Commissioner of Income Tax vs Andhra Prabha (P.) Ltd.

Janarthanam, J.—The assessee, Andhra Prabha (Private) Limited, is being assessed to tax in the status of a company. For the assessment

year 1981-82, the assessee claimed that investment allowance should be granted on the machinery leased out. This claim was negatived by the

Income Tax Officer.

On the assessee''s appeal to the Commissioner of Income Tax (Appeals), investment allowance was held to be allowable to machinery leased

out.

On the Revenue''s appeal, the Tribunal confirming the order of the Commissioner of Income Tax (Appeals) held that the assessee was entitled

to investment allowance on the machinery leased out.

It is on these facts, the question as below at the instance of the Commissioner of Income Tax, Tamilnadu-V, Madras, had been referred to this

court for its opinion :

Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the assessee is entitled to investment

allowance on machinery leased out, though the assessee was not engaged in any manufacturing"" activity ?

Arguments of Mr. R. Sivaraman, learned counsel representing Mr. C.V. Rajan, learned junior standing counsel, representing the Revenue, and

of Mr. R. Kumar, learned counsel, representing Mr. T.N. Seetharaman, learned counsel appearing for the respondent, were heard.

The question as framed we rather feel, did not bring out the real controversy between the parties. The machinery purchased is after all a

monotype composing machine"", which could be used in publishing newspapers by the assessee. He ever did not use the machinery so purchased

for publishing newspapers, but what he had done was that the machinery so purchased was leased out On such leased out machinery, the assessee

claimed investment allowance u/s 32A. In such a situation, the question so framed is not in accord with the factual matrix of the case. The reframed

question must have to be read as under :

Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the assessee is entitled to investment

allowance on the machinery leased out, though the assessee was not using the machinery purchased in publishing newspaper ?

It is not as if the question posed for consideration in the instant case did not arise for consideration at any anterior point of time before the courts

of superior jurisdiction--the High Court and the Supreme Court and the plain fact is that such a question did arise for consideration before a

Division Bench of this court in Commissioner of Income Tax Vs. First Leasing Co. of India Ltd. and others, and the Supreme Court in

Commissioner of Income Tax, Karnataka, Bangalore Vs. M/s. Shaan Finance (P) Ltd., Bangalore, .

In the case of Commissioner of Income Tax Vs. First Leasing Co. of India Ltd. and others, a Division Bench of this court expressed that u/s

32A of the Income Tax Act, 1961, the present investment allowance has replaced the former development rebate allowance provided u/s 35 of

the Act.

The main conditions to be satisfied u/s 32A(1) and (2) are : (1) the subject-matter is to be owned by the assessee ; (2) it is to be wholly used

for the purpose of business of the assessee ; and (3) the subject-matter should come under any of the enumerated categories of Section 32A(2).

Sub-section (1) or (2) of Section 32A does not require anywhere that the plant and machinery must be installed and used by the assessee himself

for the manufacture or production of priority articles.

Wherever the Legislature intended that the assessee itself should engage in the particular business, it has so provided. This would be evident

from the language of Sub-section (2)(a) of Section 32A which specifically requires that the assessee, in order to claim investment allowance in

respect of ships or aircraft, must be engaged in the business of operation of ships or aircraft.

Even in Section 32A(4), which provides for keeping a reserve, as a condition for securing the deduction, there is no phraseology indicating that

the machinery or plant should have been used by the assessee himself. It is also settled law that giving plant or machinery on licence or hire is one

of the recognised modes of doing business as much as the use of the asset by the assessee himself for the purpose of manufacture or production.

While the relevant provisions in Section 33 provide that machinery or plant should be installed by the assessee in the premises used by it, or

that the said machinery or plant should be an asset relating to the business carried on by the assessee, as the case may be, Section 32A(2B) does

not have any such stipulation. Further, the object of facilitating investment in priority industries will be fulfilled whether the assessee himself makes

use of the plant or machinery in question or the hirer.

In the case of Commissioner of Income Tax, Karnataka, Bangalore Vs. M/s. Shaan Finance (P) Ltd., Bangalore, , what the Supreme Court

said in paragraphs 9 and 10 which is relevant for the purpose of the present case is reflected as under (at page 312) :

Sub-section (2) of Section 32A, however, requires to be examined to see whether there is any provision in that sub-section which requires that

the assessee should not merely use the machinery for the purposes of his business, but should himself use the machinery for the purpose of

manufacture or for whatever other purpose the machinery is designed. Sub-section (2) covers all items in respect of which investment allowance

can be granted. These items are, ship, aircraft or machinery or plant of certain kinds specified in that sub-section. In respect of a new ship or a new

aircraft, Section 32A(2)(a) expressly prescribes that the new ship or the new aircraft should be acquired by an assessee which is itself engaged in

the business of operation of ships or aircraft. Under Sub-section (2)(b), however, any such express requirement that the assessee must himself use

the plant or machinery is absent. Section 32A(2)(b) merely describes the new plant or machinery which is covered by Section 32A. The plant or

machinery is described with reference to its purpose. For example, Sub-section (2)(b)(i) prescribes ''the purposes of business of generation or

distribution of electricity or any other form of power''. Sub-section (2)(b)(ii) refers to small-scale industrial undertakings which may use the

machinery for the business of manufacture or production of any article, and Sub-section (2)(b)(iii) refers to the business of construction,

manufacture or production of any article or thing other than that specified in the Eleventh Schedule. Sub-section (2)(b), therefore, refers to the uses

to which the machinery can be put. It does not specify that the assessee himself should use the machinery for these purposes. In the present case,

the person to whom the machinery is hired does use the machinery for specified purposes u/s 32A(2)(b)(iii). That person, however, is not the

owner of the machinery. The High Courts of Karnataka and Madras have held that looking to the requirements specified in Section 32A, the

assessees, in the present Case, fulfil all the requirements of that section, namely, (1) the machinery is owned by the assessee ; (2) the machinery is

used for the purpose of the assessee''s business and ; (3) the machinery is as specified in Sub-section (2).

We are inclined to agree with this reasoning of the High Courts of Karnataka and Madras.

In the face of the decisions referred to as above, it goes without saying that the Income Tax Appellate Tribunal was right in holding that the

asses-see is entitled to investment allowance on the machinery leased out though the assessee was not using the machinery purchased in publishing

newspaper. This question is answered accordingly.

This tax case is thus disposed of. There shall, however, be no order as to costs, on the facts and in the circumstances of the case.