Skip to content


income-tax Officer Vs. First Leasing Co. of India Ltd. - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Madras
Decided On
Judge
Reported in(1985)13ITD234(Mad.)
Appellantincome-tax Officer
RespondentFirst Leasing Co. of India Ltd.
Excerpt:
1. the appeal in the present case is by the revenue. the cross-objection is filed by the assessee. the matters relate to the assessment year 1977-78.2. on merits the issue centres round the point, whether the assessee, a company which leases out machinery, is entitled to the grant of investment allowance under section 32a of the income-tax act, 1961 ('the act') and initial depreciation under section 32(1)(iv) of the act, in respect of machinery leased out by the assessee to others. the ito held against the assessee on the point. the commissioner (appeals) accepted the assessee's plea following the decision of the tribunal in the assessee's own case in it appeal no. 1069 (mad.) of 1982 dated 30-11-1982 for the assessment year 1978-79. the revenue contests this decision in the present.....
Judgment:
1. The appeal in the present case is by the revenue. The cross-objection is filed by the assessee. The matters relate to the assessment year 1977-78.

2. On merits the issue centres round the point, whether the assessee, a company which leases out machinery, is entitled to the grant of investment allowance under Section 32A of the Income-tax Act, 1961 ('the Act') and initial depreciation under Section 32(1)(iv) of the Act, in respect of machinery leased out by the assessee to others. The ITO held against the assessee on the point. The Commissioner (Appeals) accepted the assessee's plea following the decision of the Tribunal in the assessee's own case in IT Appeal No. 1069 (Mad.) of 1982 dated 30-11-1982 for the assessment year 1978-79. The revenue contests this decision in the present appeal before us. Inasmuch as for the assessment year 1979-80 in IT Appeal No. 662 of 1983 dated 31-10-1983 the Tribunal considered the earlier decision for the assessment year 1978-79 was distinguishable, and the claim for investment allowance and initial depreciation was not allowed, when the present appeal came up for hearing a reference was made by the Bench to the President of the Tribunal under Section 255(3) of the Act for constituting a Special Bench. Consequent to the President's orders in this regard, the appeal, and the cross-objection have been assigned to this Special Bench for decision.

3. The assessment under consideration is the reassessment made consequent to initiation of proceedings under Section 147(b) of the Act. The assessee contested the validity of the initiation of reassessment proceedings, but without success, before the Commissioner (Appeals). The assessee challenges this finding of the Commissioner (Appeals) by way of cross-objection.

4. As the cross-objection challenges the assumption of jurisdiction the cross-objection is taken up for disposal first.

5. In this case the original assessment was completed on 12-10-1979 and there was a subsequent rectification under Section 154 of the Act on 19-12-1980. While making the original assessment, extra depreciation allowance as applicable for approved hotels was claimed and allowed in respect of certain assets leased on rent to Spencer & Co., Madras. So also investment allowance under Section 32A was allowed. Subsequently, the ITO received the appellate order passed by the Commissioner (Appeals) for the assessment year 1976-77 dated 28-10-1981. He noticed that according to the order extra depreciation was not admissible unless the assessee itself used the building as a hotel, which was not the case. The ITO considered that the position in respect of investment allowance was similar and investment allowance could not be granted on a parity or a reasoning, unless the assessee itself used the assets and it was not sufficient if the user was by the lessee for the approved purposes. The ITO considered in reasons recorded on 24-2-1982 that there was information in the form of the order of the Commissioner (Appeals) that income had escaped assessment and, therefore, the provisions of Section 147(b) were attracted. He, therefore, issued a notice under Section 148 dated 24-2-1982 which was duly served on 1-3-1982 for the assessment year now under consideration, i.e., 1977-78.

6. Thereafter there were hearings and a draft order was prepared by the ITO for 1977-78 on 19-1-1983.

7. Prior to the draft order having been finalised, the Tribunal had rendered its decision for the assessment year 1976-77 in IT Appeal No.2216 (Mad.) of 1981 on 31-7-1982. Before the Tribunal, the assessee had disputed the validity of the reassessment made under Section 147(b) for that year. The Tribunal was of the view that having regard to the extent, audit objections can be considered to constitute information bearing in mind the judgment of the Supreme Court in Indian & Eastern Newspaper Society v. CIT [1979] 119 ITR 996 the reassessment was without jurisdiction and was invalid. The reassessment was, accordingly, cancelled.

8. In due course the assessment order for the year 1977-78 now in appeal was passed on 24-2-1983 after obtaining the directions of the IAC under Section 144B(4) of the Act.

9. The assessee had contested the assessment before the Commissioner (Appeals) who passed his order on 15-6-1983. The validity of reopening was contested, in particular it was urged before the Commissioner (Appeals) that the decision of the Commissioner (Appeals) for the assessment year 1976-77, which was dated 28-10-1981 and which was considered by the ITO to constitute information, had been overruled by the Tribunal in IT Appeal No. 2216 (Mad.) of 1981 dated 31-7-1982 and, therefore, the re-opening was invalid. The Commissioner (Appeals) observed that the reopening of the assessment for 1976-77 was based on an audit objection and, with reference to that the Tribunal had held for that year that the reopening was not valid. In the current year the reopening was based on a view taken by the Commissioner (Appeals), who was a quasi-judicial authority and such decision of the Commissioner (Appeals) for 1976-77 constituted information. Eventually, the Commissioner (Appeals) held that the initiation of proceedings under Section 147 for the assessment year 1977-78 was validly done.

10. The assessee has taken two grounds in the cross-objection which read as under: 1. The Commissioner (Appeals) erred in holding that the initiation of reassessment proceedings on the basis of the order of the Commissioner (Appeals) dated 28-10-1981 by the Income-tax Officer was valid.

2. The Commissioner (Appeals) should have found that the Income-tax Officer had no 'information' for reopening the assessment.

Appended thereto is also a copy of the grounds of appeal as taken before the Commissioner (Appeals).

11. The submission of the learned Counsel for the assessee with reference to the aforesaid facts, which were detailed before us, was that much before the ITO finalised even the draft order for 1977-78 which was only on 9-1-1983, the order of the Commissioner (Appeals) for 1976-77 which, according to the ITO, constituted information and which was dated 21-10-1981, had been superseded by the order of the Tribunal dated 31-7-1982, which had cancelled it. Therefore, the learned Counsel went on to submit that the information, on the basis of which the ITO considered that income had escaped, had ceased to exist before the ITO framed the assessment and, therefore, his continuing to proceed with the assessment proceedings, which led to the framing of a draft order on 19-1-1983 and culminated in the final order on 24-2-1983 was without jurisdiction. The learned Counsel proceeded to amplify that if a particular judicial pronouncement was considered by an ITO as leading him to believe that income had escaped assessment, the movement that judicial pronouncement was overruled, if the assessment proceedings initiated on the basis of the decision of the lower authority had not terminated, then the question of proceeding any further would not arise because the basis for assumption of jurisdiction had ceased to exist.

