2015 (1) TMI 399 - HC - Income Tax

Investment allowance - assets in question had been purchased during the immediately preceding year i.e. 1981-82 but investment allowance had been claimed in A.Y 1982-83 on the ground that these had been put to use during the latter assessment year. - Held that - keeping in mind the permissible change of financial year, the assessee was permitted to change the financial year from 01.09.1980 and all crucial dates namely change of burner and installation of same was done in 1981 and production had started on 01.03.1981. - assessee had full intention of starting the regular commercial production but could not do so on account of non availability of natural gas as it was supplied to it only from 17.09.1981. In the meantime, the assessee had imported oil burner from Germany and it was with the aid of this equipment that it was able to enter into the realm of commercial production with effect from 01.03.1981. - provisions of section 32A which reads as follows gives an option to the assessee to make the claim either in the year in which the machinery is purchased and installed or in the year in which the machinery is first put to use and that being the immediate succeeding assessment year. Date on which the commercial production started was 01.03.1981 the assessment year considered by the assessee was rightly 1982- 83. In fact it goes without saying that even in the statement of facts, it is a matter of factual assertion that the IAC (Asstt.) has noted that the assessee had not claimed any Investment Allowance on the assets for the year 1981-82. - Court in complete agreement with the reasonings adopted by the Tribunal and the findings of fact arrived at and do not see any reason for interference - Decided against Revenue.

Summary

Issues Involved:
1. Legitimacy of the assessee's claim for investment allowance in the Assessment Year 1982-83.
2. Determination of the correct assessment year for claiming depreciation and investment allowance.
3. Interpretation of the term "used for the purpose of business" under Section 32 and 32A of the Income Tax Act, 1961.

Detailed Analysis:

1. Legitimacy of the assessee's claim for investment allowance in the Assessment Year 1982-83:
The Income Tax Appellate Tribunal, Ahmedabad referred the question of whether the Appellate Tribunal was right in law and on facts in directing the IAC (Asstt.) to allow the assessee's claim for investment allowance. The IAC (Asstt.) had observed that the assessee, a public limited company, claimed investment allowance for assets purchased in the preceding year (1981-82) but put to use in the Assessment Year 1982-83. The IAC (Asstt.) allowed an investment of Rs. 1,15,337/- being 25%. The CIT(A) confirmed this order, but the Tribunal accepted the assessee's claim for investment allowance on various items of plant and machinery, including the kiln in question.

2. Determination of the correct assessment year for claiming depreciation and investment allowance:
Mr. Nitin Mehta, representing the revenue, argued that the Tribunal erred in directing the Assessing Officer to allow investment allowance on drawings and designs. He contended that the assessee changed the assessment year from March to September and claimed depreciation for A.Y 1982-83, even though production started in 1980-81. He relied on case laws, including CIT vs. Nakoda Metals, Assistant Commissioner of Income-Tax vs. Ashima Syntex Ltd., Commissioner of Income Tax vs. Union Carbide (I) Ltd., and Commissioner of Income Tax vs. Refrigeration and Allied Industries Ltd., to support his argument that depreciation should have been claimed in the year 1981-82.

3. Interpretation of the term "used for the purpose of business" under Section 32 and 32A of the Income Tax Act, 1961:
The court referred to various judgments to interpret "used for the purpose of business." In Nakoda Metals, it was held that trial production constitutes use for business purposes. Similarly, in Ashima Syntex Ltd., it was stated that trial production falls within the ambit of "used for the purpose of business." The court also cited Union Carbide (I) Ltd., emphasizing that bona fide use of machinery for business purposes, even for trial production, entitles the assessee to claim depreciation. The Delhi High Court in Refrigeration and Allied Industries Ltd. elaborated on the factors responsible for depreciation and reiterated that the asset must be used for the assessee's business.

Court's Conclusion:
The court observed that the assessee was permitted to change the financial year and that the crucial dates, including the installation of the burner and the start of production, fell in 1981. The Tribunal rightly accepted the assessee's claim for investment allowance for the Assessment Year 1982-83. The court agreed with the Tribunal's reasoning that the assessee's intention to start regular commercial production was evident, but it was delayed due to non-availability of natural gas. The Tribunal's decision to grant investment allowance on drawings and designs, considering them together with the kiln, was upheld.

The court concluded that the provisions of Section 32A allow the assessee to claim investment allowance either in the year of purchase and installation or in the year the machinery is first put to use. The assessee rightly claimed the allowance for the Assessment Year 1982-83, as commercial production started on 01.03.1981. The court did not find any reason to interfere with the Tribunal's findings and answered the question in the affirmative, in favor of the assessee and against the revenue.