1998 (4) TMI 45 - HC - Income Tax

Summary

Issues:
1. Claim of investment allowance on machinery leased out for assessment year 1981-82.
2. Interpretation of section 32A of the Income-tax Act, 1961 regarding investment allowance eligibility.
3. Comparison of conditions under section 32A with former development rebate allowance under section 33.
4. Analysis of relevant judgments by High Court and Supreme Court on investment allowance eligibility.

Issue 1: Claim of investment allowance on machinery leased out for assessment year 1981-82

The assessee, a company, claimed investment allowance on machinery leased out for the assessment year 1981-82. The Income-tax Officer initially denied this claim, but on appeal to the Commissioner of Income-tax (Appeals), the allowance was granted. Subsequently, the Tribunal upheld the decision, leading to a reference to the High Court to determine if the assessee was entitled to the investment allowance on leased machinery despite not using it for publishing newspapers.

Issue 2: Interpretation of section 32A of the Income-tax Act, 1961 regarding investment allowance eligibility

The High Court analyzed the provisions of section 32A of the Income-tax Act, 1961, which replaced the former development rebate allowance under section 33. It emphasized that the ownership and use of the machinery for business purposes are key conditions for claiming investment allowance. Notably, the section does not mandate that the assessee must engage in manufacturing activities using the machinery themselves. The Court highlighted specific requirements for different types of assets under section 32A(2), such as ships or aircraft, but noted that no such restriction exists for other categories like machinery or plant.

Issue 3: Comparison of conditions under section 32A with former development rebate allowance under section 33

The Court compared the conditions under section 32A with the previous development rebate allowance under section 33. It clarified that while section 33 required the machinery to be installed by the assessee in their premises, section 32A does not have such a stipulation. The Court emphasized that facilitating investment in priority industries can be achieved whether the assessee uses the machinery themselves or leases it out, as recognized modes of conducting business.

Issue 4: Analysis of relevant judgments by High Court and Supreme Court on investment allowance eligibility

The High Court referred to previous judgments by a Division Bench of the High Court and the Supreme Court to support its decision. It cited the case of First Leasing Co. of India Ltd., which highlighted the replacement of development rebate with investment allowance under section 32A. Additionally, the Court referenced the case of Shaan Finance (P.) Ltd., where the Supreme Court emphasized that section 32A does not mandate the assessee to use the machinery themselves, as long as it is used for business purposes. The High Court concurred with the reasoning of the Karnataka and Madras High Courts in interpreting the requirements of section 32A.

In conclusion, the High Court upheld the Tribunal's decision, ruling that the assessee was entitled to investment allowance on the leased machinery, even though it was not used for publishing newspapers. The judgment clarified the eligibility criteria under section 32A and emphasized that the ownership and business use of the machinery are pivotal for claiming the investment allowance.