To hold otherwise, according to the learned Counsel, would go against judicial discipline. It would also go against the express provisions of Section 147, which states the ITO may assess or reassess the income if there was information in his possession which leads him to believe there was escapement of income. The reason to believe has, therefore, to exist not only at the time of initiation, but till the finalisation of assessment. Hence, if the information ceases to exist any time before the finalisation of the assessment, the belief which the ITO entertained would also fall to the ground, and any further proceeding to make an assessment would be totally without jurisdiction. He, therefore, submitted that in the present case the assessment deserved to be quashed on the ground that assumption of jurisdiction had become vitiated.

12. The learned standing counsel appearing for the revenue urged that the assessee had taken only two grounds, viz., that the Commissioner (Appeals) erred in holding that the initiation of reassessment proceedings on the basis of the order of the Commissioner (Appeals) dated 28-10-1981 was valid and secondly, that the finding should have been that the ITO had no information for reopening the assessment.

According to the learned Counsel, an appellate order could clearly be the basis of information and in the order dated 28-10-1981 for the assessment year 1976-77, the Commissioner (Appeals) had held that extra depreciation had been erroneously granted and when for this year also similar depreciation stood granted the ITO had every reason to believe that such depreciation was wrongly granted. This was clearly information for reopening the assessment. According to the learned standing counsel, the two grounds taken in the cross-objection, therefore, did not survive.

13. Another factual point on which stress was placed by the learned standing counsel was that for the assessment year 1976-77 the Tribunal had not pronounced on the merits of the correctness of the decision of the Commissioner (Appeals) relied on by the ITO as constituting information for the assessment year 1977-78, i.e., on the point whether the grant of depreciation was in order or not the Tribunal had not given any finding but the Tribunal had proceeded to cancel the assessment on the ground that, for 1976-77; the assumption of jurisdiction was void. Therefore, the learned Counsel emphasised that the reasoning of the Commissioner (Appeals) in his appellate order for 1976-77 still held good and the information, validly taken note of, by the ITO continued to hold the field and the same did not stand vitiated.

14. We had the benefit further of very informed and elaborate arguments on the legal concepts at issue from the learned Counsel for the assessee and the learned standing counsel for the revenue, with reference to the judgment of the Calcutta High Court in the case of CIT v. Assam Oil Co. Ltd. [1982] 133 ITR 204, the decision of the Gujarat High Court in CIT v. Maneklal Harilal Spg. & Mfg. Co. Ltd. [1977] 106 ITR 24, the decision of the same High Court in CIT v. Ahmedabad Mfg. & Calico Printing Co. Ltd. [1977] 106 ITR 159, and the judgments of the Madras High Court in Madras Auto Service v. ITO [1975] 101 ITR 589 and Family of V.A.M. Sankaralinga Nadar v. CIT [1963] 48 ITR 314.

15. The learned Counsel for the assessee sought to urge that none of the decisions was clear authority for deciding a case like the present one where the decision of the superior appellate body was received during the pendency of the assessment proceeding, and before the finalisation of the assessment, whereby the original decision, which was considered as constituting information by the ITO at the time of initiation of proceedings for reassessment stood cancelled and thus removed from consideration before the stage of finalisation of assessment was reached. Stress was also placed on the observations of the Madras High Court in Madras Auto Service's case (supra) at page 591 which were to the effect that even a decision of the High Court given long subsequent to the issue of notice under Section 147(b) declared the law as it stood even at the time when the notice was issued and, therefore, the ITO could not have entertained any reasonable belief even at the time of initiation that income chargeable to tax had escaped assessment. According to the learned Counsel, this principle was equally applicable to a decision of the Tribunal rendered subsequently which overruled the earlier decision of the Commissioner (Appeals).

16. The learned standing counsel for the revenue, on the other hand, relied on the ratio of the judgment of the Calcutta High Court in Assam Oil Co. Ltd.'s case (supra) where the relevant observations of the Madras High Court in Madras Auto Service's case (supra) were set out and where the Calcutta High Court thereafter considered the judgment of the Madras High Court in the case of Family of V.A.M. Sankaralinga Nadar (supra) as corroborating their view. Particular emphasis was also laid on observations of the Gujarat High Court in Maneklal Harilal Spg.

& Mfg. Co. Ltd.'s case (supra) and Ahmedabad Mfg. & Calico Printing Co.

Ltd.'s case (supra).

17. We have considered the rival submissions. The grounds taken in the cross-objection are of wide amplitude and, therefore, permit all facets thereof to be argued. The arguments put forth on behalf of the assessee all fall within the scope of the grounds urged In the case of Maneklal Harilal Spg. & Mfg. Co. Ltd. (supra), while making the original assessment for the year 1961-62, which was completed on 16-6-1962, the ITO had allowed development rebate on items known as 'warp stop motions'. These were admittedly parts of machinery. There were certain pronouncements, particularly a decision of the Bombay High Court which took the view that development rebate on machinery could be allowed only on complete machines and not on parts of a machine. The ITO, therefore, issued notice under Section 148 for reopening the assessment on 28-3-1964. The reasons recorded as seen from the judgment for reopening the assessment were as under: The development rebate claimed by the assessee on item of machinery known as 'warp stop motions' worth Rs. 38,015 was inadvertently allowed. The recovery of development rebate on Rs. 38,015 at 25 per cent amounts to Rs. 9,504. Issue notice under Section 148 of the Income-tax Act, 1961. This was noticed while submitting remand report in this case. (p. 27) The ITO later noticed two further items had escaped, i.e., that rebate on account of corporation tax had not been withdrawn to the extent of Rs. 42,300 and secondly profit under Section 10(2)(vii) of the Indian Income-tax Act, 1922 to the extent of Rs. 38,465 had not been taxed. On 24-4-1964, i.e., within less than a month of the issue of notice under Section 148 the Supreme Court decided the question on development rebate in CIT v. Mir Mohammad Ali [1964] 53 ITR 165. The decision of the Court was that development rebate was admissible even in respect of parts of machinery. At this stage it is apposite to quote from the judgment of the Gujarat High Court: ...Hence, by the time the reassessment proceedings were heard, the development rebate regarding which the notice under Section 148 for initiating reassessment proceedings was issued, was no longer withdrawn by the revenue and, so far as that particular topic was concerned, the matter was bound to be decided in favour of the assessee. However, as far as the rebate on account of corporation tax was concerned and so far as the profit under Section 70(2)(vii) to the extent of Rs. 38,465 was concerned, the Income-tax Officer held in the reassessment proceedings that these two items had escaped assessment and he, therefore, brought these two items, the amount of rebate under corporation tax and the profit under Section 10(2)(vii) of the Act of 1922 to tax. Against the decision of the Income-tax Officer in reassessment proceedings, the assessee carried the matter in appeal and at that stage it was contended before the Appellate Assistant Commissioner that since the basis on which the proceedings in reassessment were commenced under Section 148 did not survive in view of the Supreme Court decision in Mir Mohammad Ali's case [1964] 53 ITR 165 (SC) the Income-tax Officer was not justified in making reassessment in respect of other items of income which had escaped assessment or in those cases where certain excessive relief by way of tax had been granted. The Appellate Assistant Commissioner rejected this contention and he upheld the order of the Income-tax Officer. Before the Income-tax Tribunal, the same argument which was urged before the Appellate Assistant Commissioner, namely, regarding the basis for the reassessment proceedings having disappeared was again urged and the Tribunal held that the foundation on which the reassessment proceedings were based having vanished, the Income-tax Officer could not bring in the assessment some other items of income or withdraw excessive relief by way of tax allowed at the time of the original assessment, while dealing with reassessment proceedings. The Tribunal, therefore, held that the proceedings under Section 147 were bad in law and have, therefore, to be cancelled....

