Installation Not Required: Deduction Allowed for Investment Deposit under Income-tax Act

The High Court of Calcutta held that an assessee is entitled to an investment deposit allowance under section 32AB(1)(b) of the Income-tax Act even if new machinery purchased is not installed in the same assessment year. The Court emphasized that installation is not a prerequisite for claiming the deduction and referenced a Bombay High Court decision supporting the deductibility of expenses on machinery not installed due to business circumstances. The Court dismissed concerns of potential misuse, clarifying that fraudulent claims would not be protected. It also addressed situations where machinery is sold without installation, directing the deduction to be added to income in the subsequent year. The judgment favored the assessee, affirming their eligibility for the deduction.

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Issues: Interpretation of section 32AB(1)(b) of the Income-tax Act regarding investment deposit allowance.

The judgment by the High Court of Calcutta under section 256(1) of the Income-tax Act, 1961, addressed the question of whether an assessee is entitled to an investment deposit allowance under section 32AB(1)(b) if they utilize money for the purchase of new machinery but do not install it in the same assessment year. The Tribunal concluded that the assessee is eligible for the deduction even if the machinery is not installed in the same year, as the section does not explicitly require installation for qualification. The Court agreed with the Tribunal's interpretation, emphasizing that the wording of the section does not impose an additional condition of installation for claiming the deduction.

The Court referenced a Division Bench decision of the Bombay High Court, which supported the view that if an amount is spent towards acquiring new machinery, even if not installed in the same year due to business circumstances, it remains deductible in the previous year. The argument made on behalf of the Department, opposing the allowance without installation, raised concerns about potential misuse where an assessee could claim deductions without actually installing the machinery. However, the Court clarified that fraudulent activities, such as claiming deductions for money not genuinely spent on machinery, would not be protected by the section.

Additionally, the judgment highlighted that if circumstances force an assessee to sell the machinery to a third party in a subsequent year without installation due to business necessities, the claimed deduction is not invalidated. Section 32AB(7) addresses such situations by adding an appropriate part of the claimed deduction to the assessee's income in the subsequent year when the machinery is transferred. The Court's obiter dictum further supported the Tribunal's order, finding no legal flaw and ruling in favor of the assessee. The judgment concluded by answering the reference question in the affirmative, directing the parties to act on the order accordingly.

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