Commissioner Of Income-Tax v. Shaan Finance (P.) Ltd.

K. Shivashankar Bhat, J.:— In respect of the assessment year 1985–86, the following question has been referred under section 256(1) of the Income-tax Act, 1961 (“the Act”), for our consideration:

“Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that, in respect of machinery owned by the assessee, but leased to third parties and used by them for the manu-facture of article or thing, investment allowance was allowable under section 32A?”

2. The assessee is a company. During the previous year relevant to the assessment year, the assessee had acquired machinery. It had been leased on hire purchase basis. The assessee itself had not manufactured any article or thing. The machinery had been used by different persons (lessees) for the purpose of their business of manufacturing. In respect of the machinery, the assessee claimed investment allowance under section 32A. The Income-tax Officer refused the claim on the ground that the assessee had not manufactured any article or thing as required under section 32A(2)(b)(iii). The assessee preferred an appeal and the Commissioner (Appeals) held that investment allowance was allowable on the machinery leased by the assessee. This view was affirmed by the Tribunal. Hence, this reference. Section 32A(1) provides for investment allowance by allowing a deduction in respect of a ship, or an aircraft or machinery specified in sub-section (2) of section 32A, which is owned by the assessee and is wholly used for the purposes of the business carried on by him. (For the sake of convenience, ship, aircraft, machinery and plant are referred as “the subject-matter”). The subject-matter referred to in sub-section (1) of section 32A also should come within the enumerations stated in sub-section (2).

3. Section 32A(2) reads:

“(2) The ship or aircraft or machinery or plant referred to in sub-section (1) shall be the following, namely:

(a) a new ship or new aircraft acquired after March, 31, 1976, by an assessee engaged in the business of operation of ships or aircraft;

(b) any new machinery or plant installed after March 31, 1976,—

(i) for the purposes of business of generation or distribution of electricity or any other form of power; or

(ii) in a small-scale industrial undertaking for the purposes of business of manufacture or production of any article or thing; or

(iii) in any other industrial undertaking for the purposes of business of construction, manufacture or production of any article or thing, not being an article or thing specified in the list in the Eleventh Schedule.”

(Proviso omitted as unnecessary).

4. There are other conditions to be satisfied depending upon the date of acquiring the subject-matter. The concept of“new machinery or plant” includes machinery or plant used outside India, but used in India for the first time.

5. The main conditions to be satisfied as per section 32A(1) and (2) are:

(1) The subject-matter is to be owned by the assessee.

(2) The subject-matter is wholly used for the purposes of the business of the assessee; and

(3) The subject-matter should come under any of the enumerated categories as per section 32A(2).

6. We are concerned with the “machinery” which is owned by the assessee. Machinery is used in the business of the assessee because, the business of the assessee is leasing out machinery. Therefore, the further condition to be satisfied is the condition stated in sub-section (2) of section 32A. Here, the relevant clause relied upon by the assessee is clause (b)(iii) of section 32A(2). The lessee, i.e, the person who took the machinery on hire purchase has installed it for his business of manufacturing any article or thing.

7. According to the Revenue, the assessee cannot take the benefit of this sub-clause, because the assessee has not installed the machinery in any industrial undertaking belonging to the assessee and, therefore, the assessee has not used the machinery to manufacture or produce any article or thing; since the benefit of deduction is claimed by the assessee, the relevant activity leading to the benefit also should be of the assessee; the scheme of the Act is primarily to charge the income of an assessee to tax; if so, the items deductible from the gross income also should be of the assessee. It was also contended that sub-section (1) itself provides that the machinery should be not only owned by the assessee but also should be “wholly used” in the business of the assessee; this business necessarily will be one of the enumerated activities under sub-section (2).

8. Mr. Ramabhadran, learned counsel for the assessee, pointed out that the language of sub-section (2) is quite clear and nowhere it requires that the assessee could claim the benefit of sub-section (1) only if the machi-nery is installed in the undertaking of the assessee; this is an investment allowance granted as a beneficial provision to encourage fresh investment. The scheme of the section shows that machinery is entitled to be considered for the benefit at least once; therefore, even old machinery imported into India is eligible to be considered for the benefit of the provision. However, if a machinery has already been used in India, the assessee cannot claim the benefit of section 32A(1) once again, only because, for the said assessee, it is a new acquisition.

9. Section 32A is a beneficial provision in a taxing statute and full effect has to be given to the language used by Parliament. It is a maxim of universal application governing the construction of fiscal legislations that, “in a taxing Act, one has to look merely at what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used” (vide Partington v. Attorney-General, [1869] LR 4 HL 100 at 122).

10. In C.A Abraham v. ITO, [1961] 41 ITR 425; AIR 1961 SC 609, the Supreme Court observed at page 612 (at page 431 of 41 ITR):

“In interpreting a fiscal statute, the court cannot proceed to make good deficiencies if there be any; the court must interpret the statute as it stands and in case of doubt in a manner favourable to the tax-payer”

(underlining* is by us).

