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TMI Blog1982 (11) TMI 84X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee is based on the view that the Act does not require the assessee to engage in an industrial activity. It merely states that the asset should be installed in an industrial undertaking engaged in the business of construction, etc. 2. On the other hand, the revenue's view is that since the assessee was not carrying on any business activity on its own, by not putting the machines in question to such use as is referred to in sub-section (2) of section 32A, the investment allowance was not admissible to the assessee. 3. To resolve this dispute which is quite of interest, we may now refer to the facts in this case in a little more detail. 4. The assessee is a public limited company which came into existence, as is seen from the memorandum of association, for the main purpose of purchase of all forms of movable and immovable property including machinery and equipment and to lease or otherwise deal with them in any manner whatsoever including resale thereof, to carry out financing operations and perform financing services including factoring, making of loans both short and long-term along with provision of financial software such as computer programmes, to grant permission ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the conditions laid down in the 1922 Act for the allowance of development rebate were totally different from the conditions prescribed for the allowance of investment allowance under section 32A of the 1961 Act. It will be seen from the order of the Commissioner (Appeals) that although he held that the leasing of machinery is a business carried on by the assessee, the claim for investment allowance was inadmissible, because the machines so leased out, could not be said to have been installed by the assessee so as to satisfy the requirements of section 32A(2)(b). It was against this order of the Commissioner (Appeals) that the present appeal is directed. 6. Shri N. A. Palkhivala, the learned counsel appearing for the assessee, pointed out, at the outset, that the object of enacting section 32A is to give a boost, a fillip to rapid industrialisation in the country by providing incentives in the shape of investment allowance which was certainly a great concession and a boon to start new industries in the desired channels for which this section has provided for. This is also in lieu of the initial depreciation that was formerly admissible, but now replaced with investment allowance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hardship by a peculiar interpretation placed upon the section by the executive when the Legislature did not intend it. He then submitted that there was a distinction between clause (a) of sub-section (2) and clause (b) of sub-section (2) of section 32A. Clause (a) stated that a new ship or new aircraft which is also entitled to investment allowance should be 'engaged in the business of operation of ships or aircraft carried on by the assessee.' Here, the requirement is by the use of the words put in, in inverted commas, that the new ship or new aircraft should be used by the assessee in its business. Such a requirement is absent in clause (b) because it only spoke of the 'machinery or plant installed'. It does not say that the new machinery or plant should be used by the assessee in the business carried on by it unlike in the case of new ship or new aircraft. If the machinery or plant had been installed (i. e.) put into operation, or brought into use for the purpose of construction or manufacture or production of any article or thing, no matter by whomsoever, the requirement of section 32A is satisfied, if the assessee continues to be the owner. Thus the construction, manufacture o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allowance given would have to be immediately withdrawn because it should then be deemed to have been wrongly allowed which shows that the Legislature did not contemplate the allowance of investment allowance in respect of lease of machinery. He then submitted that the expression 'wholly used' in section 32A must mean 'exclusively used' which meant by the assessee himself and not by anyone else. For this proposition, he relied upon the decision of the Madras High Court in the case of CIT v. Pandyan Bank Ltd. [1969] 71 ITR 707 and that of the Calcutta High Court in the case of CIT v. J. Thomas Co. (P.) Ltd. [1977] 110 ITR 566. He also placed reliance upon the decision of the Supreme Court in the case of K. P. Varghese v. ITO [1981] 131 ITR 597 and the decision of the Delhi High Court in Addl. CIT v. Mrs. Avtar Mohan Singh [1982] 136 ITR 645 for the view that if necessary violence could be done to the language used in the statute if the intention of the Legislature is not clearly brought out. The interpretation to be placed must be to further the object for which the section had been enacted and not to defeat it. He also placed reliance upon the decision of the Bombay High Court in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te should not be permitted. Since there are no synonyms in the English language, we will be doing great violence if the word 'wholly' is substituted by the word 'exclusively'. The expression 'wholly' has a different connotation and that connotation is not to be understood by substituting the word 'exclusively' for the word 'wholly' when the entire meaning could change. Even otherwise, if the context in which the word 'wholly' is used is borne in mind, i. e., before the expression business carried on by the assessee, the expression 'exclusively' does not give a different meaning as to suggest that the machinery should be used exclusively by the assessee himself and no one else. 9. This section, said to be capable of yielding two meanings to the extent relevant, is in the following terms : "32A. (1) In respect of a ship or an aircraft or machinery or plant specified in sub-section (2), which is owned by the assessee and is wholly used for the purposes of the business carried on by him, there shall, in accordance with and subject to the provisions of this section, be allowed a deduction in respect of the previous year in which the ship or aircraft was acquired or the machinery or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hips or aircraft, (f) in the case of machinery or plant, it must be installed for the purposes of business referred to in sub-clauses (i), (ii) and (iii) of clause (b) and it should not be machinery or plant installed in any office premises or any residential accommodation or a guest house, or any office appliances or road transport vehicles, or in respect of which development rebate is allowable under section 33, or in respect of machinery or plant, the whole of the actual cost of which is allowed as a deduction. If the above requirements are satisfied, investment allowance ordinarily should have been allowed. Taking sub-section (1) or section 32 independently, we found that it lays down the qualifications for the allowance of investment allowance. We are not concerned in this appeal with the ship or aircraft. We are concerned only with machinery or plant. The machinery or plant, for the purpose of investment allowance, must first be such as specified in sub-section (2). Second requirement is, it must be owned by the assessee. Third requirement is, it must be wholly used 'for the purposes of the business carried on by the assessee'. The business carried on by the assessee is