Gujarat H.C : Whether, the Tribunal is right in law and on facts in setting aside the order passed by the ITO under s. 155(4A) whereby the investment allowance allowed at the time of the original assessment stood withdrawn ?

High Court Of Gujarat

CIT vs. Star Steel (P) Ltd.

Sections 155(4A)

Asst. Year 1977-78

D.H. Waghela & D.A. Mehta, JJ.

IT Ref. No. 156 of 1991

4th September, 2003

Counsel Appeared

Manish R. Bhatt, for the Petitioner : None, for the Respondent

JUDGMENT

D.A. MEHTA, J. :

This is a reference at the instance of the CIT and the following question of law has been referred to us by the Tribunal, Ahmedabad Bench ‘B’ under s. 256(1) of the IT Act, 1961 (for short ‘the Act’) : “Whether, the Tribunal is right in law and on facts in setting aside the order passed by the ITO under s. 155(4A) whereby the investment allowance allowed at the time of the original assessment stood withdrawn ?”

The assessee is a private limited company and for asst. yr. 1977-78 it was allowed investment allowance of Rs. 56,716 on an item of plant and machinery known as “Reduction Gear Box”. During the accounting period relevant to asst. yr. 1981-82 the said plant and machinery was scrapped since it was not functioning efficiently resulting in frequent stoppages of production. In light of this accepted position, the AO issued notice indicating intention to rectify under s. 155(4A) of the Act. The assessee resisted the proposed action. However, according to the AO, in light of the definition of “transfer” within the meaning of s. 2(47) of the Act, there was extinguishment of rights of the assessee and hence, the condition of the plant and machinery being “otherwise transferred” is satisfied. Therefore, according to the AO, the investment allowance of Rs. 56,716 granted during asst. yr. 1977-78 was required to be withdrawn. The assessee failed in its appeal before the CIT (A). However, the Tribunal accepted the contention of the assessee that the assessee had not transferred the plant and machinery but steel which was converted from scrap of the defective plant and machinery. Heard Mr. M.R. Bhatt, learned senior standing counsel appearing on behalf of the applicant-Revenue. Though served there is no appearance on behalf of the respondent.

It was contended by Mr. Bhatt that s. 155(4A) specifically lays down that if at any time before the expiry of eight years from the end of the previous year in which plant and machinery was installed, the plant and machinery was sold or otherwise transferred, the investment allowance originally granted shall be deemed to have been wrongly allowed and the AO was, therefore, right in passing the necessary order recomputing the total income by withdrawing such investment allowance. It was submitted that the term “otherwise transferred” would take within its sweep not only the original plant and machinery but also any other item which would be obtained on conversion of the original plant and machinery. Mr. Bhatt also, at the same time, invited our attention to the fact that before the Tribunal reliance was placed on decision of this Court in case of CIT vs. Vania Silk Mills (P) Ltd. 1978 CTR (Guj) 141 : (1977) 107 ITR 300 (Guj), but the said decision has subsequently been reversed by the Supreme Court in the case of Vania Silk Mills (P) Ltd. vs. CIT (1991) 98 CTR (SC) 153 : (1991) 191 ITR 647 (SC). It was also submitted that the apex Court has reiterated the same position of law once again in the case of Marybong and Kyel Tea Industries Ltd. vs. CIT (1997) 140 CTR (SC) 281 : (1997) 224 ITR 589 (SC).

It is an admitted position that in this case what has happened is that the asset in question was scrapped and the scarp was utilized as raw material for the manufacture of steel and the steel was subsequently sold. In light of this peculiar factual position the Tribunal was right in law in holding that neither machinery nor plant on which investment allowance had been granted was sold or otherwise transferred. The contention on behalf of the Revenue that the term otherwise transferred would take within its sweep and other converted form of asset cannot be accepted in light of the clear and unambiguous language employed in s. 155(4A)(a) of the Act.

In the case of Vania Silk Mills (P) Ltd. vs. CIT (supra), the apex Court has stated that in light of the various words and expressions used in the definition of “transfer” in s. 2(47) of the Act the existence of the asset is a sine qua non before it could be stated that the asset was transferred. It was further laid down that when an asset is destroyed, there is no question of transferring it to others.

Applying the aforesaid ratio to the facts of the case it is apparent that the plant and machinery on which investment allowance was granted was not in existence and what was sold was steel recovered from the scrap of plant and machinery. Hence, in absence of the plant and machinery, there is no question of application of s.

155(4A)(a) of the Act.

In the result, we hold that the Tribunal was right in law in holding that the AO could not have invoked s. 155(4A)(a) of the Act so as to withdraw investment allowance allowed at the time of original assessment.

The question referred to us is, therefore, answered in the affirmative i.e., in favour of assessee and against the Revenue.

This reference is disposed of accordingly. There shall be no order as to costs.

[Citation : 264 ITR 263]

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