1985 (5) TMI 113 - AT - Income Tax

Summary

Issues Involved:
1. Validity of Reassessment Proceedings u/s 147(b)
2. Entitlement to Investment Allowance u/s 32A and Initial Depreciation u/s 32(1)(iv)

Issue 1: Validity of Reassessment Proceedings u/s 147(b)

The reassessment under consideration was initiated under section 147(b) of the Income-tax Act, 1961, based on an appellate order from the Commissioner (Appeals) for the assessment year 1976-77. The assessee contested the validity of these proceedings, arguing that the information which led to the reassessment had ceased to exist due to a subsequent Tribunal order which overruled the Commissioner (Appeals)'s decision. The Tribunal held that the initiation of reassessment proceedings was valid at the time of issuance of the notice under section 148, even though the basis for the reassessment ceased to exist before the final order was passed. The Tribunal concluded that the non-existence of the original ground did not vitiate the reassessment proceedings.

Issue 2: Entitlement to Investment Allowance u/s 32A and Initial Depreciation u/s 32(1)(iv)

The second issue centered on whether the assessee, a company leasing out machinery, was entitled to investment allowance under section 32A and initial depreciation under section 32(1)(iv). The Tribunal analyzed the statutory provisions and concluded that the machinery owned by the assessee and leased out for industrial use qualified for investment allowance, as the machinery was wholly used for the purpose of the assessee's business of leasing. It was held that the requirement of the machinery being used for the purposes of the business carried on by the assessee was satisfied. The Tribunal also held that the term "installed" did not necessarily mean fixed in position but could mean inducted or introduced, thus allowing the assessee to claim investment allowance. The Tribunal further clarified that there was no requirement for the assessee to itself carry on the industrial undertaking where the machinery was used. Consequently, the Tribunal ruled in favor of the assessee, granting both the investment allowance and initial depreciation.

Separate Judgment by Vice President M.R. Sikka:

Vice President M.R. Sikka dissented on the first issue, holding that the reassessment proceedings were invalid as the information based on which the reassessment was initiated had ceased to exist before the final order was passed. He emphasized that the reason for the belief that income had escaped assessment must continue to exist till the reassessment order is passed. On the second issue, he agreed with the majority view that the assessee was entitled to investment allowance under section 32A, adding that the plain reading of the statutory provisions supported the assessee's claim.