t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... strial undertaking for the purposes of the business specified therein. The machinery and plant, that the assessee had leased out, had been installed by the hirers, in their industrial undertakings for the specific purpose of the business referred to in clause (b)(iii). The installation by the lessee is installation by the assessee. The assessee did not part with his title over the machinery and plant. He continued to be its owner. The lease agreement is only for a period of 6 years which is non-cancelable. There is no option to the hirer in the lease agreement, to purchase the machinery. The assessee is entitled to all the claims of insurance as lessor though the premium is to be paid by the lessees. The insurance policies against fire, theft are taken in the name of the lessor (i. e.) the assessee. The hirer must return the machinery to the lessor after the period of lease, maintained in good condition except for the normal wear and tear. There is a specific provision in the lease agreement that the lessee, shall at all times use the machinery for the stated purpose, and would indemnify the assessee if the machinery has been used for a purpose other than the one stated in the agre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g counsel is that the word 'wholly' should be read as 'exclusively'. First, we are unable to accept his suggestion, for we are powerless, to substitute words in a statute. We have to read the words used in a statute harmoniously, giving to each word, the as signed meaning, and then arrive at the intention, apply it to a set of given facts. Beyond that, we have no power to test the meaning of a section, by substituting such words, which may appear, to bring out the controversy, because, the suggested word may be the culmination of a thinking in one particular view, and may project that view. That perhaps is the reason, why in construing statutes, words are not permitted to be substituted. So, in the process of suggesting a construction which gives effect to the intention of the Legislature and the object behind the grant of the allowance, the suggestion made by the learned standing counsel to substitute the word 'exclusively' for the word 'wholly', is perhaps not permissible. We will refer to the other particular arguments he made, a little later. 12. This interpretation which we are seeking to place upon what was contemplated by sub-section (2) will also in a manner become clear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation to be placed upon it should be such as to further that object and not to defeat it. If the construction placed upon this section by the revenue is adopted, as we have stated earlier, no party, neither the assessee nor the owner of the industrial undertaking would be able to get the investment allowance and it would defeat the very purpose of the legislation, namely, promoting small-scale industrial undertakings and other industrial undertakings producing the different articles except those specified in the Eleventh Schedule to the Act. 13. We may also refer to another aspect at this stage. Section 32A(2) did not specify who should install the machinery, whether the owner of the machinery or the actual manufacturer. Thus there is doubt about that aspect. It is now a well settled rule of law that in the interpretation of fiscal statutes, if there is a doubt as to its construction, the construction most beneficial to the subject should be adopted. The earliest case on the point by the Supreme Court was in CIT v. Shahzada Nand Sons [1966] 60 ITR 392 and the latest was in the case of CIT v. Madho Pd. Jatia [1976] 105 ITR 179. Here, the learned standing counsel submitted an arg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Since there is a difference in the meaning to be assigned to the word 'business', this principle of interpretation will-not be applicable. 14. Shri Rangaswamy, the learned standing counsel for the revenue then referred us to the Circular issued by the CBDT No. 229 dated 9-8-1977, where these provisions introduced had been explained. Shri Rangaswamy's argument is that this Circular mentions, very clearly, that the machinery and plant should be employed and used by the assessee in his own business. We are not able to find from this Circular that there is insistence that the new machinery or plant installed on which investment allowance is claimed, should also be used by the assessee. This only says that under the new provisions introduced by the Finance (No. 2) Act, 1977, investment allowance will be allowed in respect of new machinery or plant installed for the purposes of business of construction, manufacture or production of all articles or things except certain articles or things of low priority specified in the list. This again referred to the new machinery or plant installed only by way of description and not by way of requiring that the assessee must use it in his own busi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... absence of any specific condition that the assessee should install in his business which meaning we are trying to arrive at, only by a process of substitution or inference, the word 'installed' can mean only putting the apparatus or the machinery in position of service or use, without reference to the person who should put it to such use. This is also the contention of Shri Palkhivala. To our mind, it appeared that the word 'installed' used in section 32A(1) or 32A(2) does not mean that it should be installed by the assessee. 16. Shri Rangaswamy also contended that the lease being one of the forms of 'transfer' and since a transfer of an asset in respect of which investment allowance has been allowed, disentitles the assessee to the claim of investment allowance by providing for its withdrawal, the very act of leasing would disentitle the assessee to the claim. Here again, we are not able to walk along with Shri Rangaswamy, because when leasing itself is the business carried on by the assessee and in this business of leasing, there is no question or transfer or the asset as is referred to in section 32A(5). Section 32A(5) would come into operation only when the investment allowan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itation of the assets in business the assets are leased out or hired. Though the word 'transfer' my include any one of modes of transfer referred to in the Transfer of Property Act, (i. e.) sale, mortgage, lease, gift or exchange, still, it must be a transfer equal to sale whereunder the title to the property must cease. Otherwise, if machinery is mortgaged to a bank for the loan taken to carry on business, if it amounts to a transfer, then the whole benefit is lost. That is not the intention of the Legislature. We have several cases where it has been held by the highest authority that exploitation of business asset by leasing it out would also amount to business carried on by an assessee entitling the assessee to all the benefits that a person who has been carrying on business is normally entitled to under the Act. If leasing out of machinery which is a business asset is held to be exploitation of the business asset for the purpose of the business, it is difficult to say that leasing out of machinery in the course of exploitation for business amounts to transfer. We are, therefore, unable to say, as contended for by the learned standing counsel, that the existence of section 32A(5 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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