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Issues involved: Interpretation of section 32A of the Income-tax Act, 1961 regarding the eligibility of investment allowance for machinery leased to third parties for manufacturing.
Summary: The High Court of Karnataka considered a case where the assessee, a company, had acquired machinery which was leased to third parties for manufacturing. The question revolved around whether investment allowance under section 32A was applicable in such a scenario. The Income-tax Officer initially denied the claim, stating that the assessee had not manufactured any article or thing as required by the Act. However, the Commissioner (Appeals) and the Tribunal ruled in favor of the assessee, leading to this reference. Section 32A provides for investment allowance for machinery owned by the assessee and wholly used for business purposes. The key conditions include ownership by the assessee, complete usage for business, and falling under specified categories in subsection (2). The dispute centered on whether the machinery, though leased out, met the criteria of being used for manufacturing. The Court analyzed the language of the statute and relevant case law to interpret the provisions. It was argued that the machinery need not be installed in the assessee's industrial undertaking to qualify for the benefit. The term "wholly used" was clarified to mean entirely used, not exclusively. The Court emphasized that the aim of section 32A is to encourage industrial activities and investment in capital goods. Ultimately, the Court concluded that the machinery, even when leased to third parties, could be eligible for investment allowance under section 32A if used for manufacturing. The judgment favored the assessee, highlighting the legislative intent to promote industrial development through such provisions. In conclusion, the Court answered the reference question affirmatively, ruling in favor of the assessee and against the Revenue.
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