JUDGMENT
1. The Income-tax Appellate Tribunal has referred the following question of law arising out of its order dated August 1, 1994, in respect of the assessment year 1985-86.
“1. 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 Section 32A on the plant and machineries leased by it to other concerns, which although being used by such other concerns in the 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 assessment year 1985-86, the assessee claimed investment allowance of
Rs. 1,46,300. While framing the assessment order, the Assessing Officer negatived the claim on the ground that the assessee itself was not carrying on any manufacturing activity. On an appeal filed by the assessee, the Commissioner of Income-tax (Appeals), following the decision of the Income-tax Appellate Tribunal, Madras “A” Bench, in the case of First Leasing Co. (ITA No. 1951/Mad of 1983, dated September 3, 1986) directed the Assessing Officer to allow the claim of investment allowance. The Department appealed before the Tribunal.
2. The matter was considered by the apex court in CIT v. Shaan Finance (P.) Ltd. [1998] 231 ITR 308, wherein it was observed that when machinery is given on hire by the owner it is business income. The owner is also entitled to depreciation on the machinery so hired out. The hirer, on the other hand, who pays 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.
3. 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 Section 32A on the plant and machinery leased by it to other concerns, which although being used by such other concerns in the 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.
4. 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.