1998 (6) TMI 80 - HC - Income Tax

Summary

Issues:
- Interpretation of section 32A of the Income-tax Act, 1961 regarding investment allowance eligibility for machinery leased out by a company not engaged in manufacturing.

Analysis:
The case involved a reference under section 256(1) of the Income-tax Act, 1961, where the Income-tax Appellate Tribunal referred a question on the eligibility of investment allowance under section 32A for machinery leased out by a financing and leasing company not engaged in manufacturing. The company claimed investment allowance for machinery leased out, which was rejected by the Income-tax Officer. However, the Commissioner of Income-tax (Appeals) allowed the claim, stating that investment allowance was applicable if the machinery was owned by the assessee and wholly used for business purposes. The Tribunal upheld this decision, emphasizing that the assessee need not use the machinery for manufacturing to claim the allowance. The High Court analyzed the relevant provisions of section 32A, emphasizing ownership, full usage for business, and installation in an industrial undertaking for manufacturing or production as key requirements.

The High Court referred to a similar Supreme Court case, CIT v. Shaan Finance P. Ltd., where the court held that if the business involved hiring out machinery and the income derived was business income, the assessee could be considered as using the machinery for business purposes. The Supreme Court clarified the distinction between hiring machinery and hire purchase agreements. It was highlighted that section 32A covers leasing or finance companies giving machinery on hire. The court pointed out that sub-section (2) of section 32A only describes eligible machinery without specifying that the assessee must use it. The High Court, in the present case, remitted the matter back to the Tribunal for a fresh decision in light of the Supreme Court's ruling in CIT v. Shaan Finance P. Ltd. The High Court concluded the reference with no order as to costs, awaiting the Tribunal's reconsideration.