...After this notice was issued on March 28, 1964, as observed above, the Supreme Court decided Mir Mohammad Ali's case [1964] 53 ITR 165 (SC) and in that case it was held that development rebate was admissible on parts of machines also. It was in view of this decision in Mir Mohammad Ali's case [1964] 53 ITR 165 (SC) that the question of development rebate on warp stop motions machine was bound to be decided and was, in fact, decided in favour of the assessee. However, in reassessment proceedings the other two items, namely, rebate regarding corporation tax to the extent of Rs. 48,300 and profit under Section 10(2)(vii) to the extent of Rs. 38,465 which had also escaped assessment at the time of the original assessment proceedings, were brought to tax and the question that we have to consider is whether it can be said that the proceedings before the Income-tax Officer were validly initiated or not.

It is thus clear that after initiation by issue of the notice under Section 148 and by the time the reassessment proceedings were heard, i.e., before the completion of the reassessment, the judgment of the Supreme Court had been received whereby the sole reason recorded for reopening the assessment no longer held good. In making the reassessment, therefore, the ITO did not bring to tax the amount for which the assessment was initially sought to be reopened but brought to tax two entirely different items which had escaped assessment but which had not weighed with him as constituting escapement of income at the time of initiation of reassessment proceedings. The Gujarat High Court referred to the judgment of the Supreme Court in V. Jaganmohan Rao v.CIT [1970] 75 ITR 373 and of the Madras High Court in Al.Vr.St.

Veerappa Chettiar v. CIT [1973] 91 ITR 116 as also certain other cases and held that once the reassessment proceedings were validly initiated in respect of an item of income, then the ITO was duty bound to bring to tax any other amounts which had escaped assessment. It was contended on behalf of the assessee before the Gujarat High Court that since the very reason for which the reassessment was initiated had ceased to exist then the other items could not be brought to tax since the reassessment itself would be void. In particular the Advocate-General appearing for the assessee had contended before the Gujarat High Court: He contended further that the reason for the belief must have a direct bearing on the final order in reassessment proceedings because the existence of the reason is necessary not only at the stage when the notice regarding reassessment is issued but the reason must continue to exist till the order in reassessment proceedings is passed. He has in this connection relied upon certain observations of the Supreme Court in Chhugamal Rajpal v. S.P. Chaliha [1971] 79 ITR 603 (SC), Sheo Nath Singh v. AAC [1971] 82 ITR 147 (SC) and of the Bombay High Court in Shriyans Prasad Jain v. R.K. Bhalla, ITO [1974] 94 ITR 34 (Bom.). Ultimately, the entire argument on behalf of the assessee as urged by the learned Advocate-General was that the proceedings could not be said to be validly initiated because the information on which the Income-tax Officer acted at the time of initiating the reassessment proceedings was no information at all in the eye of the law or looked at from any other angle, it cannot be said that the Income-tax Officer had reason to believe that the development rebate regarding warp stop motions had been incorrectly allowed in the original assessment proceedings. According to the learned Advocate-General whether the case is considered from the point of view of no information or from the point of view of reason to believe, ultimately it would mean that the proceedings were not validly initiated.

The Gujarat High Court referred to the judgment of the Supreme Court in Sowdagar Ahmed Khan v. ITO [1968] 70 ITR 79 and earlier decisions and pointed out that the existence of the belief alone could be challenged by the assessee and not the sufficiency of the reasons, which had led to the belief. The issue on the aspects whether the belief was held in good faith or was a mere practice could be agitated. To this limited extent alone the challenge could exist regarding assumption of jurisdiction. Referring to the various submissions of the Advocate-General who appeared for the assessee, which have been set out earlier, Diwan CJ. speaking for the Court observed: We are unable to accept these contentions of the learned Advocate-General because what is necessary is that the proceedings must be validly initiated and as of the moment of initiation it must be considered whether the initiation was valid or not. At the time or on the date on which the Income-tax Officer issued the notice under Section 147 on the footing that the development rebate regarding warp stop motions had been wrongly allowed in the original proceedings, in view of the legal position as it was well understood, it was open to him to initiate proceedings. As at that moment when he decided to issue the notice under Section 148 regarding reassessment proceedings, his action was valid. The decision of the Supreme Court in Mir Mohammad All's case [1964] 53 ITR 165 (SC) in the light of which it turned out that the development rebate had been rightly allowed in the original assessment proceedings, was decided nearly a month after the Income-tax Officer issued the notice under Section 148 and though a decision of the Supreme Court declares what the law of the land is, that declaration cannot render invalid the action of the Income-tax Officer in initiating reassessment proceedings though on the date on which the proceedings were initiated, his action was valid. It is because of this initial validity of the action of the Income-tax Officer as on the date on which or the moment at which the proceedings were initiated, that it must be held that once they were validly initiated, the Income-tax Officer had correctly and validly initiated the proceedings. There is no question of the basis or the foundation of the reassessment proceedings having disappeared. It may be that in respect of the item regarding which the reassessment proceedings were started it may ultimately turn out to have been correctly assessed when reassessment proceedings are considered. But that does not deprive the Income-tax Officer of his power to consider all the items in reassessment proceedings. Once the reassessment proceedings are validly started, the Income-tax Officer is not confined merely to the item in respect of which or on the basis of which he had initiated reassessment proceedings. As Ramaswami J. has stated in V. Jaganmohan Rao's case [1970] 75 ITR 373 (SC), the Income-tax Officer has not only the jurisdiction but it is his duty to levy tax on the entire income that had escaped assessment during the relevant assessment year when the original assessment was done. Under these circumstances, the proceedings in reassessment having been found to be validly initiated, it is obvious that the Income-tax Officer had not only the jurisdiction to bring the other two items regarding corporation tax rebate and the profit under Section 10(2)(vii) in the reassessment proceedings but it was his duty to bring in these two items if he found that they had escaped assessment.... (p. 31) It is, therefore, clear that in a case where based on a decision of a High Court notice under Section 148 was issued and the decision of the High Court was reversed by the Supreme Court, before the reassessment order was made and, therefore, the item, for which the assessment was reopened was not even taxed, the Gujarat High Court took the view that initiation of proceedings was valid and did not cease to be valid because of the subsequent judgment of the Supreme Court rendered during the pendency of the assessment proceedings. The judgment of the Gujarat High Court in the case of Ahmedabad Mfg. & Calico Printing Co. Ltd. (supra) does not strike any different note.

