1982 (11) TMI 84 - AT - Income Tax

Summary

Issues Involved:
1. Eligibility for investment allowance under section 32A of the Income-tax Act, 1961.
2. Interpretation of the term "wholly used" in section 32A.
3. Whether leasing of machinery constitutes "installation" by the assessee.
4. Applicability of section 32A(5) regarding transfer of assets.

Issue-wise Detailed Analysis:

1. Eligibility for investment allowance under section 32A of the Income-tax Act, 1961:
The primary issue is whether an assessee engaged in leasing machinery, which is used by lessees for manufacturing or production activities referred to in section 32A(2), is eligible for investment allowance. The assessee argued that the machinery was owned by it, was brand new, and was wholly used for its business of leasing. The revenue contended that since the assessee did not use the machinery in its own business, it was not eligible for the allowance. The Tribunal concluded that section 32A does not require the assessee to use the machinery in its own business as long as the machinery is used for the specified purposes by the lessees.

2. Interpretation of the term "wholly used" in section 32A:
The revenue argued that "wholly used" should be interpreted as "exclusively used" by the assessee. The Tribunal rejected this argument, stating that the term "wholly used" refers to the machinery being fully used for the business carried on by the assessee, which in this case is leasing. The Tribunal emphasized that the interpretation should further the legislative intent of promoting industrialization and not impede it.

3. Whether leasing of machinery constitutes "installation" by the assessee:
The Tribunal analyzed whether machinery leased out by the assessee could be considered as "installed" by the assessee. It was determined that the installation by the lessee is effectively installation by the assessee, as the assessee retains ownership and ensures the machinery is used for the specified purposes. The Tribunal noted that the legislative intent was to encourage the use of new machinery for industrial purposes, regardless of whether the machinery is used directly by the owner or through leasing.

4. Applicability of section 32A(5) regarding transfer of assets:
The revenue argued that leasing constitutes a form of "transfer," which would disqualify the assessee from claiming investment allowance under section 32A(5). The Tribunal disagreed, stating that leasing does not equate to a transfer of ownership. The assessee retains ownership and the machinery is merely placed at the lessee's disposal for specified uses. The Tribunal clarified that section 32A(5) applies to actual transfers of ownership, not to leasing arrangements.

Conclusion:
The Tribunal allowed the appeal, holding that the assessee is entitled to the investment allowance. The Tribunal emphasized that the legislative intent was to promote industrialization by allowing investment allowance for new machinery used for specified purposes, whether directly by the owner or through leasing. The interpretation of section 32A should align with this objective and not create unnecessary hardships or contradictions.