Section 32A l Investment Allowance
Circular No. 305 was issued by the Central Board of Direct Taxes on 12 June 1981. Its subject is Section 32A l Investment Allowance.
Extends the development rebate reserve concession to investment allowance. Circular No. 259 dated 11 July 1979 had said that for development rebate under section 33 the reserve condition in section 34(3)(a) is satisfied if the reserves created in the year of installation or use, or in a subsequent year or years, together come to 75 per cent of the development rebate actually allowed in that subsequent year or years. Section 32A, which replaced development rebate from 1 April 1976, is in pari materia: the allowance goes in the year of installation or the immediately succeeding year of use, is limited each year to what reduces total income to nil with the balance carried forward for up to eight assessment years, and requires a reserve of 75 per cent of the amount actually to be allowed, debited to that year's profit and loss account. The Board decides that Circular No. 259 is to be followed in judging the adequacy of investment allowance reserves too. It also reproduces section 32A(9), which declares that the deduction is not to be denied merely because the amount debited and credited to the investment allowance reserve account exceeds the profit of the previous year as arrived at before that debit.
Representations were received asking for instructions on the investment allowance reserve similar to those already issued for development rebate.
| Under the 1961 Act | Now |
|---|---|
| s.32A | no counterpart recorded |
| s.33 | no counterpart recorded |
| s.34 | no counterpart recorded |
SECTION 32A l INVESTMENT ALLOWANCE
252-253. Reserve required to be created in respect of claim for investment allowance - Circular No. 259, dated 11-7-1979 to be followed while considering adequacy of reserve
1. Attention is invited to the Board’s Circular No. 259, dated 11-7-1979 [Sl. No. 274, p. 1.617 post] regarding the creation of statutory reserve under section 34(3)(a) in connection with the claim of development rebate under section 33. It was stated in the circular referred to above that the condition for creation of the requisite reserve would stand satisfied if the sum total of the reserves created either in the year of installation or use or in the subsequent year or years is equal to the requisite amount of 75 per cent of the actual allowance of development rebate in any subsequent year or years.
2. The Board have since received representations that similar instructions may be issued in regard to the reserve required to be created in respect of claims of investment allowance under section 32A which has been substituted for development rebate allowance with effect from April 1, 1976.
3. Investment allowance is admissible in accordance with the provisions of section 32A in respect of the year of installation of the machinery or plant or in the immediately succeeding year if the machinery or plant is put to use in that year. The allowance is, however, granted subject to the creation of a reserve equal to 75 per cent of the amount actually to be allowed which should be debited to the profit and loss account of that year. It has further been provided in section 32A(3) that only so much of the investment allowance is to be allowed in any year as is sufficient to reduce the total income to nil and the balance of investment allowance has to be carried forward to the following assessment year and so on up to eight assessment years. Thus, insofar as the above matters are concerned, the provisions relating to the grant of investment allowance are in pari materia with the provisions governing the grant of development rebate. In view of the legal position stated above, it has been decided by the Board that the contents of Circular No. 259, dated 11-7-1979 referred to above may be followed while considering the adequacy of the reserves created in respect of the grant of investment allowance also.
4. Attention is also invited to the provisions of sub-section (9) of section 32A which is reproduced below and which is quite relevant for the purposes of determining the amount of reserve to be created as it gives the assessee an option to create reserve for the full amount admissible under section 32A :
"(9) For the removal of doubts, it is hereby declared that the deductions under sub-section (1) shall not be denied by reason only that the amount debited to the profit and loss account of the relevant previous year and credited to the investment allowance reserve account exceeds the amount of the profit of such previous year (as arrived at without making the debit aforesaid) in accordance with the profit and loss account."
Circular : No. 305 [F. No. 202/56/79-IT(A-II)], dated 12-6-1981.
In an assessment or appeal where investment allowance is disallowed on the ground that the reserve created in the year of installation fell short.
Source: the Income Tax Department’s own published text — its page for this instrument.