18. In Assam Oil Co. Ltd.'s case (supra) specific reference was made to certain observations of the Madras High Court in the case of Madras Auto Service (supra) which was as under: ...There being no restrictive words similar to 'net dividend' in the section we are unable to accept the contention that the rebate is to be allowed only on the net dividend. If this view were to be accepted then we cannot say that there was any excessive relief in respect of any income assessable to tax within the meaning of Section 147(b). The learned Counsel for the revenue submitted that at the time when the notice was issued under Section 147(b) our decision was not given and that it cannot be said that the Income-tax Officer had no reason to believe that the income has been made the subject of excessive relief. It is true that our decision was given long subsequent to the notice under Section 147(b) but our decision only declares the law as it stood even at the time when the notice was issued. Therefore, he could not have entertained any reasonable belief that the income chargeable to tax has escaped assessment....

The contention again was that initiation of proceedings was bad, where there was a subsequent judgment of the Supreme Court (in the Calcutta High Court case received after the assessment) which reversed the view taken by the High Court on the basis of which an assessment was reopened. The assessment in that case was reopened based on the decision of the Rajasthan High Court in CIT v. Gotan Lime Syndicate [1964] 51 ITR 533 which was reversed by the Supreme Court in Gotan Lime Syndicate v. CIT [1966] 59 ITR 718. Sabyasachi Mukherji J. speaking for the Calcutta High Court with reference to the arguments based on the observations of the Madras High Court in Madras Auto Service's case (supra) observed as under: Relying on this proposition, learned advocate for the assessee sought to urge that even if the decision be subsequent to the issue of the notice as it declared the law, as it stood, the notice on that assumption could not be held to have been given on the basis of valid information. In our opinion, on principle it is true that the Supreme Court does not make the law from the date it is pronounced but the Supreme Court declares it to be so from the very inception.

But the knowledge about that law or the realisation about that law is not always there. Human knowledge is always improving and progressing. The world was assumed to be flat until it became known that the world is round. That does not mean that gravitation did not exist before Newton's discovery of the law of gravitation. Human knowledge is never static. Theory of Evolution of Darwin does not make the previous knowledge non-existent. Human knowledge, as we have mentioned, is always progressing. So, relativity was always there but we became aware only after Einstein. That is the basic difference between the discovery and invention. But the information about that law was not there until the Supreme Court says it to be so. Therefore, what the Rajasthan High Court held, in our opinion, at that time, was a relevant judicial interpretation as to the law and constituted valid information. This view is, in our opinion, corroborated by the decision in the case of CIT v. A. Raman & Co.

[1968] 67 ITR 11 (SC) at p. 15 and in the case of Family of V.A.M. Sankaralinga Nadar v. CIT [1963] 48 ITR 314 (Mad.) and the decision of the Gujarat High Court in the case of CIT v. Maneklal Harilal Spg. & Mfg. Co. Ltd, [1977] 106 ITR 24.... (p. 218) The Calcutta High Court has, therefore, taken the same view as taken by the Gujarat High Court which has been adverted to earlier, viz., that when there was information at the time of reopening the assessment merely because of the fact that the information proved to be wrong or unsustainable or baseless later, it will not alter the position.

According to the Calcutta High Court, this view which they arrived at is in conformity with the decision of the Madras High Court in the case of Family of V.A.M. Sankaralinga Nadar (supra). The Calcutta High Court has also observed that it conforms to the ratio of the judgment of the Supreme Court in the case of CIT v. A. Raman & Co. [1968] 67 ITR 11. In the case of Family of V.A.M. Sankaralinga Nadar (supra) the Madras High Court has observed as under: ... An Income-tax Officer may rightly commence Section 34 proceedings if he has, in consequence of particular information in his possession, reason to believe that income has escaped assessment and may, even if that particular information proves to be ill founded at the conclusion of the enquiry, yet bring to tax such escaped income as comes to light as a result of the enquiry. The non-existence of the original ground which led the officer to believe that income had escaped is not a bar to reassessment of escaped income and does not vitiate such reassessment. The statutory requirement of reasonable belief rooted in information in the possession of the officer is to safeguard the assessee from vexatious proceedings and is not a mantle of protection against taxation of income found to have escaped assessment.

A ground for which an assessment is initiated may become non-existent due to a factual discovery made later or due to the operation of law, viz., a judgment of the higher appellate forum altering the legal position on the basis of which it was assumed that there was escapement of income. In either event, it is considered in conformity with the ratio of the decision of the Madras High Court in Family of V.A.M.Sankaralinga Nadar's case (supra) there would be no bar to reassessment being continued, if otherwise warranted, and initial initiation would not be vitiated.

19. When an assessment order is cancelled for want of jurisdiction, it is clear that the original order was non est. The Tribunal had declared the assumption of jurisdiction for the assessment year 1976-77 to be void. Therefore, the assessment order for that year can be considered to have been declared non est. It is settled law that an order which is non est may not be followed by a citizen, which course of action will of course be at his peril, or he may adopt the alternate course of getting it quashed and declared non est through an appellate forum. In the present case, the assessee chose the appellate forum. The Commissioner (Appeals) for 1976-77 did not agree with the assessee but the assessee succeeded before the Tribunal. When the ITO initiated proceedings under Section 148 the order of the Commissioner (Appeals) held the field. It was, therefore, good information. By the Tribunal cancelling the assessment order and also the order of the Commissioner (Appeals), the original order was declared non est. But that does not result in the initiation itself becoming void, looking to the judgment of the Madras High Court in Family of V.A.M. Sankaralinga Nadar's case (supra) which have been set out in full.

This is because the initiation of action under Section 148 is not action taken to give effect to a non est order, but only the observations therein before the order was declared non est led to the formation of a belief that income had escaped assessment and as long as that belief was formed in good faith at the time of initiation the foundation of the belief being found to have become non-existent later would not affect the validity.

