1967 (1) TMI 18 - HC - Income Tax

Development rebate - In a hiring out business the installation of a plant or machinery can only be by placing it in position for service or sue - the moment the assessee placed the kolhus in his show room and actually hired them out the statutory requirement for claiming development rebate would be satisfied

Summary

Issues:
1. Entitlement to development rebate on new kolhus and kharad machines added during the previous year.
2. Interpretation of section 10(2)(vib) of the Indian Income-tax Act, 1922 regarding the conditions for claiming development rebate.
3. Whether the new kolhus were installed after 31st March 1954 and used wholly for the assessee's business.
4. Application of the definition of "plant and machinery" under section 10(5) of the Act.
5. Comparison with relevant case laws from Madras and Bombay High Courts on the interpretation of "installed" for claiming development rebate.

Analysis:
The judgment pertains to a case under section 66(1) of the Indian Income-tax Act, 1922, concerning the entitlement of an assessee to development rebate on 50 new kolhus and kharad machines added during the previous year. The primary issue revolved around the interpretation of section 10(2)(vib) of the Act, which allows development rebate for new machinery or plant wholly used for the business. The Appellate Assistant Commissioner initially allowed the rebate, but the Tribunal reversed the decision, stating that the kolhus were not installed and used for the assessee's business of hiring. The Tribunal's interpretation required the plant or machinery to be installed and used by the same person, which was contested by the assessee.

The High Court analyzed the provisions of the Act, emphasizing the broad definition of "plant and machinery" under section 10(5) and the conditions for claiming development rebate. It was established that the asset must be new, owned by the assessee, installed after 31st March 1954, and used wholly for the business. The Court focused on the term "installed," referring to its dictionary meaning and applying it in the context of the business. It concluded that the kolhus were indeed installed and used for the assessee's business of hiring, meeting the conditions for claiming development rebate.

Moreover, the Court highlighted the legislative intent behind allowing development rebate for hired-out machinery, citing relevant case laws from the Madras and Bombay High Courts. These cases supported a broad interpretation of "installed" to include placing the machinery in service for the business's use. The Court rejected the department's argument that hiring out machinery would disqualify it from development rebate, emphasizing that income from hired machinery could be assessed under the business head.

In conclusion, the Court answered the reference in favor of the assessee, affirming their entitlement to development rebate on the new kolhus and kharad machines. The judgment clarified the conditions for claiming development rebate, emphasizing the broad interpretation of "installed" and the legislative intent to allow rebates for machinery used in various business activities.