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Issues involved: Interpretation of law regarding the admissibility of investment allowance on plant and machinery income from lease under Section 32A of the Income Tax Act, 1961.
Summary: The Income Tax Appellate Tribunal referred a question of law to the Punjab and Haryana High Court regarding the admissibility of investment allowance on income from leased plant and machinery under Section 32A of the Income Tax Act, 1961 for the assessment year 1983-84. The Tribunal had initially allowed the investment deduction claimed by the assessee, but proceedings under Section 263 were initiated due to perceived errors in the assessing authority's order. Upon appeal, the Tribunal held that if the income from lease is assessed under the head of 'income from business and profession,' then the investment allowance under Section 32A is admissible, citing a judgment of the Andhra Pradesh High Court. The High Court considered the arguments of both parties and reviewed relevant judgments. The counsel for the assessee pointed to the Supreme Court's decision in Commissioner of Income-Tax Vs. Shan Finance (P) Ltd., which upheld the Andhra Pradesh High Court's ruling that income from leasing plant and machinery as business income implies the machinery is used wholly for the assessee's business. The Supreme Court also referenced a previous judgment regarding the hiring out of machinery for business purposes. The counsel for the respondents did not contest this legal position established by the Supreme Court. Based on the Supreme Court's precedent in Shan Finance (P.) Ltd.'s case, the High Court ruled in favor of the assessee, concluding that the investment allowance on plant and machinery income from lease is admissible when assessed as business income. Therefore, the question referred by the Tribunal was answered against the revenue and in favor of the assessee, disposing of the reference accordingly.
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