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TMI Blog1992 (3) TMI 125X X X X Extracts X X X X X X X X Extracts X X X X ..... t allowance for the year under consideration since the plant machinery had actually been installed in this year though the same was admittedly not used for the assessee's business in the year under consideration. The reason for not putting to use the plant machinery was that the assessee was not granted electric connection in the relevant previous year and hence the plant and machinery could not be used. He placed reliance on a judgment of the Hon'ble High Court of Delhi in Capital Bus Service (P.) Ltd. v. CIT [1980] 123 ITR 404, in which it was held that where motor buses were kept ready for running on contract basis on temporary permits they must be held to have been used for the purposes of business though they were not actually used. The Hon'ble High Court held that keeping the buses ready for use amounted to their use, for business. The learned Departmental Representative, on the other hand, contended that none of the contentions raised by the assessee's counsel is tenable and that where installation and use fall in different previous years, investment allowance can be granted only in the year in which the machinery is actually put to use. 4. Section 32A, which governs t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ified in clause (b); and (iii) if before the expiry of 10 years the assessee utilises the amount credited to investment allowance reserve account for distribution of dividends etc. Sub-section (5), thus, does not contemplate withdrawal of investment allowance in a case where after installation of the plant and machinery, the assessee fails to use that machinery for the purposes of the concerned business. The omission to provide for withdrawal of investment allowance in case of non-user of the plant and machinery is not accidental. The provisions of sub-section (5) show that actual user of the plant and machinery for the concerned business was contemplated as one of the conditions for the grant of investment allowance and that is the reason the Legislature did not provide for withdrawal of investment allowance due to non-user of the machinery for specified purposes. 6. Reference could be made to two circulars of the Central Board of Direct Taxes. Circular No. 259, dated11-7-1979deals with the creation of development rebate reserve under section 34(3) and states that the relevant requirement will be considered to have been satisfied if the accumulated reserve is created in the year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year under consideration and, as stated above, when it actually came into existence is also not known and, therefore, it is not established that the plant machinery is wholly used for the purpose of the business carried on by the assessee. The situation may be different in a case in which the business contemplated in section 32A(2)(b) is already in existence and some new plant machinery is added. In that case, mere setting up of the plant and machinery so as to be ready for use at will may be sufficient but we have before us a case in which the assessee was in the process of setting up a business for the manufacture of iron and steel and for that purpose it set up a factory. The plant and machinery with which we are concerned, was fixed in position but the factory could not be for want of electricity which was not provided to the assessee even in The immediately succeeding year. 9. For the above reasons we uphold the orders of the authorities below. The appeal is accordingly dismissed. Per A. Kalyanasundharam - I have had the benefit of going through the order of my learned brother but, I am not able to convince myself to the views expressed by him and I am therefore dra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Century Dictionary - 1972 edition, page 1096). The term 'usage' has been defined in the same dictionary at page 1494 as use, act or mode of using, treatment and the term 'use' has been defined as to put to some purpose, to make use of etc. Therefore, it is clear that, the Legislature when they had introduced the provision of allowing of the investment allowance either in the year of installation or in the immediately succeeding year, when it is first put to use, were very clear about the distinction between the two terms 'installation' and 'put to use' and they had envisaged situations of installation being in one year and the machinery being put to use in the immediately following year, thus provided, that, the benefit would be allowed in either of the two year. 4. The investment allowance was substituted in place of the development rebate, but, the initial preamble or starting paragraphs in the two sections, contained the identical phrases, i.e., allowing of development rebate either in the year of installation or in the immediately succeeding year, when it is put to use. The term 'installed' came to be examined by several courts and the general consensus was that, it meant to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... used for the purpose of the business'. As observed earlier, it is not necessary that, in the year of installation, the machinery should have been put to use and that too wholly for the purpose of the business. The term 'wholly' has been, derived by the courts to mean in entirety, i.e., no part of the machinery is used for non-business It has been observed earlier that, use of the machinery may follow the year of installation, and if so, how can the machinery be said to be used for the purposes of the business and that too wholly, in the year of installation, when the machinery has been merely placed in position, and is readied for operation which was to follow? The Madras High Court had an occasion to consider this question of use of the machineries in CIT v. Vayithri Plantations Ltd. [1981] 128 ITR 675. It was ruled that, the term 'user' include both the active and the passive user. It was also ruled that, 'any forced idleness like strike etc. cannot disentitle the assessee from getting the benefit of development rebate on the of non-user.' 7. Therefore, the machinery having been completely installed in the previous year, and the Act envisaging it being put to use subsequently a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lated to and, therefore, the assessee forfeited the right to claim the investment allowance. 