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Issues Involved: Whether an internal telephone system in a factory qualifies as 'plant' for the purpose of investment allowance under section 32A of the Income-tax Act, 1961.
Summary: The case involved a dispute regarding the classification of an internal telephone system in a factory as 'plant' for the purpose of investment allowance under section 32A of the Income-tax Act. The assessee, engaged in manufacturing electronic equipment, claimed investment allowance for the internal telephone system, which was initially denied by the original authority but later granted by the Commissioner (Appeals) and affirmed by the Appellate Tribunal. The main contention was whether the telephone system should be considered as 'plant' eligible for investment allowance. The key legal provision in question was section 32A of the Income-tax Act, which allows for a deduction in respect of machinery or plant wholly used for business purposes. The definition of 'plant' under section 43 of the Act is inclusive and covers various items used for business or profession, including scientific apparatus. The court considered precedents from other High Courts, such as the Himachal Pradesh High Court and the Bombay High Court, which had ruled in favor of treating internal telephone systems as plant eligible for development rebate. These decisions emphasized the essential function of the installation in the business process and its contribution to production efficiency. The Gujarat High Court's interpretation of 'plant' as any article or object used in carrying on business, regardless of its size or value, was also cited. The court rejected the Revenue's argument that the installation should directly produce goods, emphasizing the wide scope of 'for the purpose of business' as explained by the Supreme Court in previous cases. Ultimately, the court concluded that the internal telephone system in the factory qualified as 'plant' under section 32A and was eligible for the investment allowance. The decision was based on the broad interpretation of 'plant' and its role in facilitating business operations and efficiency. The reference was answered in favor of the assessee, rejecting the Revenue's contention.
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