1995 (9) TMI 60 - HC - Income Tax

High Court, Income Tax Act, Initial Depreciation, Investment Allowance, Plant And Machinery, Question Of Law, Taxing Statutes

Issues Involved:
1. Entitlement to investment allowance under section 32A of the Income-tax Act, 1961, for machinery or plant hired out to others.
2. Validity of reopening of assessment under section 147(b) of the Income-tax Act, 1961.
3. Entitlement to initial depreciation under section 32(1)(vi) of the Income-tax Act, 1961.
4. Specific entitlement to investment allowance for a bulldozer used in the business of hiring out machinery.

Issue-wise Analysis:

1. Entitlement to Investment Allowance under Section 32A for Machinery or Plant Hired Out:
The primary issue across multiple tax cases was whether the assessees were entitled to investment allowance under section 32A for machinery or plant that was owned by them but hired out to others. The court analyzed section 32A, emphasizing that the provision does not explicitly require the assessee to use the machinery or plant for their own manufacturing or production activities. The court noted that the legislative intent, as evidenced by the language of the statute and the Finance Minister's Budget Speech, was to facilitate investment in priority industries and reduce dependence on public financial institutions. The court concluded that the investment allowance could be claimed by assessees who hire out their machinery or plant, as long as the machinery or plant is used in the manner stated in section 32A(2)(b).

2. Validity of Reopening of Assessment under Section 147(b):
In Tax Cases Nos. 491 and 492 of 1986, the first question concerned the validity of reopening the assessment under section 147(b). The court deferred addressing this question, stating that if the common question regarding investment allowance was decided in favor of the assessee, there would be no necessity to answer this first question. Ultimately, the court decided in favor of the assessee on the common question, thus returning the first question unanswered.

3. Entitlement to Initial Depreciation under Section 32(1)(vi):
The court also addressed whether the assessees were entitled to initial depreciation under section 32(1)(vi) for machinery leased out. It was argued that the reasoning applicable to investment allowance under section 32A would also apply to initial depreciation. The court agreed, noting that the language of section 32(1)(vi) did not preclude the allowance for machinery leased out to others.

4. Specific Entitlement to Investment Allowance for a Bulldozer:
In Tax Case No. 1651 of 1986, the court considered whether the assessee could claim investment allowance for a bulldozer used in the business of hiring out machinery. The court referred to the Supreme Court decision in CIT v. N. C. Budharaja and Co., which held that the terms "article" and "thing" in section 32A(2)(b)(iii) do not include structures like dams, bridges, or buildings. Consequently, the court held that the assessee was not entitled to investment allowance for the bulldozer, as it did not fall within the scope of section 32A(2)(b)(iii).

Conclusion:
- Tax Cases Nos. 491 and 492 of 1986: The second question regarding entitlement to investment allowance and initial depreciation was answered in the affirmative and against the Revenue. The first question regarding the validity of reopening the assessment was returned unanswered.
- Tax Case No. 786 of 1986: The question was answered in the negative and against the Revenue.
- Tax Case No. 1651 of 1986: The question regarding the entitlement to investment allowance for the bulldozer was answered in favor of the Revenue.
- Tax Cases Nos. 1242 and 1243 of 1991: The questions were answered in the affirmative and against the Revenue.

No costs were awarded in any of the cases.

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