1992 (3) TMI 125 - AT - Income Tax

Summary

Issues Involved:
1. Entitlement to investment allowance under Section 32A.
2. Interpretation of "installation" of plant and machinery.
3. Requirement of "use" of machinery for business purposes.

Detailed Analysis:

1. Entitlement to investment allowance under Section 32A:
The primary issue revolves around whether the assessee is entitled to claim investment allowance for the assessment year 1984-85 under Section 32A of the Income-tax Act, 1961. The Assessing Officer and CIT (Appeals) denied the claim on the grounds that the plant and machinery were not used in the year under consideration. The assessee argued that Section 32A allows for investment allowance either in the year of installation or the year in which the machinery is first put to use, and since the machinery was installed in the relevant year, the claim should be allowed.

2. Interpretation of "installation" of plant and machinery:
The term "installed" is pivotal in determining the eligibility for investment allowance. The learned counsel for the assessee argued that installation was complete when the machinery was placed in position, even though it was not operational due to the absence of an electric connection. The Departmental Representative contended that installation and use must occur in the same year for the allowance to be granted. The Tribunal analyzed Section 32A, which states that the allowance is applicable in the year of installation or the immediately succeeding year when the machinery is first put to use. It was concluded that the word "installed" implies that the machinery must be ready for use, but not necessarily operational.

3. Requirement of "use" of machinery for business purposes:
The Tribunal examined whether the machinery needs to be used for business purposes to qualify for the investment allowance. The learned Judicial Member opined that since the machinery was not operational due to the lack of an electric connection, it could not be considered installed. The learned Accountant Member disagreed, stating that installation does not require the machinery to be operational, only ready for use. The Third Member concurred with the Accountant Member, emphasizing that installation means setting up the machinery in a condition ready for use, and the absence of an electric connection pertains to the machinery's use, not its installation.

Separate Judgments Delivered:
- The learned Judicial Member upheld the view that the machinery was not installed as it was not operational due to the lack of an electric connection.
- The learned Accountant Member argued that the machinery was installed as it was placed in position and ready for use, even though it was not operational.
- The Third Member agreed with the Accountant Member, concluding that the machinery was installed in the relevant year, and the absence of an electric connection did not affect the installation status.

Conclusion:
The Tribunal, by majority opinion, concluded that the machinery was installed in the assessment year 1984-85, and the assessee is entitled to claim the investment allowance under Section 32A. The appeal was allowed in favor of the assessee, establishing that installation means placing the machinery in a condition ready for use, irrespective of its operational status due to external factors like the absence of an electric connection.