3. When the matter came in appeal before the Commissioner of Income-tax it was pointed out to him that though the erection of the machinery was complete in all respects, the assessee could not get electricity connection and, though it could not run the machinery, yet the requirements of 32A were satisfied, and the assessee was entitled to the claim. Reliance for this view was placed on the decisions in Vayithri Plantations Ltd.'s case, Capital Bus Service (P.) Ltd.'s case and CIT v. Mir Mohammad Ali [1964] 53 ITR 165 (SC). The Commissioner of Income-tax did not agree with the assessee's contention. Relying upon the language used in section 32A and a decision of the Hon'ble Madhya Pradesh High Court in the case of CIT v. Jiwaji Rao Sugar Co. Ltd. [1969] 71 ITR 319, he held that since the machinery was not used in the year under appeal, the was not eligible to claim the investment allowance on the machinery. By implication, he held that even though the machinery was erected and was kept ready for use, if it was not used for any reason, that amounted to non-user of machinery disentitling the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... um by way of investment, allowance equal to twenty-five per cent of the actual cost of the ship, aircraft, machinery or plant to the assessee." An analysis of the section would show that for the entitlement of the claim for investment allowance, the, following ingredients are absolutely necessary: (i) The machinery or plant must be one specified in sub-section (2) of section 32A. (ii) It must be owned by the assessee. (iii) It must be wholly used for the purpose of the business carried on by the assessee. If these essential ingredients are present, then the section proceed to lay down the previous years in which the allowance is to be made. That is first in respect of the previous year in which the machinery or plant was installed or secondly if the machinery or plant is first put to use in the immediately succeeding previous year, then in respect of that previous year. In other words, the Legislature intended the allowance of the investment allowance to be given either in the previous year in which the plant or machinery was installed though not used, or in the previous year when it was first put to use, provided it is the immediately succeeding previous year. It is now ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s installation, the installation does not mean that it should be used, except that machinery should be kept ready for use. If as argued for the Department, installation means and takes in user also, then there is no necessity to provide that the investment allowance could be allowed in the next succeeding previous year when it was first put to use. This alternate provision to allow the claim in that year in which it was first put to use, must suggest that installation of machinery means only keeping the machinery all set and fit for use. Since the section categorically states that investment allowance can be allowed either in the year of installation or in the previous year in which the machinery or plant was first put to use, it is clear to me, that installation does not mean that the machinery was used. But the question is whether installation is complete without electric connection. Electric connection is always in the realm of user (i.e.,) starting the machinery to function. Take an example. If Air-conditioner is installed in a factory or an office, it does not start functioning until the current is supplied. But that is not to say that Air-conditioner was not installed. A lath ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctric connection was admittedly completed. It is, therefore, difficult to agree with the view that the installation of plant and machinery, though kept ready for use was not complete till it was linked with any electric supply. It is also not possible to agree that the requirement of section 32A that: "plant and machinery is wholly used for the purpose of business carried only him" means that before the investment allowance could be granted, the assessee had to prove that the plant and machinery was wholly used for the purpose of the business carried on by him. Actually speaking the assessee had a turnover of Rs.12 crores and, therefore, it cannot be said that the assessee was not in the business. 9. I am, therefore, inclined to agree with the view that the machinery was installed in the year under appeal even though electric connection was not given and that electric connection was not necessary to complete the installation and that electric connection was necessary only for the purpose of user which is not the same thing as saying that the machinery was installed. 10. The matter will now go before the regular Bench for decision, according to majority opinion. - - TaxTMI - ..... X X X X Extracts X X X X X X X X Extracts X X X X
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