2011 (4) TMI 493 - HC - Income Tax

Applicability of section 32A(5) - withdrawal of benefit of investment allowance granted earlier - sale of plant and machinery - assessee contended that it is sale of entire division as slump sale and not the case of sale of plant and machinery as such - Held that - once it is established that the right of the assessee in the Plant and Machineries has been extinguished due to the sale of the entire division the provisions contained in Section 32A (5) of the Act are definitely attracted. - the language is clear and unambiguous and it also reflects the real intention of the legislature to withdraw the benefit if the plant and machinery are transferred within the specified period and the exemption is also specified clearly and there is no scope of extending the list beyond what are mentioned therein. Right of equality - Article 14 of the constitution - Certain transaction excluded from the scope of section 32A(5) when transferred to specified persons - Held that - Article 14 prohibits dissimilar treatment to similarly situated persons but does not prohibit classification of persons not similarly situated provided such classification is based on intelligible differentia and is otherwise legal valid and permissible.

Summary

Issues Involved:
1. Applicability of Section 32A(5) of the Income-tax Act concerning the transfer of plant and machinery.
2. Interpretation of "sale" or "otherwise transfer" within Section 32A(5) of the Income-tax Act.
3. Imposition of interest under Section 234B of the Income-tax Act.

Detailed Analysis:

Issue 1: Applicability of Section 32A(5) of the Income-tax Act
The primary issue was whether the provisions of Section 32A(5) of the Income-tax Act are attracted when an assessee transfers the entire undertaking of the fertilizer and fiber divisions without separately transferring the plant and machinery. The court noted that the assessee had capitalized significant amounts for plant and machinery in the relevant assessment years and subsequently transferred these within eight years, invoking Section 32A(5) and Section 155(A) to withdraw the investment allowance. The court found that the transfer of the entire division as a going concern, without separating the price for plant and machinery, still constituted a "sale" or "otherwise transfer" of the plant and machinery, thus attracting the provisions of Section 32A(5).

Issue 2: Interpretation of "sale" or "otherwise transfer" within Section 32A(5)
The court examined whether the transfer of the entire division, including plant and machinery, at a slump sale without separately fixing the price of different items, falls within the purview of "sale" or "otherwise transfer" as per Section 32A(5). The court referred to the definition of "transfer" in Section 2(47) of the Act, which includes the sale, exchange, or relinquishment of the asset or the extinguishment of any rights therein. The court concluded that the extinguishment of the assessee's rights in the plant and machinery due to the sale of the entire division indeed constituted a transfer under Section 32A(5). The court rejected the argument that a literal interpretation of "sale" or "otherwise transfer" would lead to absurdity, emphasizing that the statutory language was clear and unambiguous.

Issue 3: Imposition of interest under Section 234B
The third issue was whether the fiction created under Section 32A(5) could extend to attract the provisions of Section 234B for the imposition of interest. The court held that once the provisions of Section 32A(5) are attracted, the imposition of interest under Section 234B is mandatory and automatic. Therefore, the fiction created under Section 32A(5) should extend to the imposition of interest under Section 234B, and there is no scope for waiver.

Conclusion:
The court dismissed the appeals, affirming the applicability of Section 32A(5) to the transfer of the entire division, including plant and machinery, and upheld the imposition of interest under Section 234B. The court found no merit in the arguments presented by the assessee and ruled in favor of the Revenue on all issues. No order as to costs was made.