11. In St. Aubyn (L.M) v. Attorney-General (No. 2), [1951] 2 All ER 473 (HL) at page 485, Lord Simonds said:

“The question is not at what transaction the section is according to some alleged general purpose aimed, but what transaction its language according to its natural meaning fairly and squarely hits.”

12. In His Highness Prince Azam Jha Bahadur v. ETO, [1972] 83 ITR 92 : (1971) 3 SCC 621 : AIR 1972 SC 2319, while considering the scope of the Expenditure-tax Act, 1957, and the anomaly that would result by a particular construction, because the said construction was the only possible construction of the provision, the Supreme Court held, at page 2323 (at page 99 of 83 ITR):

“It does look somewhat anomalous and illogical that where the expenditure has been incurred by the wife and minor children who are altogether independent of the assessee and which has no connection with their being dependent on him or with any property transferred to them it should be included in the expenditure of the assessee. The position would be similar where the wife is the assessee and the expenditure incurred by the husband comes to be included in computation of her liability to tax because the word used is ‘spouse’ in section 2(g)(i). But it must be remembered that logic or reason cannot be of much avail in interpreting a taxing statute.”

13. The last sentence in the above observation requires a rigid adher-ence to the language used in a taxing statute.

14. It is also true that the machinery provisions in a taxing statute need not be construed by the above rules of strict construction and ordinary rules of construction are applicable to construe the machinery provisions. But provisions which provide for exemptions and deductions are usually read with the charging provision, because exemptions and deductions are the inevitable concomitants of the subject charged with the tax. May be, a burden is cast on the assessee to prove his case for deductions and exemptions; but this burden is on the practical aspect of working out the details; there is no rule of construction which says that, if the lan-guage of a section providing for any exemption or deduction is not clear, the assessee cannot take advantage of it.

15. In Hansraj Gordhandas v. H.H Dave, Asst. Collector of Central Excise and Customs, AIR 1970 SC 755, the Supreme Court pointed out, at page 759:

“If the tax-payer is within the plain terms of the exemption it cannot be denied its benefit by calling in aid any supposed intention of the exempting authority.”

16. The Revenue contended that, if the machinery owned by the assessee is leased in the course of its leasing business, it cannot be said that the machinery is “wholly used” for the purposes of his business, because the actual working of the machinery will be by the lessee. A similar phraseology is found in section 33 also. While construing the phrase “wholly used”, it was held that user of the machinery by someone other than the assessee is not prohibited, provided the machinery was also used “wholly” in the assessee's business. The term “wholly” means “entirely” and not exclusively. The machinery in its entirety may be used by its owner and it is possible for another also to use it. (vide: Commissioner Of Income-Tax v. Hindusthan Aluminium Corporation Ltd., [1989] 176 ITR 206 (Cal) and Punjab National Bank Ltd. v. Commissioner Of Income-Tax, Delhi I., [1983] 141 ITR 886 (Delhi)). Assets “wholly used” do not mean exclusively used; it means, used in their entirety-vide: CIT v. Pandyan Bank Ltd., [1969] 71 ITR 707 (Mad) at page 712.

17. Therefore, it cannot be said that, in the instant case, the machinery was not wholly used by the assessee by leasing it in the course of its business of leasing.

18. However, that does not conclude the matter because of section 32A(2). The question is whether the machinery is to be installed in any industrial undertaking for the purposes of business of manufacture or production of any article or thing belonging to the assessee.

19. The assessee contends that clause (b) of sub-section (2) nowhere provides for the industrial undertaking or the installation to be of the assessee. The only requirement is that the machinery owned by the assessee should have been used by someone in the manner stated in the said subclause. Clause (a) clearly refers to a new ship or new aircraft acquired by “an assessee engaged in the business of operation of ships or aircraft”. But, in the case of new machinery or plant, no such requirement is stated in clause (b).

20. It may be an oversight, or may be to provide the benefit to leasing companies, which have come to the field of business in recent times.

21. The term “installed” is found in several sub-sections of section 32A; but that does not aid the construction because, in the main subsection, i.e, section 32A(1), both the terms, “used” and “installed” are referred to in relation to the subject-matter.

22. However, we find some clue as to the Legislature's intention, by comparing section 32A(2B) with section 33(1)(b)(B)(ii) and (iii). In the latter two sub-clauses (of section 33), there is a specific reference to the assessee's business premises where the machinery is to be installed. Similarly, the language of clause (a) of section 32A(2) stands in clear contrast to the language used in its clause (b)

23. Each machinery installed in a particular manner is the cause for the investment allowance to be granted to the person who owns the machinery, provided the owner uses it in its entirety in his business.

24. The benefit is given with reference to the actual user of the machinery, though the benefit may go to a person who does not exploit the machinery, himself, for manufacturing or producing any article. Such a situation is not entirely unknown in the field of taxation. If the object behind section 32A is understood as to encourage industrial activities and investment in capital goods to facilitate industrial developments, the provision would certainly bear the meaning we have attributed to it. In these circumstances, we answer the question referred in the affirmative and against the Revenue.

25. Reference answered accordingly.