THE C.I.T.B.C-III. vs. M/S.INDUSTRIAL CREDIT and INVESTMENT CORPORATION OF INDIA LTD,

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ITR/118/1998HC Bombay09 January 2017Author: HON'BLE SHRI JUSTICE M.S. SANKLECHA, HON'BLE SHRI JUSTICE S.C. GUPTE5 pages
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What did the High Court hold?

The High Court answered all four questions in the affirmative, in favour of the assessee and against the Revenue. Regarding investment allowance (Question 1) and additional depreciation (Question 3), the Court relied on the Supreme Court's decision in CIT vs. Shaan Finance (P.) Ltd. The principle established was that where an assessee's business involves hiring out machinery, or derives income from hiring machinery, the assessee is considered to have used the machinery for its business. Therefore, a leasing company owning machinery and leasing it out is entitled to investment allowance and additional depreciation, even if the lessees use it for manufacture. The Court noted that Section 32(1)(iia) for additional depreciation is in pari materia with Section 32A(1) for investment allowance in this regard. For extra shift allowance (Question 4), the Court followed the Supreme Court's decision in CIT vs. Maharashtra Apex Corporation Ltd., which, in turn, relied on Shaan Finance (P.) Ltd. The ruling was that the assessee is entitled to extra shift allowance even if it is the lessee and not the one directly using the machinery in double shifts, provided the lessees did work in extra shifts, which was confirmed by certificates produced before the AO. Question 2 regarding Rule 6D disallowance was also answered in favour of the assessee, as previously decided by the Court in the assessee's own case.

What were the facts?

The assessee, M/s. Industrial Credit & Investment Corpn. Of India Ltd., is a financial institution engaged in the business of leasing machinery. For Assessment Year 1986-87, the Assessing Officer (AO) denied investment allowance under Section 32A, additional depreciation under Section 32(1)(iia), and extra shift allowance on plant and machinery leased out by the assessee. The Commissioner of Income Tax (Appeals) [CIT(A)] allowed these claims, relying on previous orders in the assessee's own case and other precedents. The Revenue appealed to the Income Tax Appellate Tribunal (Tribunal), which upheld the CIT(A)'s orders. The Revenue then filed a reference to the High Court of Judicature at Bombay on four questions of law.

What were the issues?

The Tribunal had to decide the following questions of law: 1. Whether the Tribunal was right in law in upholding the CIT(A)'s order allowing the assessee's claim of investment allowance under Section 32A on plant and machinery leased out by the assessee. 2. Whether the Tribunal was right in law in upholding the CIT(A)'s order directing the AO to recompute the disallowance under Rule 6D of the IT Rules by considering all employee tours collectively, not individually. 3. Whether the Tribunal was right in law in upholding the CIT(A)'s order allowing additional depreciation under Section 32(1)(iia) on assets leased out by the assessee. 4. Whether the Tribunal was right in law in upholding the CIT(A)'s order allowing extra allowance on assets leased out by the assessee. Assessee's Contentions: The assessee argued that as a leasing company, it used the machinery for its business, entitling it to investment allowance. It also contended that it was entitled to additional depreciation and extra shift allowance on leased assets, as the lessees used the machinery for manufacturing and in extra shifts, respectively. The assessee relied on Supreme Court decisions in CIT vs. Shaan Finance (P.) Ltd. and CIT vs. Maharashtra Apex Corporation Ltd. Revenue's Contentions: The Revenue contended that the assessee was not entitled to investment allowance, additional depreciation, or extra shift allowance because the assessee itself did not directly use the plant and machinery for manufacture or in extra shifts.

Which sections of the Income-tax Act were involved?

Section 32A,Section 32(1)(iia)

AI-generated summary — verify with the full judgment below

Cause title — parties, addresses and appearances
1/5 itr 118-1998.doc sat IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL  JURISDICTION INCOME TAX REFERENCE NO. 118 OF 1998 Commissioner of Income­tax, Bombay City III, Mumbai ...Applicant Versus M/s.Industrial Credit & Investment Corpn. Of India Ltd.  ..Respondent   Ms.A. Vissanji with Mr.S.J. Mehta  for Applicant. Mr.Suresh Kumar with Ms.Samiksha Kanani for Respondent.        CORAM :  M. S. SANKLECHA &         S.C. GUPTE, JJ.        DATE :  9 JANUARY 2017

JUDGMENT (Per Gupte S.C. J.): By this reference under Section 256(1) of the Income Tax Act, 1961 (“Act”), the Income Tax Appellate Tribunal (“Tribunal”) has referred the following questions to this Court at the instance of the Revenue :

1.

Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in upholding the order of the CIT(A) allowing the assessee's claim of investment allowance u/s.32A on the value of the plant and machinery leased out by the assessee ?

2.

Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in upholding the order of the CIT(A) directing the AO to recompute the disallowance under Rule 6D of the I.T. Rules by taking into account all the tours made by the employees and not on the basis of individual tours ?

3.

Whether, on the facts and in the circumstances of the case, the CNR No : HCBM020024161998 Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 03:52:08

2/5 itr 118-1998.doc Tribunal was right in law in upholding the order of the CIT(A) directing to allow additional depreciation on the assets leased out by the assessee ?

4.

Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in upholding the order of the CIT(A) directing  to allow the extra allowance on the assets leased out by the assessee ?

2 The reference relates to Assessment Year 1986­87. 3 The   Respondent   Assessee   (“Assessee”)   is   a   financial institution engaged in the business inter alia of leasing of machinery. By his assessment order, the Assessing Officer denied investment allowance under Section 32A of the Act as also additional depreciation under Section 32(1)(iia) of the Act and extra shift allowance claimed by the Assessee in respect   of   the   plant   and   machinery   leased   out   by   it.   In   appeal,   the Commissioner of Income Tax (Appeals) allowed the Assessee's claim for investment allowance relying on his predecessor's orders in the Assessee's own case for A.Y. 1984­85 and 1985­86. The CIT(A) also allowed the claims   of   additional   depreciation   and   extra   shift   depreciation.   In   the Revenue's appeal before the Tribunal, both parties agreed that the issue relating to investment allowance was covered in favour of the Assessee. Accordingly, the Revenue's appeal on the issue was dismissed by the Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 03:52:08

3/5 itr 118-1998.doc Re Question 1 : 4 The Assessing Officer denied investment allowance to the Assessee on   the   ground   that   the   assets   leased   were   not   actually   used   by   the Assessee. The same question in the case of the Assessee, for another Assessment Year, was referred to this Court and by its judgment dated 28 February 2005 (in ITR No.390 of 1995 –  CIT vs. Industrial Credit & cover the Assessee's case here. The question is, accordingly, answered in the affirmative, i.e. in favour of the Assessee and against the Revenue. Re Question 2 : 5 Even   this   question   was   answered   by   this   Court   in   the Assessee's own case referred to above in the affirmative, i.e. in favour of the assessee and against the Revenue. It is answered accordingly.

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4/5 itr 118-1998.doc Re Question 3 : 6 As in the case of Question No.1, even on this question the Assessing Officer had decided against the Assessee on the ground that the leased   plant   and   machinery   was   not   installed   by   the   Assessee.   This question   arises   under   Section   32(1)(iia)   of   the   Act.   The   language   of Section 32(1)(iia) being in pari materia with Section 32A(1), in respect of investment allowance, there is no requirement for claiming additional depreciation under Section 32(1)(iia) that the plant and machinery must be installed and used by the Assessee for manufacture of articles or things, as in the case of investment allowance under Section 32A.  The Tribunal in the order passed in appeal, dismissed the Revenue's appeal on this issue the same before the Apex Court. In the Revenue's appeal from the order of the Madras High Court, its view was affirmed while hearing it along with Shaan   Finance   (P)   Ltd.  (supra).   Therefore,   the   decision   of  Shaan Finance (P.) Ltd. (supra) is squarely applicable to the claim of additional deprecation. The question is, accordingly, answered in the affirmative, i.e. in favour of the Assessee and against the Revenue. Re Question 4 : 7 Here, again, the Assessing Officer denied the Assessee's claim on the ground that the assessee company itself had not worked in extra

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5/5 itr 118-1998.doc squarely covers the Assessee's case herein. There is no dispute that the respective lessees of the Assessee had worked in extra shift. In his order, the CIT(A) has clearly recorded that “the lessees had worked extra shift and relevant certificates were produced before the Assessing Officer.” The Question is, accordingly, answered in the affirmative, i.e. in favour of the Assessee and against the Revenue.

8.

The Reference is disposed of accordingly. (S.C. GUPTE, J.) (M. S. SANKLECHA, J.)

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