ORDER
T. Venkatappa, Judicial Member
1. The assessee, an unregistered firm, has leased out the rice mill and received lease rent of Rs. 80,000. It claimed investment allowance under Section 32A of the Income-tax Act, 1961 (‘the Act’). The ITO held that as the mill is not worked by the assessee itself, investment allowance cannot be allowed. Thus, he disallowed the claim. On appeal, the AAC held that the use of machinery or plant by the assessee itself is not a precondition for allowing investment allowance. When the income from machinery or plant which is hired to a third party is assessed under the head ‘Profits and gains of business or profession’ in such cases investment allowance is admissible while computing the income from business or hiring of plant and machinery. He followed the decision of the Allahabad High Court in the case of Ajodhya Prasad Tara Chand Khekra v. CIT [1967] 66 ITR 576. Thus, he directed the ITO to allow investment allowance. Against the same, the revenue has preferred this appeal.
2. The learned departmental representative submitted that the assessee has leased out the rice mill and received lease rent of Rs. 80,000. It has not worked the mill by itself and so the machihery has not been used wholly for the assessee’s business. No partnership deed has been executed and no lease agreement has also been filed by the assessee. The mill itself was closed down at the end of the accounting year 31-3-1979. He urged that since the assessee has received only rental income it cannot be considered as an industrial undertaking. Income was not assessed under the head ‘Profits and gains of business or profession’ but only depreciation has been allowed. He submitted that depreciation is allowable even if the income is assessed under the head ‘Income from other sources’ under Section 56 of the Act. He also urged that the conversion of paddy into rice does not amount to manufacture or production of an article or thing. The learned counsel for the assessee supported the order of the AAC. He placed reliance on the decision of the Allahabad High Court in Ajodhya Prasad Tara Chand Khekra’s case (supra).
3. We have considered the rival submissions. The assessee has leased out the rice mill and received lease rent of Rs. 80,000. Thus, it has not run the mill by itself. Hence, it cannot be said that the assessee has used the machinery or the plant wholly for the purpose of its business as it has been used only by the lessee. Under Section 32A investment allowance can be allowed only if the machinery or plant is owned by the assessee and is wholly used for the purpose of business carried on by the assessee. No doubt, the machinery is owned by the assessee but it has not been wholly used for the purpose of the assessee’s business. Thus, in our view, the assessee is not entitled to investment allowance.
4. In New Savan Sugar & Gur Refining Co. Ltd. v. CIT [1969] 74 ITR 7 (SC) the assessee leased out its factory. The question whether the income which arose to the assessee from the lease should be assessed under Section 10 or under Section 12 of the Indian Income-tax Act, 1922 and whether the assessee should be allowed development rebate came up for consideration before the Supreme Court. It was held therein that in terms of the lease deed the intention of the assessee was to part with the entire machinery of the factory and the premises with the obvious purpose of earning rental income and not to treat the factory and the machinery as a commercial asset during the subsistence of the lease. The income from the lease could not be assessed under Section 10 but was liable to be assessed under Section 12. It was further held that the assessee was not entitled to the allowance of development rebate. In CIT v. Pandyan Bank Ltd. [1969] 71 ITR 707 (Mad.) the assessee-bank owned a building which was fully airconditioned. A small portion of the said building was let out to tenants. The assessee claimed depreciation and development rebate. The ITO and the AAC disallowed the claim for development rebate on the ground that the assessee had let out portions of the building and, therefore, the air-conditioning machinery or plant was not wholly used for the purpose of the business carried on by the assessee. The Tribunal reversed that order. On a reference, the Madras High Court held that the assessee was not entitled to the claim of development rebate. It was held that letting out of a portion of its permises by the assessee cannot be regarded as part of the business carried on by the assessee so that the air-conditioning plant could be regarded as having been wholly used for the purpose of such business. In CIT v. J. Thomas & Co. (P.) Ltd. [1977] 110 ITR 566, the Calcutta High Court held that unless machinery or plant is used exclusively for the purpose of the assessee’s business no development rebate under Section 33 of the Act can be allowed in respect of it. In Watkins Mayor (Agrico) (P.) Ltd. v. CIT [1979] 117 ITR 202 (Punj. & Har.) machinery was let out on hire to another company. The assessee claimed development rebate. On those facts, the Punjab and Haryana High Court held that the assessee was not entitled to development rebate on the machinery. In Punjab National Bank Ltd. v. CIT [1983] 141 ITR 886 the Delhi High Court held that plant and machinery can be said to be used by somebody else if some other person had control over the same and the word ‘user’ means not only getting benefit, but also controlling, running, stopping, repairing, replacing, etc. The ratio laid down in the above cases squarely apply to the instant case. The assessee has leased out the mill. The lessee who was running the mill had full control over the mill and the machinery and plant was used for his business. Thus, in our view, the assessee has not wholly used the machinery and plant for its business. In the assessment order, the ITO has not shown any head under which it is assessed. No doubt depreciation is allowed but depreciation is allowable even when the income is assessed under the head ‘Income from other sources’. The decision of the Allahabad High Court in Ajodhya Prasad Tara Chand Khekra’s case (supra) is distinguishable. That was a case where the business consisted of letting out of machinery, namely, Kolhus. In the instant case, no evidence has been produced by either partnership deed or other evidence to prove that the business of the assessee was hiring out of the machinery. It is for this reason that the order of the Special Bench of the Tribunal in ITO v. First Leasing Co, of India Ltd. [IT Appeal No. 1951 (Mad.) of 1983] is distinguishable. Thus, on a consideration of the entire facts, we are of the view that the assessee is not entitled to investment allowance. We reverse the order of the AAC and restore the order of the ITO.
5. In the result, the appeal is allowed.