1993 (12) TMI 230 - HC - Income Tax

High Court upholds investment allowance for assets leased out temporarily for business purposes.

The High Court affirmed the Tribunal's decision, ruling that the assessee was entitled to investment allowance under section 32A of the Income-tax Act, ... - Issues Involved:1. Entitlement to investment allowance under section 32A of the Income-tax Act, 1961 for plant and machinery leased out.2. Interpretation of the term 'wholly used for the purpose of the business' under section 32A(1).3. Applicability of section 263 of the Income-tax Act, 1961 regarding erroneous and prejudicial assessments.Detailed Analysis:1. Entitlement to Investment Allowance under Section 32A:The primary issue was whether the assessee was entitled to investment allowance under section 32A of the Income-tax Act, 1961 on the plant and machinery leased out to Grasim Industries Ltd. The Tribunal had initially allowed the claim of the assessee, which was challenged by the Commissioner under section 263 of the Act. The Tribunal's decision was based on the fact that the assessee was engaged in the business of manufacturing and trading various textiles and had temporarily leased out the plant and machinery due to adverse market conditions. The Tribunal held that the leasing arrangement was a temporary measure and did not alter the ownership or control of the assets, thus meeting the conditions for investment allowance.2. Interpretation of 'Wholly Used for the Purpose of the Business':The Tribunal and the High Court examined the interpretation of 'wholly used for the purpose of the business' under section 32A(1). The Tribunal, relying on the Special Bench decision in ITO v. First Leasing Co. of India Ltd., concluded that the term does not necessitate exclusive use by the assessee. The High Court upheld this interpretation, stating that an asset used by the assessee for business purposes, even if temporarily leased out, still qualifies for investment allowance. The Court emphasized that the plant and machinery were still being used for the business of manufacturing textiles, albeit by a lessee, and thus met the statutory requirements.3. Applicability of Section 263:The Commissioner had invoked section 263, arguing that the assessment orders were erroneous and prejudicial to the revenue because the investment allowance was wrongly granted. The High Court, however, found that the Commissioner's interpretation was incorrect. The Tribunal had rightly pointed out that the leasing of the plant and machinery was a business activity and the lease income was assessed as business income. The High Court agreed with the Tribunal that the temporary leasing arrangement did not disqualify the assessee from claiming investment allowance, as the assets were still being used for business purposes.Conclusion:The High Court affirmed the Tribunal's decision, holding that the assessee was entitled to investment allowance under section 32A. The Court clarified that the term 'wholly used for the purpose of the business' includes assets leased out temporarily for business purposes. The Court also noted that the income-tax authorities had allowed depreciation on the plant and machinery, which further supported the claim for investment allowance. The judgment concluded in favor of the assessee, stating that the leasing arrangement was a legitimate business activity and did not violate the conditions for claiming investment allowance. The question was answered in the affirmative, favoring the assessee, with no order as to costs.