Passive user of machinery under a pooling arrangement can satisfy the tax test of "used" for business purposes.

Machinery kept ready for use under a binding pooling arrangement may be treated as "used" for tax purposes, even if not actively operated, where it remains available in the business and is maintained to earn profits. The analysis reads the word "used" in section 10(2)(vii) with the business-use provision in section 10(2)(iv), and applies the settled principle that passive user can satisfy the statutory test. On the stated facts, presses included in the pooling arrangement fell within that concept of user because they had to be kept in working condition and could be called upon if required; machinery outside the arrangement was not covered by that reasoning.

---

---

Issues: Whether machinery kept ready for use under a pooling agreement could be treated as "used" for the purposes of the second proviso to section 10(2)(vii) of the Indian Income-tax Act, 1922, and whether the proviso applied to the presses covered by the pooling arrangement.

Analysis: The expression "used" in section 10(2)(vii) was read with section 10(2)(iv), which refers to buildings, machinery or plant used for the purposes of the business. The settled construction of the word "used" was that it includes not only active user but also passive user, where machinery is kept ready for use in the business under a binding arrangement from which profits are earned. On the facts, the pooling agreement required the relevant presses to be maintained in good and working condition and kept available for use during the year, with provision for calling upon idle presses to work if required. The business therefore continued to use the machinery within the statutory sense, and the second proviso was attracted. The Gujarat Cotton Press was outside the pooling arrangement and did not partake in the associated profits, so the question of user under that agreement did not extend to it.

Conclusion: The referred question was answered in the affirmative as to the presses included in the pooling agreement, but not in relation to the Gujarat Cotton Press outside the agreement.

Ratio Decidendi: Machinery may be treated as "used" for the purposes of section 10(2)(vii) when it is kept ready for use under a binding business arrangement and remains available to earn profits, even without active operation.

---