1986 (3) TMI 135 - AT - Income Tax

Summary

Issues:
1. Allowance of investment allowance under section 32A of the Income-tax Act, 1961 for an unregistered firm leasing out a rice mill.
2. Interpretation of the condition for investment allowance eligibility based on the usage of machinery or plant by the assessee itself.
3. Assessment of income under the head 'Profits and gains of business or profession' for claiming investment allowance.

Analysis:

Issue 1:
The case involved the assessee, an unregistered firm, leasing out a rice mill and claiming investment allowance under section 32A of the Income-tax Act, 1961. The Income Tax Officer (ITO) disallowed the claim on the grounds that the mill was not operated by the assessee itself, leading to the disallowance of the claim. However, the Appellate Assistant Commissioner (AAC) directed the ITO to allow the investment allowance, citing a decision of the Allahabad High Court. The revenue appealed against this decision.

Issue 2:
The key contention revolved around whether the assessee, by leasing out the rice mill and not operating it themselves, could be considered as using the machinery or plant wholly for the purpose of their business. The tribunal noted that for investment allowance eligibility under section 32A, the machinery or plant must be owned by the assessee and wholly used for their business. In this case, as the machinery was used only by the lessee and not by the assessee, the tribunal held that the assessee was not entitled to the investment allowance.

Issue 3:
Further references were made to various legal precedents to support the decision. Cases such as New Savan & Gur Refining Co. Ltd., CIT v. Pandyan Bank Ltd., and others were cited to establish the principle that development rebate or investment allowance is not applicable if the machinery or plant is not exclusively used for the assessee's business. The tribunal emphasized that in the absence of evidence proving that the business involved hiring out machinery, the investment allowance could not be granted. The tribunal ultimately reversed the AAC's decision and upheld the ITO's order disallowing the investment allowance claim.

In conclusion, the tribunal allowed the revenue's appeal, ruling that the assessee, an unregistered firm leasing out a rice mill, was not entitled to investment allowance under section 32A of the Income-tax Act, 1961, as the machinery was not wholly used for their business. The decision was based on the interpretation of the eligibility criteria for investment allowance and relevant legal precedents emphasizing the exclusive use of machinery or plant for the assessee's business to claim such allowances.