COMMISSIONER OF INCOME TAX Vs. VINOD BHARGAVA

JUDGEMENT

(1.) THE assessee in both these R.Cs. is the same.

(2.) THE assessee is an individual. He was carrying on the business of manufacturing and selling optical lenses, prisms, etc. During the relevant accounting year, he leased out the entire plant and machinery to a private limited company on an annual rent of Rs. 48,000 w.e.f. February 1, 1972. However, he retained and continued his trading business. The lease deed provided that all the orders obtained by the assessee including the pending orders would be executed by the lessee. Of course, after executing the orders of the assessee, the lessee was free to take up orders from third parties as well.

(3.) THE assessee claimed development rebate in respect of the machinery for the said accounting year. The ITO negatived the claim on the ground that, since the machinery has been let out, it cannot be said that it is being used wholly for the purpose of the assessee's business within the meaning of S. 33(1)(a) of the Act. He was also of the opinion that the lease income was not business income, but has to be assessed under the head " other sources ". This view of the ITO was confirmed in appeal by the AAC. On further appeal, the two members of the Tribunal differed. The Judicial Member agreed that the lease income was business income, but took the view that inasmuch as it cannot be said in the circumstances of the case that the machinery was used wholly for the purpose of the assessee's business, development rebate cannot be allowed. The Accountant Member was, however, of the opinion that once the leasing of the machinery is treated as one mode of doing business and the lease income is treated as business income, then no further question arises and development rebate must be allowed. In view of the difference of opinion between them, the matter was referred to the Vice -President. The Vice -President agreed with the Accountant Member. He too was of the opinion that once the leasing out of the machinery is held as one mode of doing business with the result that the lease amount is treated as business income, it would be logically inconsistent to hold that the machinery is not used wholly for the purpose of the assessee's business. The correctness of this view is challenged before us, but we are of the opinion that the challenge must fail. We agree with the Vice -President of the Tribunal that once it is held that leasing out of the machinery is one mode of doing business by the assessee and the income derived from leasing out is treated as business income, it would be contradictory, in terms, to say that the machinery is not used wholly for the purpose of the assessee's business. It is true that S. 33(1)(a) requires that for claiming development rebate, the machinery must be wholly used for the purpose of the business carried on by him, yet, for the reasons stated above, we hold that this requirement must be deemed to be satisfied inasmuch as all the three members of the Tribunal held uniformly that leasing out the machinery was one mode of doing business by the assessee. It must also be remembered that the assessee has continued his trading activity and had not leased out his entire business. Only the plant and machinery which he was using previously for his business was leased out. We are, therefore, of the opinion that the Tribunal was right in holding that the assessee is entitled to development rebate under S. 33(1)(a) of the Act.