2000 (5) TMI 177 - AT - Income Tax

Summary

Issues Involved:
1. Legal validity of the CIT's order invoking section 263 of the Income-tax Act, 1961.
2. Entitlement of the assessee to extra-shift allowance for machinery leased to lessees.
3. Interpretation of section 32 of the Income-tax Act and relevant rules and circulars.
4. Impact of judicial precedents and Board circulars on the case.

Detailed Analysis:

1. Legal Validity of the CIT's Order Invoking Section 263 of the Income-tax Act, 1961:
The CIT invoked section 263 to withdraw the extra-shift allowance granted by the AO to the assessee on machinery leased to various lessees. The CIT relied on the Tribunal's decision in Shri Leasing & Industrial Finance Co. Ltd. v. ITO, which stated that extra-shift allowance is permissible only to a concern that has worked double or triple shifts. The CIT concluded that the assessee did not meet this condition, thus setting aside the AO's order. The appellant challenged this on both legal validity and merits.

2. Entitlement of the Assessee to Extra-Shift Allowance for Machinery Leased to Lessees:
The assessee argued that it was justified in claiming extra-shift allowance on leased machinery used by lessees in double and triple shifts, leading to significant wear and tear. The assessee contended that section 32, Rules 5 & 5AA of the Income-tax Rules, 1962, do not impose any restriction on extra-shift allowance for leased machinery. The CIT, however, was not convinced, heavily relying on the Tribunal's decision, which stated that depreciation is not measured by the extent of use and must be based on the actual user of the machinery.

3. Interpretation of Section 32 of the Income-tax Act and Relevant Rules and Circulars:
Section 32(1) outlines the conditions for depreciation, emphasizing that the asset must be owned and used for business purposes. The section includes provisions for additional depreciation for new machinery installed within specific dates. The Tribunal noted that the extra-shift allowance is available for machinery used in multiple shifts. The CIT's interpretation was that this allowance should be based on the actual use by the concern owning the machinery. However, the Tribunal found that section 32 does not explicitly require the owner to be the user, except in the case of hotels.

4. Impact of Judicial Precedents and Board Circulars on the Case:
The Tribunal considered various judicial precedents, including the Supreme Court's ruling in CIT v. Shaan Finance (P.) Ltd., which upheld the claim of extra-shift allowance for leasing companies. The Karnataka High Court's decision in CIT v. Maharashtra Apex Corpn. Ltd. supported the assessee's entitlement to extra-shift allowance. The Tribunal also referred to CBDT circulars that simplified the calculation of extra-shift allowance and emphasized that these instructions are binding on revenue authorities. The Tribunal concluded that the CIT's order did not identify any error in the AO's decision that was prejudicial to the revenue's interest.

Conclusion:
The Tribunal allowed the appeals, holding that the CIT's order lacked jurisdiction under section 263. The Tribunal emphasized that the assessee is entitled to extra-shift allowance for leased machinery used in double or triple shifts, based on the interpretation of section 32, relevant rules, and judicial precedents. The Tribunal also highlighted that the Board's circulars support the assessee's claim and must be followed by revenue authorities.