20. Every decision of the Madras High Court is binding on the Tribunal and has to be followed by the Tribunal. Certain observations in Madras Auto Service's case (supra) which were to the effect that when the High Court renders its decision, it is declaratory of the law earlier and, therefore, the ITO could not have entertained any reasonable belief that income chargeable to tax had escaped assessment, support the contention of the learned Counsel of the assessee, but as elaborated upon, there is the decision in the case of Family of V.A.M.Sankaralinga Nadar (supra) of the Madras High Court which lays down the principles to be followed in deciding a case like the present one and which decision the Calcutta High Court considered after noticing the observations in Madras Auto Service's case (supra) squarely supports the conclusion which the Calcutta High Court considered was also supported by the decision of the Supreme Court in A. Raman & Co.'s case (supra) that if there was valid information at the time of reopening of the assessment the non-existence of the information later would not render the initiation void. Respectfully following the principles enunciated by the Madras High Court in the case of Family of V.A.M.Sankaralinga Nadar (supra) which has been followed by the Calcutta High Court, the initiation of proceedings for reopening the assessment in the present case having been valid at the time the notice under Section 148 dated 24-4-1982 was served on the assessee on 1-3-1982, subsequent events in the form of the decision of the Tribunal rendered on 31-7-1983 did not render the initiation void and, therefore, it was not necessary for the ITO to stop short and not proceed to the finalisation of the assessment. The question of his staying his hands from bringing to tax the extra depreciation allowance or investment allowance or other items, which he considered was wrongly allowed, on merits, did not arise at this stage because there was no decision by the Tribunal on merits on this aspect in its order dated 31-7-1982. The cross-objection would, therefore, fall to be dismissed.

21. We now take up the appeal by the revenue. The learned standing counsel took us through the reasons which weighed with Government in introducing the provisions relating to grant of investment allowance.

She stated that such reasons stood enumerated in the Budget Speech of the Finance Minister for the year 1976-77--[1976] 102 ITR (St.), 95 the relevant extract of which was as under: I have, therefore, decided to introduce a scheme of investment allowance for certain priority industries. The present scheme of initial depreciation allowance will be replaced by a system of investment allowance. The investment allowance will be allowed at the rate of 25 per cent of the cost acquisition of new machinery and plant installed after 31st March, 1976, in industries currently qualifying for initial depreciation. I also propose to extend the list of qualifying industries by including eight other priority or export-oriented industries, namely, carbon and graphite products; inorganic heavy chemicals; organic heavy chemicals; synthetic rubber and rubber chemicals, including carbon black; industrial explosives; basic drugs; industrial sewing machines and finished leather and leather goods, including footwear made wholly and substantially of leather. I may, however, draw the attention of the House to certain basic differences between the investment allowance now proposed and the earlier development rebate. The investment allowance will be withdrawn and will become liable to tax if this reserve is not utilised for the purpose of acquiring new machinery or plant within a period of ten years. No part of it will be available for distribution as profits. The present scheme of investment allowance will facilitate investment in priority industries and reduce the dependence of the corporate section on public financial institutions.

The investment allowance was given to provide a fillip to industries which were entitled to the grant of initial depreciation as also certain priority industries. This showed that to get the benefit of investment allowance, the industry should be carried on by the assessee who claimed the investment allowance. The learned standing counsel then referred to the Finance Minister's second Budget Speech for 1977-78--[1977] 107 ITR (St.) 66 where he spelt out the need for extending the scope of investment allowance to all industries except those which were engaged in the manufacture of low priority items such as cigarettes, cosmetics and alcoholic beverages. Here again emphasis was, therefore, on the grant of investment allowance to an assessee which carried on the industrial undertaking, according to the learned Counsel. The tax concession by way of grant of investment allowance was extended further to other industries and that found reference, it was submitted in the Budget Speech of the Finance Minister for 1981-82--[1981] 128 ITR (St.) 2. The learned Counsel went on to submit that the instructions issued by the CBDT which found reference in the form of circulars in relation to the Finance (No. 2) Act, 1977 and in the extract of the Circular at page 979 in the Commentary on Income-tax by Chaturvedi, Vol. I, and in relation to the Finance Act, 1981 in Circular No. 308, dated 29-6-1981--[1981] 131 ITR (St.) 119, also placed emphasis on the assessee, which claimed investment allowance, installing the machinery. In the aforesaid background, the learned Counsel proceeded to read the provisions of Section 32A of the Act, which related to the grant of investment allowance and submitted that the first requirement under Section 32A(1) was that machinery should be owned by an assessee. In the present case that requirement could be taken as satisfied. The next requirement was that the machinery should be wholly used. According to the learned Counsel, the assessee was carrying on the business of leasing. The machinery could not be said to be wholly used for leasing because possession of the machinery was given over to the lessee and thereafter it was the lessee who was using the machinery. Hence, this requirement was not satisfied. The provisions of Section 32A(1) then spoke to the grant of investment allowance either in the year when machinery or plant was installed or if the machinery or plant was put into use in the immediately succeeding year, then the grant of allowance in such previous year.

Therefore, it was stated that the machinery should first be installed and then put to use and, therefore, installation and user has to be by one and the same party, viz., the assessee installing the machinery had also to use it. In other words, in the present case since the assessee was not using the machinery, the assessee would not be entitled to the grant of investment allowance. Merely by leasing out the machinery there cannot be said to be any user of the machinery by the assessee because there was no preceding installation of the machinery.

22. Another contention put forth was with reference to the provisions of Section 32A(iv). It was submitted by the learned standing counsel that the provision of this section become unworkable if persons like the assessee were allowed investment allowance. This is because the assessees had to create an investment allowance reserve account which was to be utilised for the purposes of acquiring, before the expiry of a period of ten years next following the previous year in which the machinery or plant was installed, new machinery for the purposes of the business of the undertaking. The 'expression the undertaking' in Section 32A(5)(b), it was submitted, referred only to the industrial undertaking as envisaged by Section 32A(2)(b). Therefore, the person who was entitled to the investment allowance had necessarily to be the assessee who carried on the industry with the help of the plant and machinery and not the lessor, as in the present case, who only leased out the machinery.

23. We were then referred by the learned standing counsel to the provisions of Section 32A(5). It was stated that investment allowance was to be considered as wrongly allowed if the machinery or plant was sold or otherwise transferred within a period of 8 years. According to the learned Counsel, when the lessor leased out the machinery to the lessee there was an extinguishment of rights in property and this would come within the concept of the property being 'otherwise transferred', either under the general meaning of the term or within the special meaning in the Act as defined in Section 2(47), read with Section 2(14) of the Act. Hence, even if for argument's sake it was assumed that the assessee was entitled to the grant of investment allowance, the submission was that the moment the machinery was leased out, the investment allowance would have to be withdrawn as a mistake apparent from records and, therefore, the question of actually making an allowance and committing a mistake did not arise. In this view also the assessee would not be entitled to the grant of investment allowance.

