Sanjiv Khanna, J.:--

1. This appeal by the Revenue under Section 260A of the Income Tax Act, 1961 (Act, for short) stands admitted for adjudication on the following substantial question of law:-

“Whether the Tribunal was right in holding that there was no transfer within the meaning of S.32A(5) of the Act under the Scheme of Arrangement of the assessee company and, therefore, the Assessing Officer erred in withdrawing the investment allowance granted earlier under Section 155 (4A) of the Act?”

2. The respondent-assessee is a company and during the period 1983-84 to 1990-91 had availed of and was granted benefit of investment allowance or carried forward of investment allowance under Section 32A of the Act.

3. Under a scheme of arrangement under Sections 391 and 394 of the Companies Act, 1956 which came into effect on 1st April, 1990, 9 out of 13 industrial units held by the respondent company were transferred to three newly formed companies, namely, M/s DCM Shriram Industries Limited, M/s DCM Shriram Consolidated Limited and M/s DCM Shriram Industrial Enterprises Limited. Relying upon sub-section (5) to Section 32A and treating transfer of assets and liabilities, including plant and machinery as “sale or otherwise transfer”, the Assessing Officer passed an order under Section 32A(5) read with Section 155(4A) and 154 of the Act withdrawing benefit of investment allowance or carried forward of investment allowance. First appeals were dismissed by two separate orders, passed by the Commissioner of Income Tax (Appeals) dated 19th September, 1994 in relation to Assessment Years 1987-88, 1988-89, 1989-99 and 1990-91 and order dated 21st October, 1994 in respect of Assessment Years 1983-84, 1984-85 and 1985-86. The assessee, however, succeeded by the impugned order passed by the Income Tax Appellate Tribunal (‘Tribunal’, for short) dated 1st August, 2001, inter alia, holding that scheme of arrangement did not result in ‘transfer’ under sub-section (5) to Section 35A. The Tribunal preferred to give purposive interpretation to the expression ‘otherwise transfer’ used in Section 32A(5) of the Act. Scheme of arrangement it stands observed should not be construed as violating the negative mandate which prohibits transfer. Sub-section (5) to Section 32A of the Act was not enacted to bar such schemes as the purpose behind Section 32A was to promote industrial growth and production, which was not adversely effected.

4. In order to appreciate the controversy, we would like to first reproduce relevant portions of Section 32A, i.e., sub-section (1), (5), (6) and (7) of Section 32A of the Act, which read:-

“32A. (1) In respect of a ship or an aircraft or machinery or plant specified in sub-section (2), which is owned by the assessee and is wholly used for the purposes of the business carried on by him, there shall, in accordance with and subject to the provisions of this section, be allowed a deduction, in respect of the previous year in which the ship or aircraft was acquired or the machinery or plant was installed or, if the ship, aircraft, machinery or plant is first put to use in the immediately succeeding previous year, then, in respect of that previous year, of a sum by way of investment, allowance equal to twenty-five per cent of the actual cost of the ship, aircraft, machinery or plant to the assessee:

Provided that in respect of a ship or an aircraft or machinery or plant specified in sub-section (8B), this sub-section shall have effect as if for the words “twenty-five per cent”, the words “twenty per cent” had been substituted :

Provided further that no deduction shall be allowed under this section in respect of—

(a) any machinery or plant installed in any office premises or any residential accommodation, including any accommodation in the nature of a guest house;

(b) any office appliances or road transport vehicles;

(c) any ship, machinery or plant in respect of which the deduction by way of development rebate is allowable under section