1. The only contention raised by the accountable persons in this appeal under the Estate Duty Act reads as under:- That the order of the learned Controller of Estate Duty (Appeals) in confirming that the share of deceased in investment allowance reserve of the firm Liberty Enterprises, Karnal, amounting to Rs. 55,737, is includible in the estate of deceased, is highly illegal and uncalled for.
2. The facts pertaining to the issue are in a very short compass.
Sanjeev Kumar, deceased, who was a partner in Liberty Enterprises, Karnal, died on 9121978. Since in the said firm, there was an investment allow ancereserve in an amount of Rs. 1,79,213, the Assistant Controller included asum of Rs. 55,737 on account of share of the deceased in the said investment allowance reserve in comnutatiion of dutiable estate.
3. When the accountable persons carried the dispute in respect of the inclusion of said sum of Rs. 55,737beforetheController (Appeals), he after recording the submissions made on behalf of the accountable persons, confirmed the action of the Assistant Controller.
4. It is this action of the Controller (Appeals) which is disputed by the accountable persons before us. The learned counsel for the accountable persons, Mr. S.K. Goel, submitted that it is under Sections 5 and 6of the Estate Duty Act, 1953 ('the Act'), that dutiable estate is to be computed .He submitted that it is only the property within disposing capacity of the deceased which can be deemed to pass on the death or the property which actually passes on the death of a person which can be subjected to estate duty. He vehemently argued that since neither the investment allowance reserve as such was the property which passed on the death of the deceased nor it was one within the disposing capacity of the deceased, the same could not be subjected to estate duty .He submitted that as per provisions of Section 32A of the 1961Act, the investment allowance reserve could not be distributed amongst the partners and had to be utilised for acquiring new machinery for the purpose of business of the undertaking within ten years from the end of the previous year in which the machinery or plant (on which investment allowance reserve was allowed)was in stalled. He reiterated the same submissions in this as recorded by the Controller in para 2 of his order. At last, he submitted that, if at all there could be any market value of the share of deceased in the investment allowance reserve, it cannot be ignored that it was nothing up to ten years and on that ground at least it may be valued on the basis of 12 percent for ten years.
5. The learned departmental representative, Mr. C.L. Jain, on the other hand, relied on the order of the Assistant Controller in respect of which submission Appeal dismissed made by the accountable persons before him (sic) and a finding of the Controller is available in para 2 of his order, which read as under :- 2. For the sake of convenience, assessee's grounds of appeal No. 5 will be taken up first. In this ground of appeal, the appellant objects to the action of the ACED in including a sum of Rs. 55,737, being the deceased' s share in the investment allowance reserve of the firm Liberty Enterprises, in the principal value of the estate.
Sh. Goel, advocate, who appeared on behalf of the appellant, contended that under the provisions of Section 32Aof the Income tax Act, the investment allowance reserve cannot be distributed amongst partners and has to be utilised for acquiring new machinery for the purpose of the business of the undertaking within ten years from the end of the previous year in which the machinery or plant(on which investment allowance was allowed) was installed. In this connection, he invited my attention to the provisions of Section 32A(5) of the Income tax Act. Sh. Goel vehemently contended that in view of the provisions of Section 32A(5), the investment allowance reserve has to be used solely for the purposes of purchase of machinery of the firm and, therefore, the deceased's share in the investment allowance reserve cannot be passed on to the Aps (sic) on the death of the deceased. I have carefully considered this contention and find myself unable to agree with it. The provisions of Section 32A(5) only prescribe certain conditions, the non-fulfilment of which enables the ITO to withdraw the investment allowance already allowed, under Section 155(4A) of the Income-tax Act. The provisions of Section 32A(5) do not prevent the firm from either selling the machinery or from distributing the investment allowance reserve to the partners. The partners are free to sell the machinery or plant or to distribute the investment allowance reserve among themselves with the rider that in case they do so the investment allowance allowed to them in the IT assessment would be withdrawn. If Sh.
Goel's contention is correct, even the value of machinery or plant in respect of which investment allowance has been allowed cannot be stated to pass on the death of a partner of the appellant firm because such machinery or plant cannot be sold before the expiry of 8 years from the end of the previous year in which they were acquired. There is another way to look into the matter. The aggregate of the capital invested by the partners in a firm at any point of time, is the excess of the value of the assets over the liabilities of the firm. The investment allowance reserve does not represent any such liability and forms part of the capital invested by the partners in a firm. I have, therefore, no hesitation in holding that this sum of Rs. 55,737 was rightly included in the principal value of the estate.
6. After taking into consideration the rival submissions, going through Sections 5 and 6 of and looking to the provisions of Section 32A(5) of the 1961 Act, we are unable to accept the contention of the learned counsel for the accountable persons that no addition on account of the deceased s share in investment allowance reserve should have been made.
But, how ever, looking to the restrictions and rider on investment allowance reserve as contemplated by Section 32A, that the investment allowance reserve had to be utilised solely for the purposes of purchase of machinery of the firm and the same had to be utilised for acquiring new machinery for the undertaking within ten years from the end of the previous year in which the machinery or plant was installed, the contention of the accountable persons that the said right of the deceased, in the alternative, should have been valued not on the full amount of the assessee's share as per profit sharing ratio in the amount of investment allowance reserve but at a discounted figure, taking into consideration the period of ten years and restrictions provided as per Section 32A. Section 32A(5) reads as under : 32A(5) Any allowance made under this section in respect of any ship, air craft, machinery or plant shall be deemed to have been wrongly made for the purposes of this Act- (a) if the ship, aircraft, machinery or plant is sold or otherwise transfer red by the assessee to any person at any time before the expiry of eight years from the end of the previous year in which it was acquired or installed ;or (b)if at any time before the expiry of ten years from the end of the previous year in which the ship or aircraft was acquired or the machinery or plant was installed, the assessee does not utilise the amount credited to the reserve account under Sub-section (4) for the purposes of acquiring anew 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 proviso to Sub-section (1) for the purposes of the business of the under taking; or and the provisions of Sub-section (4A) of Section 155 shall apply accordingly By mere reading of the above section in the Income-tax Act, it can be easily conluded that the deceased's share in investment allowance reserve could not be valued on exact figure based on his profit sharing ratio out of the investment allowance reserve available in the books.
This also cannot beigno red that it was only on 3131978 that the said reserve was created and the date of death in the instant case is 9121978 and there is a longtime ahead to go. All these facts had to be taken into consideration while valuing the share of the deceased. With the above observation, we are also of the view that in the said amount the deceased did have a right and he was competent enough to dispose of, though not without limitation, restrictions and rider, as contemplated under Section 32A. We may also observe that the partnership concern styled as Liberty Enterprises be side being young and said reserve having been created only in March 1978, the said firm also had certain minors admitted to the benefit of partnership as the perusal of record shows and that element too has to be taken into consideration while valuing the share of the deceased in the investment allowance reserve. Considering all these factors, we are of the view that in case an addition of Rs. is sustained on this account, it will meet the ends of justice.