24. The same arguments, as aforesaid, it was stated, would apply to the grant of initial depreciation also.

25. The learned Counsel for the assessee submitted that when a plain reading of the statutory provisions led to an interpretation which was certain, the question of calling in aid the speeches of the Finance Minister, which set out the objects for introduction of the provision did not arise.

He also submitted that it was settled law that while circulars of the CBDT could give an extra judicial benefit to the assessees, the circulars could not curtail the benefits which otherwise would be available on a plain reading of the statute. In the present case, he submitted that a plain reading of the statute would lead to the conclusion that the assessee was entitled to the grant of investment allowance.

26. The first point made by the learned Counsel was that the word 'wholly' did not mean 'exclusively'. As far as the assessee is concerned, the business of the assessee was leasing. What the assesssee did was to utilise the machinery for leasing out. Hence, the machinery which was owned by the assessee was wholly used for the purposes of the business carried on by the assessee, viz., business of leasing.

Therefore, this requirement of Section 32A(1) was fully satisfied. For the sake of emphasis, it was further submitted that the fact that the machinery was wholly used by the assessee was concluded from the grant of depreciation on such machinery of the assessee who owned the machinery.

27. He next submitted that as long as the machinery was kept ready to be put into use, i.e., kept ready to lease out, the machinery had been installed by the assessee and, therefore, the assessee was entitled at that point of time to the grant of investment allowance. Alternative, as the assessee continued to be the owner of the machinery when the machinery was kept ready to be put into use by the lessee, the machinery should be considered as installed through the lessee by the assessee. Merely because the section provided for the grant of the investment allowance even in a succeeding previous year on satisfying certain conditions that could not deprive the assessee of the grant of investment allowance when the condition of installation was satisfied in the case of the assessee.

28. The learned Counsel then took us through the provisions of Section 32A(2) and submitted that in the case of a new ship or new aircraft investment allowance was admissible only in the case of an assessee 'engaged in the business of operation of ships or aircraft'. This was the requirement under Section 32A(2)(a). He stated that in respect of other machinery or plant the provisions applicable were those of Section 32A(2)(b) which only referred to the type of industrial undertaking. There was no requirement that the assessee who was the owner of the assets should also be engaged in the business of that industrial undertaking. All that was necessary was that the machinery or plant should be used in such industrial undertaking and in the present case certificates were available from each of the lessees stating that the industry carried on by them was such as would entitle them to the grant of the investment allowance.

29. With reference to the provisions of Section 32A(5), on which reliance was placed by the learned standing counsel, it was submitted in reply by the learned Counsel for the assessee that what was described as a lease in the agreements of hire of machinery was really not a lease since no interest in property was conveyed in any case to the lessee. The agreements clearly provided that the ownership of the property would remain vested in the assessee alone. There was no extinguishment of any right thereon and at best there was only a benefit which the lessee enjoyed in the form of a licence.

30. In reply, the learned standing counsel submitted that merely because depreciation was granted, there was no bar to contend that investment allowance was not admissible unless the specific conditions required for the grant of the same was satisfied. The user of the machinery, it was reiterated, had to be only by the assessee, who was entitled to the investment allowance and not any other assessee.

31. We have considered the rival submissions. For the investment allowance being granted under the provisions of Section 32A, the following conditions have to be satisfied: (a) there should be a ship or aircraft or machinery and plant which is new and must be acquired after 31-3-1976, (c) it must be wholly used for the purposes of business carried on by the assessee, (d) the ship or the aircraft or the machinery or plant must be such as is specified in Sub-section (2) of Section 32A, (e) if it is ship or aircraft, the assessee must be engaged in the business of operation of ships or aircraft, (f) in the case of machinery or plant, it must be installed for the purposes of business referred to in Sub-clauses (i), (ii), and (iii) of Clause (b) of Sub-section (2) of Section 32A and it should not be machinery or plant installed in any office premises or any residential accommodation or a guest house, or any office appliances or road transport vehicles, or in respect of which development rebate is allowable under Section 33, or in respect of machinery or plant, the whole of the actual cost of which is allowed as deduction.

In the present case, the machinery is owned by the assessee. The business of the assessee is leasing out of machinery. The expression 'wholly used for the purposes of the business' does not mean also that it should be exclusively used only for purposes of the business of the assessee. As stated in CIT v. Pandyan Bank Ltd. [1969] 71 ITR 707 (Mad.), the user qua the assessee must be with reference to and only for purposes of the business carried on by the assessee. In the present case this requirement is satisfied. The machinery or plant is as specified by the section and this requirement is satisfied. The expression 'installed' does not necessarily mean fixed in position but has been judicially recognised to have been used in the sense of inducted or introduced. Therefore, when a person hires out a machinery, and brings machinery to a position that it is ready to be let out, it can be considered qua the lessor that the machinery is installed.

Ayodhya Prasad Tara Chand Khekra v. CIT [1967] 66 ITR 576 (All.). The assessee is entitled to the investment allowance in the year of installation of machinery. There is the further option of having such allowance otherwise in the year in which the machinery is first put to use. Even if it is argued that the act of letting out of the machinery is not use of the machinery by the assessee, still investment allowance cannot be denied because the assessee is entitled to the grant of such allowance on the basis of installation. It is also not easy to say that machinery, when it is let out, is not used for the purposes of business because it is on this basis depreciation has been allowed under Section 32 of the Act. No bar is, therefore, seen to the grant of investment allowance on the ground that any of the requirements of Section 32A(1) are not satisfied. Section 32A(2) specifies in the case of new ship or aircraft for getting investment allowance the assessee should be engaged in the operation of ships or aircraft. The further requirement of the nature of the business which the assessee concerned should be carrying on has been specifically incorporated by the Legislature as far as ship or aircraft is concerned. Such a requirement is absent in respect of other machinery or plant and, therefore, on a plain reading of the provision we cannot spell any requirement that the assessee should itself carry on the industrial undertaking where the requisite articles or things are manufactured. We, therefore, consider that there is no requirement of Section 32A(2) which would be violated if investment allowance is granted to an assessee which leases out machinery or plant provided the lessee uses such machinery or plant for purposes specified. The reference to 'the undertaking' in Section 32A(4) has to be construed harmoniously to make the section workable.

