1. These appeals by the revenue are consolidated and disposed of by a common order for the sake of convenience, as they involve common issues. These appeals are directed against the consolidated order of the Commissioner (Appeals), wherein he has allowed the claim of investment allowance which has been withdrawn by the ITO by his rectificatory order under Section 155(4) of the Income-tax Act, 1961 ('the Act'). In the common grounds, it was urged that the Commissioner (Appeals) erred in his decision inasmuch as one of the conditions for grant of investment allowance was that the reserve created should have been utilised for acquisition of new machinery and plant. The relevant facts in brief are that the assessee-firm carries on business in the manufacture and sale of industrial gaskets, conveyor system and allied components and follows financial year as the accounting year.
Originally, the firm consisted of five partners.
2. T.G.P. Engineers (P.) Ltd., a newly floated company, was admitted as a partner evidenced by a deed of partnership dated 22-6-1979. On 31-7-1979, the firm was dissolved and the erstwhile business of the firm was taken over as a going concern by the said company. A dissolution deed was also executed. The accounts of the partners were settled and the amounts due to the. other partners were satisfied by the company by allotment of shares and loans. The ITO was of the view that the reserve for investment allowance along with other assets were distributed to the partners on dissolution and cessation of business of the firm and the reserve was utilised for purpose other than business and the investment allowance already granted was to be withdrawn. He was also of the view that as the business of the firm came to an end, there was no question of the reserve being utilised by such firm for the purpose of business. The ITO further stated that there was no sale by the dissolved firm to the company of any machinery or plant and there was also no transfer of such machinery or plant also. Therefore, Section 32A(7) of the Act was not applicable. In other words, the ITO was of the view that the firm was not succeeded by the company in the business carried on by it and, therefore, the benefit of investment allowance was not available to the firm or the company. Accordingly, he has withdrawn the investment allowance already granted for the assessment years 1977-78, 1978-79 and 1979-80 as detailed in his respective orders.
3. On appeal by the assessee, the Commissioner (Appeals) relied on the decision of the Supreme Court in the case of Malabar Fisheries Co. v.CIT  120 ITR 49 and the Board's circular on this point and came to the conclusion that the ITO was not correct in withdrawing the investment allowance. Accordingly, he directed the ITO to restore the investment allowance originally allowed by him.
4. The learned departmental representative was heard at length. He has relied on the orders of the ITO and reiterated the grounds taken by the revenue in these appeals. According to the learned departmental representative, the conditions prescribed in Sub-section (4) of Section 32A were not fulfilled, viz., the reserve should be utilised for acquiring before expiry of 10 years a new ship or a new aircraft or a new machinery or plant for the purpose of business of the undertaking.
Therefore, he urged that the ITO was justified in withdrawing the investment allowance already granted to the assessee and, therefore, urged that the order of the Commissioner (Appeals) should be set aside and that of the ITO be restored.
5. The learned representative of the assessee, on the other hand, supported the order of the Commissioner (Appeals). In reply to the learned departmental representative's contention that the conditions for grant of investment allowance were not fulfilled, he referred to the decision of the Madras High Court in the case of CIT v. S.Balasubramanian  138 ITR 815 for the proposition that the utilisation of investment allowance reserve could only be by an assessee who got the rebate and who continued to exist and not if it ceased to exist. In that case, the assessee was a HUF, which was granted development rebate. On account of partition in the HUF plant and machinery installed by the family were allotted to a coparcener.
The coparcener sold the plant and machinery to a limited company within 8 years of installation. The action of the department for withdrawing the development rebate granted to the HUF was held to be not justified.
The case of the assessee was that on dissolution of the firm and distribution of assets, the firm ceased to exist and, therefore, it should not be saddled with the condition of acquiring new plant and machinery out of the reserve already granted to it. Reference was also made to the Board's circular reproduced by the Commissioner (Appeals) in his order to urge that even the spirit of the circular is in favour of the assessee.
6. We have duly considered rival contentions and the facts of the case.
In our opinion, the issue boils down to the question whether the assessee is the successor to the erstwhile firm in terms of Section 32A(7) and, consequently, the benefits of Sub-sections 6(a) and 6(b) would apply to the assessee or not. A perusal of the rectificatory orders passed by the ITO shows a contradiction in his views inasmuch as he invoked Section 155(4A) in first para of his order, while in the third para he mentioned that there was no transfer or sale whatsoever but there was only distribution of assets on dissolution of the firm.
Clause (a) of Sub-section (4A) of Section 155 reads as under: (4A) Where an allowance by way of investment allowance has been made wholly or partly to an assessee in respect of a ship or an aircraft or any machinery or plant in any assessment year under Section 32A and subsequently -- (a) at any time before the expiry of eight years from the end of the previous year in which the ship or aircraft was acquired or the machinery or plant was installed, the ship, aircraft, machinery or plant is sold or otherwise transferred by the assessee to any person other than the Government, a local authority, a corporation established by a Central, State or Provincial Act or a Government company as defined in Section 617 of the Companies Act, 1956 (1 of 1956), or in connection with any amalgamation or succession referred to in Sub-section (6) or Sub-section (7) of Section 32A ; or The aforesaid section contemplates sale or otherwise transfer of plant and machinery in respect of which investment allowance has already been granted. Therefore, the ITO proceeded to view the transaction as one of sale or transfer otherwise and thereby proposed to invoke Section 155(5) for withdrawing such investment allowance already granted. Since the assessee has taken plea that its case is covered by provisions of Section 32A(7), the ITO hastened to hold that there was no sale or transfer except distribution of assets on dissolution. It is an admitted fact that the assessee-company has taken over the assets and liabilities of the erstwhile firm, which has been granted the investment allowance and, therefore, the business has been taken over as a going concern subject to the satisfaction of the dues of the partners by way of allotment of shares and loans. Thus, although there is no sale or transfer of the plant and machinery to the company but only there was distribution of assets among the partners on the dissolution of the firm in terms of the decision of the Supreme Court in the case of Malabar Fisheries Co. (supra), nonetheless there was succession to the business by an erstwhile partner and not a third party so as to attract para 3 of the Board's instruction No. 1015, dated 5-10-1976. Therefore, Clause (a) of Sub-section (4A) of Section 155 itself provides for exemption in case of succession and conferment of benefits of Sub-section (6) or Sub-section (7) of Section 32A. The result will be the same even if it is to be held that the plant and machinery of erstwhile firm were held to be 'otherwise transferred' to the company inasmuch as it was a case of succession, which is specifically excluded from the liability of withdrawing investment allowance. In this context, therefore, the benefits of Section 32A(7) are applicable to the assessee as it is common ground that the conditions prescribed in Explanation thereto were fulfilled by the assessee.
7. Coming to the issue whether the investment allowance has been actually utilised for acquisition of new plant and machinery, from the details filed by the assessee, it is seen that the investment allowance granted for the assessment year 1977-78 was fully utilised in purchase of machinery and plant and the position is same in respect of investment allowance granted for the assessment year 1978-79 but in respect of investment allowance of Rs. 7,311 granted for the assessment year 1979-80, no new plant and machinery could be acquired by the erstwhile firm as it ceased to exist on 31-7-1979. In such a situation, no doubt, the ratio of the Madras High Court decision in the case of S.Balasubramanian (supra) squarely applies and exonerates the liability.
On the facts and in the circumstances of the case, therefore, we hold that the consolidated order passed by the Commissioner (Appeals) was justified and does not call for any interference.