Important Point
The Language of Section 32A of I.T. Act, 1961 covers leasing or fi­nance companies which give the machinery on hire thus in respect of such machinery investment allowance was allowable to the assessee Co. u/s 32A.

Judgment

Mrs. Sujata V. Manohar, J.-Delay condoned.

2. Leave granted.

3. These appeals raise a common question relating to the assessee’s entitlement to investment allowance under Section 32A of Income-tax Act, 1961. The assessee companies, as their names suggest, are finan­cial companies which purchase machinery and hire out the machinery to manufacturers under agreements of hire. The common question in these appeals relates to the entitlement of the assessees to investment allowance under Section 32A of the Income-tax Act, 1961. For the sake of convenience, we are setting out the question as framed in Civil Appeal Nos. 7077-78 of 1993. The question is as follows :

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

4. The assessees are not themselves manufacturers of any article or thing. The machineries, however, which are owned by them are hired to different persons for the purpose of their business of manufacturing. In respect of these machineries, assessees claimed investment allow­ance under Section 32A. In all these proceedings, the concerned High Courts, being the High Courts of Karnataka and Madras, have held the assessees as entitled to investment allowance under Section 32A. Hence these appeals have been preferred before us.

5. The relevant provisions of Section 32A are as follows:

“32. (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 ........

(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.”

(underlining ours)

6. Therefore, in respect, inter alia, of plant and machinery for which an investment allowance is claimed in any relevant previous year, an assessee must satisfy the following conditions:

(1) The machinery should be owned by the assessee.

(2) It should be wholly used for the purposes of the business carried on by the assessee, and

(3) The machinery must come under any of the categories speci­fied in sub-section (2) of Section 32A.

7. Sub-section (2) describes such machinery, plant as also ship or aircraft. Under sub-section (2)(b)(iii) any new machinery or plant installed after 31st of March, 1976 in any industrial undertaking for the purpose of manufacture or production of any article or thing, not being an article or thing specif