1997 (3) TMI 139

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....e machine for a total sum of Rs. 3,79,907. Out of the above amount sum of Rs. 78,173 represented advance made to supplier in the preceding year. On above machine, assessee claimed deduction under section 32AB at Rs. 1,85,737. The Assessing Officer allowed the deduction at Rs. 1,07,564 relying upon the following observation of the Auditor : " 13. The amount of deduction permissible in Rs. 1,07,564.96 accordance with the provisions of section 32AB. This does not include advance amounting to Rs. 78,173.76 given to suppliers for purchase of plant and machinery during the preceding previous year. However, the assessee represented that this amount is also entitled to benefit under section 32AB since the purchase of plant and machinery was comp....

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.... in the immediately preceding year to the supplier for supplying machinery. According to the revenue this amount was not income of 1987-88 utilised for purchase of machinery. 6. To appreciate the controversy, it is necessary to reproduce relevant portion of provision of section 32AB : " 32AB. Investment deposit account.---(1) Subject to the other provisions of this section, where an assessee, whose total income includes income chargeable to tax under the heard ' Profits and gains of business or profession ' has, out of such income,--- (a) (b) utilised any amount during the previous year for the purchase of any new ship, new aircraft, new machinery or plant, without depositing any amount in the deposit account under clause (a)---....

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....red to the assessee on the above date. A binding contract relating to transfer of machinery took place in the period under consideration. The invoice bill conclusively establish that investment was made and amount utilised in the period under consideration and not in the preceding year. It is settled law that legal and binding rights pertaining to transfer of properties like machinery and plant are created only when possession of such properties is delivered and agreement is given effect to. Such event took place in the period under consideration and not in the preceding year when advance was made. The advance only brought about an agreement and not transfer in machinery. The utilisation of business income as envisaged in clause (b) of the ....