-fourth of the amount to each partner's account was not a purpose of the undertaking. On second appeal, the Tribunal found that the two branches into which the…

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