COMMISSIONER OF INCOME TAX, KARNATAKA. BANGALORE versus M/S. SHAAN FINANCE (P.) LTD. BANGALORE ETC.

Citation: [1998] 2 S.C.R. 367 · Decided: 20-03-1998 · Supreme Court of India · Bench: SUJATA V. MANOHAR · Disposal: Dismissed
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Judgment (excerpt)

""""' 
t 
COMMISSIONER OF INCOME TAX, KARNATAKA. BANGALORE 
A 
v. 
M/S. SHA AN FINANCE (P.) LTD .. BANGALORE ETC. 
MARCH 20, 1998 
[MRS. SU.IATA V. MANOHAR AND D.P. WADHWA, JJ.] 
B 
Income Tax Act, 1961-Section 32A-lnvestment allowance-Assessee, 
finance company-Owner of machineries-leased out to manufacturers-
Whether eligible for investment allowance:'-Held, yes-Provision does not C 
specifY user by assessee. 
Section 32A(2}(b)-lncome derived by assessee--ln the business of 
hiring machineries-Assessee held. to be considered as user of machinery for 
business purposes. 
Interpretation of statutes-Taxing statutes- Beneficial provision in a-
Full effect to be given to the /anguage--Held, court cannot make good the 
deficiencies if any. 
The Respondent-finance company was in the business of purchase of 
certain machineries and hiring them for manufacturer under agreement of 
hire. The assessee claimed the benefit of investment allowance under Sec. 
32A of the Income Tax Act, 1961. Their claims were rejected by the Revenue 
and on challenge before the High Court, it was held that the assessees were 
entitled to investment allowance. 
On appeal before this Court it was contended by the Appellant that 
investment allowance can be claimed by the assessee only in a case where 
the assessee is the owner of the machinery and also uses the machinery 
himself and in other cases it cannot be granted, and that the observations 
D 
E 
F 
in CIT v. Narang Dairy Products, 219 ITR 478 wherein it was held that 
availing the benefit of development rebate not only should the ownership of G 
the plant and machinery be with the assessee but also its user by the 
assessee for the purpose of his business, is applicable in the present case. 
Dismissing the appeals, the Court 
HELD: 1.1. Section 32A(2)(b) refers to the uses to which the machinery H 
367 
368 
SUPRE~lE COURT REPORTS 
[ 1998] 2 S.C.R. 
A can be put. It does not specify that the assessee himself should use the 
machinery for these purposes. The conclusion and reasoning of the High 
Courts that the assessee fulfil all the requirements of Section 32A is 
correct. 1372-CI 
1.2. Where the business of the assessee consists of hiring out 
B machinery and/or where the income derived by the assessee from the hiring 
of such machinery is business income, the assessee must be considered as 
having used the machinery for the purposes of its business. 1374-FI 
CIT'" Castle Rock Fisheries, 119971 10 SCC 770 and CIT v. Vinod 
C Bhargava : 169 ITR 549, referred to. 
1.3. The ratio in the case of Narang Dai1J' Produc/s is not applicable 
in the present case. It does not deal with an agreement of hire of machinery 
in contradistinction to an agreement of hire purchase. A transaction of hire 
is, therefore, of bailment of the machinery. There is no extinguishment of 
D 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. 1375-01 
CIT v. Narang Dairr Produc/s : 219 ITR 478 and Blue Bay Fisheries 
(f'J lldv. CTT, 166 ITRI, distinguished. 
E 
Mis Damodar Valley Corpn. v. The Stale of Bihar, AIR (1961) SC 440, 
referred to. 
2.1. In the absence of any element of sale in teh present case, there 
is no reason for treating the agreements as "transfer" or disallowing the 
grant of investment allowance, when the assessee complies with the 
F requirements of Section 32A. 1376-CI 
G 
Mis K.L. Johar and Co. v. The Dr. CTO, Coimbatore Ill, AIR (1965) SC 
I 082 at I 090, referred to. 
3.1. Section 32A is a beneficial provision in a taxing statue. Full effect 
requires to be given to the language used in the Section. While interpreting 
a fiscal statute, the Court cannot proceed to make good the deficiencies if 
there is any. The Court must interpret the statute as it stands and in case 
of doubt, in a manner favourable to the tax-payer. The language of Section 
32A covers leasing or finance companies which give machinery on hire as 
H in the present case. 1376-D-EI 
, 
C.l.T. v. SHAAN FINANCE (P.) LTD. [SUJATA V. MANOHAR. J.] 369 
CA. Abraham v. I. TO. Kottayam & Anr, AIR (1961) SC 609 at 612, A 
relied on. 
CIVIL APPELLATE JURISDICTION : Civil Appeal Nos. 7077-78 of 
1993 Etc. 
From the Judgment and Order dated 4.11.92 of the Karnataka High Court 8 
in l.T.R. Nos. 56 and 55 of 1990. 
T.L.V. Iyer, (T.C. Sharma) and B.K. Prasad for the Appellant. 
Ms. Janaki Ramachandran for the Respondent in C.A. Nos. 7077-78/93. 
Arvind
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