2004 (10) TMI 45 - HC - Income Tax

Whether Tribunal was right in law in allowing the investment allowance to the generator installed for business other than those specified in section 32A? - assessee is engaged in the business of exhibition of motion pictures and the generator has been installed by it for running of the cinema hall. By no stretch of imagination can it be said that the assessee is running an industrial undertaking which is engaged in the business of generation or distribution of electricity - Nor the business of exhibition of cinema can be said to be involving manufacture or production of any article or thing - investment allowance u/s 32A can be claimed by the assessee if he is running an industrial undertaking engaged in generation or distribution of electricity or any other form of power or involving manufacturing or producing articles or things - The Tribunal thus clearly fell in error while holding that the generator which was being used by the assessee was an integral part of the machinery for running a cinema and was entitled for investment allowance.

Summary

Issues:
Whether investment allowance can be claimed for a generator installed for business other than those specified in section 32A of the Income-tax Act, 1961.

Analysis:
The case involved a reference under section 256(1) of the Income-tax Act, 1961, regarding the allowance of investment allowance to the assessee for a generator purchased for running its theatre. The Assessing Officer disallowed the claim as the assessee was not engaged in specified businesses. The Commissioner of Income-tax (Appeals) allowed the claim, which was upheld by the Tribunal. The Revenue contended that the assessee did not meet the criteria under section 32A of the Act for claiming investment allowance. The apex court's decision in CIT v. Venkateswara Hatcheries (P) Ltd. was cited to support the argument that the assessee must be engaged in manufacturing or production to claim the allowance.

The court examined section 32A of the Act, which allows a deduction for specified assets wholly used for business purposes. The section specifies the types of assets and businesses eligible for the investment allowance. Referring to the Venkateswara Hatcheries case, the court emphasized that the business must involve manufacturing or production to qualify for the allowance. In the present case, the assessee was engaged in the exhibition of motion pictures, and installing a generator for running the cinema hall did not align with the businesses specified in section 32A.

The court concluded that the Tribunal erred in allowing the investment allowance for the generator as the assessee did not meet the conditions outlined in section 32A of the Act. It was clarified that the benefit of investment allowance could only be claimed by industrial undertakings engaged in specified businesses. Therefore, the reference was answered in favor of the Revenue and against the assessee, highlighting the importance of meeting the criteria specified in the relevant legal provisions to claim tax benefits accurately.