COMMISSIONER OF INCOME TAX Vs. SIVANANDA COLOUR WORKS

JUDGEMENT

(1.) IN compliance with the order of this Court dt. 27th Oct., 1981, the Tribunal referred the following two questions for the opinion of this Court under S. 256(2) of the IT Act, 1961 :

(2.) THE assessee was a firm having a factory for bleaching and dyeing. In the previous year ended 20th Oct., 1977, corresponding to the asst. year 1978 -79, the assessee purchased certain machineries for its business. But the machineries were in fact let out to another firm under a deed dt. 24th Feb., 1977 on a monthly rent of Rs. 4,000 for a mutually agreed period with an option for either party to terminate it with six months notice. The assessee claimed investment allowance under S. 32A of the IT Act, 1961, hereinafter referred to as the Act, in respect of cost of machineries. The ITO disallowed the claim. But, the CIT(A) concluded that the income derived under lease was also income from business and, therefore, the assessee was entitled to investment allowance. Aggrieved, the Department filed appeal before the Tribunal. The Tribunal found that there was no indication of an intention to permanently part with the machine or go out of business. Therefore, the Tribunal found that the assessee was only exploiting the machineries as commercial assets and the income derived from the lease did not cease to be part of the income from business. Consequently, the order of the CIT(A) granting investment allowance under S. 32A of the Act was confirmed.

(3.) ON the other hand, the learned counsel appearing for the assessee submitted that even though the business of the assessee was bleaching and dyeing since the newly purchased machineries could not be exploited by the assessee, the same was let out to a sister concern for a temporary period. In view of the decision rendered in CEPT vs. Lakshmi Silk Mills (1951) 20 ITR 451 (SC) : TC 13R.746, the assessee should be considered as exploiting the machineries in its own business, even though the machineries were let out to a sister concern and the income therefrom is assessable under the head business income. When the use of the machineries by the sister concern (lessee) is considered to be use for the business of the assessee, the assessee is entitled to investment allowance under S. 32A of the Act. In order to support this contention that the assessee is entitled to investment allowance under S. 32A of the Act, even though the newly purchased machineries were let out for a temporary purpose, the learned counsel for the assessee relied upon the decision reported in CIT vs. First leasing Co. of India Ltd. (1995) 216 ITR 455 (Mad), CIT vs. Shaan Finance (P) Ltd. (1992) 109 CTR (Kar) 209 : (1993) 199 ITR 409 (Kar) : TC 28R.222 and in Ajodhya Prasad Tara Chand Khekra vs. CIT (1967) 66 ITR 576 (All) : TC 28R.344. According to the learned counsel for the assessee when the machineries cannot be exploited or used for a particular kind of business, and if the assessee used or exploited the machineries by letting out the same for a temporary period, then also it should be considered as use of the machineries for the business of its own. Finally, it was submitted that the assessee was only exploiting the machineries as commercial assets and the income derived under the lease did not cease to be part of the income from business carried on by the assessee. For these reasons, the learned counsel submitted that there is no infirmity in the order passed by the Tribunal in granting investment allowance under s. 32A.