When there is no bar according to the provisions of Section 32A(1) and 32A(2) to the grant of investment allowance to a leasing company, the term 'for purposes of business of the undertaking' has to be construed as to mean the same type of business as entitled the assessee originally to the grant of investment allowance. In this regard it may be said that cases have arisen with reference to the provisions of Section 36(2) of the Act where a bad debt has been claimed by a particular assessee by writing off in its accounts but the original advance was made by a different assessee and the Courts have held that the requirements of Section 36(2)(i)(a) of the Act are satisfied though the section required that the amount in question should have been taken into account in computing the income of 'the assessee' on the earlier occassion. In this regard, the Madras High Court in the case of E.A.V.Krishnamurthy & Sons v. CIT [1985] 152 ITR 640 has quoted with approval the observations of the Allahabad High Court in T.N. Shah [P.) Ltd. v.Addl. CIT [1979] 120 ITR 354, which are as under: If in a given case, the income of a business is computed by taking into account certain debt, it does not appear reasonable that, in the absence of any statutory prohibition, allowance on account of the debt having become bad should be denied only because the assessee's identity has changed, though the identity of the business continues.

In Section 36(2), there is no indication that the word 'assessee' has been used with any different connotation or meaning. There is nothing to indicate that the 'assessee' refers to the original creditors and does not include a transferee or an assignee of the debt .... The emphasis is not on the assessee being the original creditor, but the taking into account of the debt in computing the income of the same business.

(We have rearranged the passages to bring the correct position of law laid down by the learned Judges omitting one sentence as unnecessary). (pp. 356-357) It is, therefore, considered that the use of the words 'the undertaking' in Section 32A(iv) does not place any bar on the grant of investment allowance.

32. A perusal of the hire agreement shows that the ownership of the assets, which are leased out, vests only in the assessee. We are unable to hold, therefore, that there is extinguishment of any right when the assets are hired out. Only the benefit of user is obtained by the person who takes out the assets on hire. The assets cannot, therefore, be considered on being hired out, though the expression 'lease' is used in the agreement, as having been 'otherwise transferred'. The provisions of Section 32A(5) are also not attracted merely because the assets are leased out and no mistake would have been committed in granting investment allowance.

33. In IT Appeal No. 662 (Mad.) of 1983 dated 31-10-1983, the Beach of the Tribunal was of the view that having regard to the decision of the Madras High Court in CWT v. K. Lakshmi [1983] 142 ITR 656, the conclusion reached in the earlier decision in IT Appeal No. 1069 (Mad.) of 1982 dated 30-11-1982 required modification. No arguments were addressed before us as to how the ratio of the decision of the Madras High Court referred to would have the result of requiring the conclusion in the decision of the Tribunal in IT Appeal No. 1069 (Mad.) of 1982 to be modified. In that case, the High Court had held that an assessee who got the goods manufactured by others cannot be said to manufacture the goods. In the present case what we have held is that for the grant of investment allowance, there is no requirement that the assessee itself should carrying on the industrial undertaking.

Therefore, the ratio of the judgment does not affect the conclusion which we have arrived at.

34. Our decision on the point of grant of investment allowance will be equally applicable in the matter of grant of initial depreciation.

1. Whether, the Income-tax Officer has validly reopened the assessment for the assessment year 1977-78 under Section 147(b) of the Income-tax Act, 1961; 2. Whether, the assessee-company which owns the machinery but has leased the same to some other parties for the manufacture or production of the articles not specified in the Eleventh Schedule to the Income-tax Act, 1961 is entitled to investment allowance under Section 32A of the Income-tax Act, 1961 2. I have gone through the order of my learned brother, Shri George Cheriyan, on the first point at issue. I am unable to subscribe to his view. My reasons are not far to seek.

3. The assessee-company carries on the business of leasing machinery, owned by it to other parties for the manufacture or production of articles specified in the Eleventh Schedule to the Act. For the assessment year 1976-77, the assessee-company claimed investment allowance on the said machinery and the ITO allowed the same vide his order dated 23-11-1978.

Later on, the ITO reopened the assessment under Section 147(b) on an audit objection and disallowed the said claim. By his order dated 28-10-1981, the Commissioner (Appeals) upheld the order of the ITO.However, on appeal, the Tribunal, vide its order dated 31-7-1982, cancelled the order of the Commissioner (Appeals) and held that the ITO had not validly reopened the assessment under Section 147(b).

4. Similarly, the ITO had originally allowed the claim of the assessee-company for investment allowance for the assessment year under consideration, i.e., 1977-78 vide his order dated 22-10-1979, as modified on 19-12-1980. When the Commissioner (Appeals) upheld the order of the ITO reopening the assessment of the assessee for the assessment year 1976-77, the ITO treated this order of the Commissioner (Appeals) as 'information' and issued a notice to the assessee on 1-3-1982 under Section 148 to reopen the assessment for the assessment year 1977-78. The assessee raised an objection to the effect that this was a case of mere 'change of opinion' which did not warrant the reopening of the assessment, and that, in any case, the order dated 28-10-1981 of the Commissioner (Appeals) for the assessment year 1976-77 on the basis of which the proceedings under Section 147(b) were initiated had been cancelled by the Tribunal on 31-7-1982. The ITO rejected these objections and passed the reassessment order on 24-2-1983 disallowing the claim of the assessee for investment allowance. On appeal, the Commissioner (Appeals) held that the ITO had validly reopened the assessment under Section 147(b). The assessee is, therefore, in appeal before us.

5. The arguments of the parties have been elaborately stated in the order of the learned Accountant Member and the same need not be repeated. After considering the rival submissions of the parties and appraising the entire material on record, I am of the view that the assessee deserves to succeed.

6. It is common ground that it was in pursuance of the order dated 28-10-1981 of the Commissioner (Appeals) for the assessment year 1976-77 that the ITO issued the notice to the assessee under Section 148 in the present case. It is also not in dispute that, before the ITO could pass the order under Section 147(b) on 24-2-1983, the aforesaid order of the Commissioner (Appeals) was cancelled by the Tribunal on 31-7-1982. Thus, the crucial question that emerges for consideration is whether the ITO could legally pass the order under Section 147(b) on the basis of a non-existent order of the Commissioner (Appeals) treating it as 'information'. In my opinion, the answer to this question should be in the negative. Section 147(b) provides that if the ITO has, in consequence of information in his possession, reason to believe that income chargeable to tax has escaped assessment, he may assess or reassess such income. Impliedly, if the 'information' is found to be incorrect or non-existent, before he passes the order under Section 147(b), the ITO has no alternative but to drop the proceedings.

