2002 (2) TMI 95 - HC - Income Tax

Trial Production Machinery Eligible for Tax Benefits: Business Use Key

The Court held that machinery used for trial production, even if not in commercial production, qualifies for depreciation and investment allowance under ... - Issues Involved: The judgment involves a reference raised by the Department regarding the assessment year 1983-84, focusing on the justification of withdrawing depreciation and investment allowance for plant and machinery at Srinagar and Hyderabad.Depreciation and Investment Allowance: The Commissioner of Income-tax (Appeals) initially found that the plant at Srinagar had gone into trial production but not commercial production, while a different view was taken for the Hyderabad unit. The Tribunal later concluded that even the machinery at the Hyderabad unit had undergone trial production. The central legal question was whether machinery going into trial production but not commercial production during a previous year qualifies for depreciation and investment allowance under sections 32 and 32A.Legal Interpretation: Various cases were cited by both parties, discussing the nature of machinery use for depreciation and investment allowance eligibility. The interpretation of the term 'use' in section 32 was crucial, emphasizing that once ownership is established, if the machinery is used for the business purpose, the degree or type of use is not relevant. The ownership and use conditions under section 32A were also examined, with a focus on whether the machinery was wholly used for the business purpose.Decision and Rationale: The Court analyzed the argument that trial production alone may not constitute sufficient business use for claiming investment allowance. However, it was concluded that as long as the machinery was used for the business purpose, such as in trial production for generating projected commercial profit, the assessee had the right to claim depreciation and investment allowance. The judgment affirmed the Tribunal's decision, answering the reference in favor of the assessee.Conclusion: The judgment clarified that trial production sufficed for the assessee to claim depreciation and investment allowance, especially considering the ongoing business operations at Srinagar and Hyderabad. The decision highlighted the importance of machinery use for business purposes in determining eligibility for tax benefits, ultimately supporting the assessee's position.