Investment allowance on leased machinery remains available where ownership is retained and hire amounts to bailment.

Leasing plant and machinery did not, on this analysis, deprive the owner of investment allowance under section 32A. The decisive point was that the machinery continued to belong to the assessee and was only hired out temporarily; hiring was treated as bailment, so ownership rights were retained despite use by the lessees in manufacturing operations. Relying on the principle that hire charges are business income and that the owner keeps the ordinary incidents of ownership, the article concludes that the assessee's own non-participation in manufacturing did not defeat the claim. The assessee was therefore entitled to investment allowance on the leased assets.

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Issues: Whether the assessee, engaged in leasing plant and machinery to other concerns, was entitled to investment allowance under section 32A of the Income-tax Act, 1961, even though the machinery was used by the lessees in manufacturing operations and not by the assessee itself.

Analysis: The decisive consideration was that the machinery remained the property of the assessee and was merely hired out for temporary use. Hiring of machinery is treated as bailment, and the owner does not lose rights in the asset by permitting another to use it. In the light of the Supreme Court ruling that hire charges constitute business income and that the owner remains entitled to the ordinary incidents of ownership, the fact that the assessee itself did not carry on manufacturing did not defeat the claim to investment allowance.

Conclusion: The assessee was entitled to investment allowance under section 32A on the leased plant and machinery.

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