TMI Blog2006 (3) TMI 107X X X X Extracts X X X X X X X X Extracts X X X X ..... p before this court and this court admitted the appeals on February 26, 2003, and formulated the following substantial questions of law: "1. Whether a reserve created in the later years would be available for the utilisation even if purchases are made in the earlier years? 2. Whether on the facts and in the circumstances of the case, the Tribunal is right in law in holding that the acquisition of the ships M. V. Tamil Periyar, M. V. Tamil Kamaraj and the dredger cannot be held to have satisfied the requirement of section 32A, and the withdrawal of investment allowance granted is justified ? and 3. Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in not considering the acquisition of the dredger in 1990 subsequent to the creation of the reserve as being sufficient compliance with the provisions of section 32A to the extent of its cost and whether, on the facts and in the circumstances of the case, the appellant having acquired three vessels subsequent to the acquisition of the vessel in respect of which investment allowance was granted to it cannot be deemed to have complied with the requirement of section 32A of the Income-tax Act and c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ----- The Assessing Officer originally allowed the claim of the investment allowance of the assessee-company in the assessment years 1986-87, 198788 and 1994-95, but subsequently he invoked the provisions of section 155 read with section 154 and withdrew the investment allowance granted earlier on the ground that the assessee-company had not utilised the reserve for the acquisition of ships within the period of ten years. Aggrieved by the order of the Assessing Officer, the assessee-company filed an appeal before the Commissioner of Income-tax (Appeals). The Commissioner of Income-tax (Appeals) dismissed the appeal and confirmed the order of the Assessing Officer. Aggrieved by the same, the appellant filed an appeal to the Income-tax Appellate Tribunal. The Income-tax Appellate Tribunal confirmed the order of the lower authority and dismissed the appeal filed by the assessee. Learned counsel appearing for the assessee submitted that the investment allowance is granted under section 32A. The object of creation of a reserve and utilisation of an amount equal to the amount transferred to the reserve is to ensure that an asset is acquired and the amount is not utilised for any ot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he creation of investment allowance reserve thus being a much later occurrence, rules out the possibility of these reserves having been utilised for the ships at an earlier stage. Hence, the utilisation of reserve could not have preceded the creation of reserve itself. We heard both counsel. The details regarding the value of the asset as well as creation of reserve are as under: ----------------------------------------------------------- Dates and Particulars Price 1. A. availed events of (Rs.) asset ----------------------------------------------------------- August 1995 M. V. Tamil 32.72 crores -- Anna 1986-87 Investment -- 6,52,447 allowance availed of by creation of reserve September M. V. Tamil 39.63 crores -- 1986 Periyar March M. V. Tamil 40.00 crores -- 1987 Kamaraj 1987-88 Investment -- 1,43,295 allowance availed of by creation of reserve August 1990 Dredger 87.98lakhs -- 1992-93 Investment -- 11,89,41,592 allowance availed of by creation of reserve 1993-94 Investm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d acquire an asset (new asset) on any date subsequent to the acquisition of the asset (original ship) in respect of which the investment allowance is claimed and the value of the asset so acquired (new ship) should be equal to or in excess of the amount of reserve that the assessee is required to create under section 32A (in respect of the original ship). These arguments could not be accepted in view of section 32A(4)(a), which reads as follows: "Investment allowance reserve account to be utilised- (a) for the purposes of acquiring, before the expiry of a period of ten years next following the previous year in which the ship or aircraft was acquired or the machinery or plant was installed, a new ship or a new aircraft or new machinery or plant (other than machinery or plant of the nature referred to in clauses (a), (b) and (d) of the second proviso to sub-section (1)) for the purposes of the business of the undertaking ;" Even though section 32A permits creation of reserve in subsequent years 13 due to insufficiency of profit for creation of reserve, it is nowhere stated in the section that the reserve can be created in respect of original ship, subsequent to the acquisition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3, it was fairly stated by the counsel for the Revenue that the dredger was purchased in August 1990 for a sum of Rs. 87.98 lakhs and the same was purchased only out of the reserves created in the years 1986-87 and 1987-88, of Rs. 86,52,000 and Rs. 1,43,000 respectively. Hence, the said dredger was purchased out of the reserve already created in these years. Hence the assessee is entitled to investment allowance to that extent. Hence, we are answering question No.3 in favour of the assessee, against the Revenue. Now we take up question No.2. The second question deals with two parts. The first part is with regard to the ships, M. V. Tamil Periyar and M. V. Tamil Kamaraj and the second part is with regard to the dredger. In respect of the first part of the second question, we are of the view that the authorities below are right in withdrawal of investment allowance granted in respect of M. V. Tamil Periyar and M. V. Tamil Kamaraj. Also we have considered the same in detail while answering question No.1. Hence we answer the first part of the second question in favour of the Revenue and against the assessee. With regard to the second part of the second question, we have already conside ..... X X X X Extracts X X X X X X X X Extracts X X X X
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