It would be wrong on his part to persist that, even when there is no information to entertain a belief that income chargeable to tax has escaped assessment, he must necessarily pass an order of reassessment under Section 147(b). Thus, the reason for the belief on the basis of which the assessment is sought to be reopened must have a direct bearing on the final order in reassessment proceedings because the existence of the reason is necessary not only at the stage when the notice regarding reassessment is issued but the reason must continue to exist till the order in reassessment proceedings is passed. Now in the present case, when the only information on the basis of which the ITO had sought to reopen the assessment became non-existent from the very inception due to the order of the Tribunal, the ITO had no reason to believe that income chargeable to tax had escaped assessment. In such a situation, the reassessment order passed by him was based upon 'mere change of opinion' and not in consequence of any 'information'. Such an order would not be sustainable in law under Section 147(b). This view derives support from the decision of the Madras High Court in the case of Madras Auto Service (supra). This authority lays down as follows: .... The learned Counsel for the revenue submitted that at the time when the notice was issued under Section 147(b) our decision was not given and that it cannot be said that the Income-tax Officer had no reason to believe that the income has been made the subject of excessive relief. It is true that our decision was given long subsequent to the notice under Section 147(b) but our decision only declares the law as it stood even at the time when the notice was issued. Therefore, he could not have entertained any reasonable belief that the income chargeable to tax has escaped assessment ....

This authority of the Madras High Court squarely covers the point at issue in favour of the assessee.

7. No doubt, the Calcutta High Court and the Gujarat High Court have taken somewhat different views in Assam Oil Co. Ltd.'s case (supra) and Maneklal Harilal Spg. & Mfg. Co. Ltd.'s case (supra) respectively, but, being at Madras, we are bound by the decision of the Madras High Court in the case of Madras Auto Service (supra). Again, though some doubt has been raised by the Madras High Court in the case of Family of V.A.M. Sankaralinga Nadar (supra) the decision of the same High Court in the case of Madras Auto Service (supra), being later in point of time, must take precedence over the earlier decision. The observations of the Madras High Court in the case of Madras Auto Service (supra), reproduced above, are clear and unambiguous and leave us with no discretion to ignore the same or to follow the decision of some other High Court on the point at issue.

8. In view of the above discussion, I am of the opinion that the ITO had not validly reopened the assessment under Section 147(b) for the assessment year under consideration.

9. On merits, I agree with the learned Accountant Member. I would, however, add a few words to what he has already stated.

10. In order to appreciate the conclusion I am going to arrive at, it would be necessary to reproduce Section 32A. This section provides as under: (1) In respect of a ship or an aircraft or machinery or plant specified in Sub-section (2), which is owned by the assessee and is wholly used for the purposes of the business carried on by him, there shall, in accordance with and subject to the provisions of this section, be allowed a deduction, in respect of the previous year in which the ship or aircraft was acquired or the machinery or plant was installed or, if the ship, aircraft, machinery or plant is first put to use in the immediately succeeding previous year, then, in respect of that previous year, of a sum by way of investment allowance equal to twenty-five per cent of the actual cost of the ship, aircraft, machinery or plant to the assessee: Provided that no deduction shall be allowed under this section in respect of-- (a) any machinery or plant installed in any office premises or any residential accommodation, including any accommodation in the nature of a guest-house; (c) any ship, machinery or plant in respect of which the deduction by way of development rebate is allowable under Section 33; and (d) any machinery or plant, the whole of the actual cost of which is allowed as a deduction (whether by way of depreciation or otherwise) in computing the income chargeable under the head 'Profits and gains of business or profession' of any one previous year.

(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 the 31st day of March, 1976, by an assessee engaged in the business of operation of ships or aircraft; (b) any new machinery or plant installed after the 31st day of March, 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.

11. The important question for consideration is whether the assessee-company satisfies the conditions of Section 32A in order to claim investment allowance. The two conditions are that the assessee must own the machinery and that the machinery must be wholly used for the purpose of the business carried on by him. That the machinery is owned by the assessee is not disputed. As regards the other condition, the assessee is wholly using the machinery for the purpose of its business which consists of leasing the machinery to other parties.

Thus, on the plain reading of Section 32A, the assessee is eligible for investment allowance.

12. The argument of the standing counsel that the machinery must be both installed and used by the assessee itself for the purpose of manufacture or production of articles not specified in the Eleventh Schedule is not acceptable. Sub-section (1) or (2) of Section 32A does not require anywhere that the machinery must be installed and used by the assessee itself for the manufacture or production of priority articles. Wherever the Legislature intended that the assessee should itself engage in the particular business, it has so provided. This would be evident from the language of Sub-section (2)(a) of Section 32A which specifically requires that the assessee, in order to claim investment allowance in respect of ships or aircraft, must be 'engaged in the business of operation of ships or aircraft'. The fact that such a qualification does not appear in Sub-section (1) or Sub-section (2)(b)(iii) of Section 32A shows that, in order to claim investment allowance for machinery and plant, the assessee need not be itself an industrial undertaking engaged in the business of manufacture or production of articles not specified in the Eleventh Schedule. We cannot re-write the section and import or incorporate in Sub-section (1) or Sub-section (2)(b)(iii) of Section 32A the aforesaid specific words used in Sub-section (2)(a); whatever may be the reason for omission of the same.

13. The rule of construction is 'to intend the Legislature to have meant what they have actually expressed'. The object of all interpretation is to discover the intention of the Parliament, 'but the intention of Parliament must be deduced from the language used'. Where the language is plain and admits of only one meaning, the task of interpretation can hardly be said to arise. The desirability or the undesirability of one conclusion as compared with another cannot furnish a guide in reaching a decision. Where, by the use of clear and unequivocal language capable of only one meaning, anything is enacted by the Legislature, it must be enforced, however, harsh or absurd or contrary to common sense the result may be.

14. Thus, on the plain construction of Section 32A(1), the assessee-company, which is the owner of the machinery and which is wholly using the same for the purpose of its business of 'leasing the machinery', is entitled to investment allowance under Section 32A. If the interpretation sought to be placed by the standing counsel on Section 32A were to be accepted, then neither the lessor nor the lessee would be entitled to investment allowance. Such an interpretation must be avoided because that will defeat the very purpose of the enactment of Section 32A which is to encourage industrialisation. It is well-known that the endeavour of all the Judges should be to make such construction as shall suppress the mischief and advance the remedy.

Since our interpretation will advance the object of Section 32A and not defeat the same, we are of the opinion that the assessee, in the present case, is entitled to investment allowance under Section 32A.15. It is not necessary to repeat the other reasons of the learned Accountant Member. I am in agreement with him. I may simply add that even if there are two possible interpretations of a fiscal enactment, the one in favour of the assessee should be adopted.

16. In view of the above discussion, the assessee deserves to succeed on both the counts.

1. I agree with the learned Vice President that the reassessment under Section 147(b) in this case is invalid for the reasons stated by him.

In the circumstances, 1 consider that the department's appeal on the merits of the assessee's claim does not survive for consideration and, therefore, I do not consider it necessary to express my views in respect of the same.


Save Judgments// Add Notes // Store Search Result sets // Organizer Client Files //