1994 (11) TMI 187 - AT - Income Tax

Issues Involved:

1. Entitlement to Investment Allowance under section 32A of the Income-tax Act, 1961.
2. Interpretation of the term 'installed' within the context of section 32A.
3. Jurisdiction of the Commissioner of Income Tax (CIT) under section 263 of the Income-tax Act, 1961.

Issue-wise Detailed Analysis:

1. Entitlement to Investment Allowance under section 32A of the Income-tax Act, 1961:

The assessee, a registered firm engaged in the business of constructing dams, purchased an excavating machine on 28-3-1987 for Rs. 24,72,400 from M/s. Tata Engineering & Locomotive Company Ltd., Jamshedpur (TELCO). The machine reached the assessee's place of business in Rajasthan in April 1987 and was put to use on 5-4-1987. The assessee claimed an Investment Allowance of Rs. 5,68,100, which the Assessing Officer (AO) allowed at Rs. 5,19,933. However, the CIT, in revisional proceedings, held that since the machine was not 'installed' in the assessment year 1987-88, the assessee was not entitled to the Investment Allowance under section 32A for that year. Consequently, the CIT modified the assessment by directing the withdrawal of the Investment Allowance allowed by the AO.

2. Interpretation of the term 'installed' within the context of section 32A:

The core controversy centered around the interpretation of the term 'installed' as used in section 32A. The assessee argued that the machinery should be considered 'installed' when it was purchased and loaded on a hired trailer for transport to the business site. This argument was supported by various judicial pronouncements. However, the Departmental Representative contended that the machinery could not be considered 'installed' until it was brought to the business site and placed in a position for use.

The Tribunal examined the term 'installed' and noted that it has a close relation to the use of machinery for business purposes. The term implies that the machinery must be placed in a position for service or use in the business. The Tribunal referenced several judicial precedents, including CIT v. Mir Mohammad Ali [1964] 53 ITR 165 (SC) and CIT v. Instrumentation Ltd. [1992] 106 CTR (Raj.) 158, which clarified that 'installed' does not necessarily mean 'fixed in position' but rather 'placed in apparatus in a position for service or use.'

In the assessee's case, the machine was tested and found to be in a 'condition' for use at the TELCO factory on 28-3-1987 and was loaded onto a trailer on 30-3-1987. However, it was not in a 'position' for service or use in the assessee's business until it reached the business site and was put to use on 5-4-1987. Thus, the Tribunal concluded that the machine was not 'installed' within the assessment year 1987-88, and the CIT was correct in withdrawing the Investment Allowance granted by the AO.

3. Jurisdiction of the Commissioner of Income Tax (CIT) under section 263 of the Income-tax Act, 1961:

The assessee also argued that the CIT had no grounds to assume jurisdiction under section 263. However, the Tribunal found that since the assessment made by the AO was erroneous and prejudicial to the interests of revenue, the CIT was justified in invoking the provisions of section 263 to revise the assessment. The Tribunal dismissed the assessee's arguments regarding the jurisdiction of the CIT.

Conclusion:

The Tribunal upheld the CIT's decision to withdraw the Investment Allowance granted by the AO, as the machine was not 'installed' within the relevant assessment year. The Tribunal also confirmed the CIT's jurisdiction under section 263 to revise the assessment, finding no merit in the assessee's arguments. The appeal was dismissed.

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