1980 (11) TMI 102 - AT - Income Tax

Summary

Issues:
1. Entitlement to investment allowance under section 32A of the IT Act for hiring out bulldozers.
2. Eligibility of guarantee commission as a business deduction.

Detailed Analysis:

1. Entitlement to Investment Allowance:
The case involved cross-appeals against the order of the CIT(A) regarding the entitlement to investment allowance under section 32A of the IT Act for hiring out bulldozers. The assessee claimed investment allowance for bulldozers purchased and installed during the year, but the ITO disallowed the claim stating that the conditions for the allowance were not satisfied as the assessee had hired out the machinery and was not engaged in the business of construction. The CIT(A) confirmed this finding. The assessee contended that the authorities took a narrow view and argued that the machinery was used in its business, and construction should include activities like building roads and dams. The assessee relied on a decision of the Orissa High Court to support its argument. The Department, on the other hand, argued that hiring out the machinery abridged ownership and that the machinery might have been used for purposes not warranted by section 32A. The Tribunal analyzed the facts and arguments, noting that the machinery was owned by the assessee and used in its business, even though it was hired out to contractors. The Tribunal referred to previous decisions and held that the assessee was entitled to the investment allowance as the machinery was installed for the purposes of the business of construction, manufacture, or production, and the word "construction" should not be narrowly interpreted. The Tribunal directed the ITO to allow the investment allowance in accordance with the law, ruling in favor of the assessee.

2. Eligibility of Guarantee Commission:
The Department's appeal related to the allowance of guarantee commission for obtaining benefit of deferred payment on an installment basis. The Tribunal cited a decision of the Madras High Court, which found that guarantee commission is admissible as a business deduction. Following this decision, the Tribunal dismissed the Department's appeal, upholding the eligibility of guarantee commission as a business deduction.

In conclusion, the Tribunal allowed the assessee's appeal regarding the investment allowance for hiring out bulldozers and dismissed the Department's appeal concerning the eligibility of guarantee commission as a business deduction based on relevant legal interpretations and precedents.