2017 (1) TMI 723 - HC - Income Tax

Claim of investment allowance u/s.32A on the value of the plant and machinery leased out by the assessee - Held that - The same question is answered in CIT vs. Industrial Credit & Investment Corporation of India Ltd. (2005 (2) TMI 863 - BOMBAY HIGH COURT) answered in the affirmative, relying on CIT vs. Shaan Finance (P.) Ltd. (1998 (3) TMI 8 - SUPREME Court) here the business of the Assessee consists of hiring out machinery, or where the income derived by the assessee from the hiring of any machinery is business income, the assessee must be considered as having used the machinery for the purpose of its business. So when a leasing or finance company, which owns the machinery, leases it to the third parties who use the same for manufacture in accordance with Section 32A(2)(b)(iii), the former is entitled to investment allowance in respect of such machinery under Section 32A. - Decided in favour of the Assessee Additional depreciation on the assets leased out by the assessee - Held that - The decision of Shaan Finance (P.) Ltd. (1998 (3) TMI 8 - SUPREME Court ) is squarely applicable to the claim of additional deprecation. The question is, accordingly, answered in the affirmative, i.e. in favour of the Assessee and against the Revenue. Extra shift allowance of depreciation - Held that - Supreme Court, in the case of CIT vs. Maharashtra Apex Corporation Ltd. (2001 (9) TMI 4 - SUPREME Court ), following the ratio of Shaan Finance (P.) Ltd. (supra), has held that the assessee was entitled to extra shift allowance of depreciation, even though it was the lessee, and not the assessee, who had used the machinery in double shift. The decision squarely covers the Assessee s case herein. There is no dispute that the respective lessees of the Assessee had worked in extra shift. In his order, the CIT(A) has clearly recorded that the lessees had worked extra shift and relevant certificates were produced before the Assessing Officer. The Question is, accordingly, answered in the affirmative, i.e. in favour of the Assessee and against the Revenue.

Summary

Issues:
1. Claim of investment allowance u/s.32A on leased plant and machinery
2. Recomputation of disallowance under Rule 6D of the I.T. Rules for employee tours
3. Allowance of additional depreciation on leased assets
4. Allowance of extra shift allowance on leased assets

Analysis:

Issue 1: Claim of investment allowance u/s.32A on leased plant and machinery
The Assessing Officer denied investment allowance to the Assessee, arguing that the leased assets were not actually used by the Assessee. However, previous judgments established that when a leasing company leases machinery to third parties for manufacturing purposes, the company is entitled to investment allowance under Section 32A. The Tribunal upheld the Assessee's claim based on these precedents, leading to the question being answered in favor of the Assessee against the Revenue.

Issue 2: Recomputation of disallowance under Rule 6D of the I.T. Rules for employee tours
The Assessing Officer had initially disallowed the claim under Rule 6D based on individual tours, but the CIT(A) directed the AO to recompute the disallowance by considering all tours made by employees collectively. The Tribunal upheld this decision, and previous judgments supported this approach. Consequently, the question was answered in favor of the Assessee against the Revenue.

Issue 3: Allowance of additional depreciation on leased assets
The Assessing Officer had denied additional depreciation under Section 32(1)(iia) on the grounds that the plant and machinery were not installed by the Assessee. However, the Tribunal, following previous decisions, allowed the claim based on the interpretation that there is no requirement for the Assessee to install and use the assets for claiming additional depreciation. The question was answered in favor of the Assessee against the Revenue.

Issue 4: Allowance of extra shift allowance on leased assets
The Assessing Officer rejected the claim for extra shift allowance, arguing that the Assessee did not work in extra shifts. However, the Supreme Court precedent established that even if the lessee, not the Assessee, used the machinery in double shifts, the Assessee is entitled to extra shift allowance. As the lessees had worked in extra shifts, the claim was upheld, and the question was answered in favor of the Assessee against the Revenue.

In conclusion, the Tribunal's decisions in favor of the Assessee were based on established legal principles and precedents, leading to the resolution of all issues in favor of the Assessee.