2006 (11) TMI 157 - HC - Income Tax

Summary

Issues involved:
The judgment involves the interpretation of the term "installed" under section 32A of the Income-tax Act, 1961, and whether the assessee is entitled to investment allowance on the cost of machinery.

Interpretation of "installed" under section 32A:
The case involved a dispute regarding the eligibility of the assessee for investment allowance under section 32A of the Income-tax Act, 1961. The key question was whether the machinery in question was considered "installed" within the relevant assessment year. The Income-tax Appellate Tribunal held that the lack of electricity did not affect the eligibility for investment allowance, but based on other facts, it concluded that the machinery was not "installed" during the assessment year. The Tribunal considered the machinery as part of a larger plant and noted that it was not capable of functioning without other necessary components. The Tribunal also highlighted that certain essential components were acquired after the relevant assessment year, indicating that the machinery was not ready for use by the end of that year.

Functional capability and completion of installation:
The High Court emphasized the importance of establishing the functional capability of the machinery to produce the intended yield. It clarified that for investment allowance eligibility, the machinery should not only be installed but also functional or capable of being put to use. The Court distinguished between a single machine and a plant, noting that in this case, the machinery was part of a larger plant necessary for production. Therefore, the mere installation of the specific machinery was not sufficient as the entire plant needed to be functional to yield the product. The Court highlighted that the relevant date for investment allowance entitlement is when the machinery becomes capable of producing.

Decision and Conclusion:
The High Court ruled in favor of the Revenue and against the assessee, stating that the machinery in question was not capable of being put to use during the relevant assessment year. The Court emphasized the need for functional capability and completion of installation for investment allowance eligibility under section 32A of the Act. The judgment underscored that the machinery must be capable of producing the intended yield to qualify for the investment allowance. Consequently, the reference was ordered in favor of the Revenue, with no costs incurred.