Karnataka H.C : Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessee is entitled to investment allowance under s. 32A on the plant and machineries leased by it to other concerns, which although being used by such other concerns in manufacture or production of articles or things, were however, not utilised by the assessee for the purpose of carrying on any manufacturing or production operations on its own ?

High Court Of Karnataka

CIT vs. Aswati Corporation

Section 32A

Asst. Year 1985-86

V.K. Singhal & T.N. Vallinayagam, JJ.

IT Ref. Case No. 21 of 1996

16th November, 1999

Counsel Appeared

M.V. Seshachala, for the Applicant : None, for the Respondent

ORDER

BY THE COURT :

The Tribunal has referred the following question of law arising out of its order dt. 1st Aug., 1994, in respect of the asst. yr. 1985-86. “Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessee is entitled to investment allowance under s. 32A on the plant and machineries leased by it to other concerns, which although being used by such other concerns in manufacture or production of articles or things, were however, not utilised by the assessee for the purpose of carrying on any manufacturing or production operations on its own ?

The assessee is a company engaged in leasing its plant and machinery to other parties, who were carrying on manufacturing activities. For the asst. yr. 1985-86, the assessee claimed investment allowance of Rs. 1,46,300. While framing the assessment order, the AO negatived the claim on the ground that the assessee itself was not carrying on any manufacturing activity. In an appeal filed by the assessee, the CIT(A), following the decision of the Tribunal, Madras ‘A’ Bench in the case of First Leasing Co. (ITA No. 1951/Mad/1983, dt. 3rd Sept., 1986) directed the AO to allow the claim of investment allowance. The Department appealed before the Tribunal.

The matter was considered by the apex Court in CIT vs. Shaan Finance (P) Ltd. (1998) 146 CTR (SC) 110 : (1998) 231 ITR 308 (SC) : TC S28.2876 wherein it was observed that when the machinery is given on hire by the owner is business income. The owner is also entitled to depreciation on the machinery so hired out. The hirer, on the other hand, who pay hire charges, is entitled to claim these as revenue expenditure. The hirer has not acquired any new asset. A transaction of hire is, therefore, bailment of the machinery. There is no extinguishment of any right of the owner in the machinery. There is merely a licence given to the hirer to use, for a temporary period, the machinery so hired.

In view of the above judgment of the apex Court, we are of the view that the Tribunal was right in holding that the assessee is entitled to investment allowance under s. 32A on the plant and machineries leased by it to other concerns, which although being used by such other concerns in manufacture or production of articles or things, were however, not utilised by the assessee for the purpose of carrying on any manufacturing or production operations on its own.

Reference is accordingly answered in favour of the assessee and against the Revenue. We do not consider proper even issue of notice to the assessee.

[Citation : 243 ITR 283]

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