2005 (3) TMI 77 - HC - Income Tax

Generator for production qualifies for investment allowance under Income-tax Act

The High Court of ALLAHABAD ruled in favor of the assessee, holding that the generator used for manufacturing or production purposes qualifies for ... Investment allowance on generator - From a reading of sub-clause (ii) of clause (b) of sub-section (2) of section 32A, it is clear that any machinery or plant which has been installed for the purpose of business of manufacture or production of any article or thing not falling under the second proviso to section 32A of the Act is entitled for investment allowance. The words 'business of manufacture' or 'production' are very wide terms and would encompass the whole set of machinery and plant which is used for the purpose of manufacture of any article or thing. Thus, the generator which is used in the business of manufacture or production of any article or thing by the assessee clearly falls within the aforesaid clause and the Tribunal has rightly upheld the allowance of the investment allowance on generator Issues:1. Interpretation of section 32A of the Income-tax Act, 1961 regarding investment allowance on a generator used for business purposes.Analysis:The High Court of ALLAHABAD was presented with the question of law whether the Income-tax Appellate Tribunal erred in holding that investment allowance was allowable to the assessee under section 32A of the Income-tax Act, 1961, for a generator. The respondent-assessee, engaged in manufacturing and sale of surgical and plastic products, had installed a generator and claimed investment allowance. The Assessing Officer disallowed the claim stating that the generator was not machinery for manufacturing purposes but only for generating electricity. The Commissioner of Income-tax (Appeals) allowed the claim based on previous orders, and the Tribunal upheld the decision.The learned standing counsel for the Revenue argued that since the generator was not used for manufacturing or production, it did not qualify as plant or machinery under section 32A. However, the Court disagreed, emphasizing that section 32A aims to promote industrialization. Sub-section (1) allows investment allowance for machinery or plant, subject to certain exclusions like office premises or residential accommodation. Sub-section (2) specifies eligible machinery or plant, including those used for the business of manufacturing or production. The Court noted that the terms 'business of manufacture' or 'production' are broad and cover machinery used for manufacturing any article or thing.Consequently, the Court ruled in favor of the assessee, stating that the generator used in the business of manufacturing or production falls within the scope of section 32A. Therefore, the investment allowance was deemed admissible. The judgment favored the assessee and went against the Revenue. No costs were awarded in this matter.