Charges of arson have been dropped against the son of the former owner of the historic Olney Inn in connection with the $500,000 fire on March 29, 1978, that virtually destroyed the Montgomery County restaurant.

Deputy State's Attorney Timothy E. Clarke asked Judge John J. Mitchell in Circuit Court Thursday to drop the charges against Michael Gordon Simms, 31, of Brookeville.

Asked in court for a reason, Clarke cited prosecutorial discretion. He declined yesterday in an interview to elaborate. Judge Mitchell said a motion to drop a charge must be honored.

Simms' defense attorney, Laurence D. Beck, said prosecutors apparently believed their evidence sufficient to obtain an indictment, but not adequate to gain a conviction.

According to Beck, his client has maintained his innocence and the lawyer cited the dropping of the charge as "strong evidence that he was innocent."

In summarizing what he described as the limited evidence against his client, Beck said Simms was at the inn when the fire started and had access to a back room where the fire started.

In addition, he said Simms was attached to the inn, which was experiencing problems and was being sold.

In an interview yesterday Simms described the dropping of the charge as "a great relief." He expressed the belief that it "pretty well explains everything."

Prosecutor Clarke said an investigation into the fire is continuing. He declined to specify whether federal or local authorities were conducting it.

The fire occurred on the day then-owner Harry Simms was scheduled to sign a contract selling the inn to a Washington real estate developer.

The developer reportedly planned to make the inn part of a new shopping arcade. News of the fire halted proceedings that would have closed the deal.