Income Tax Appellate Tribunal - Delhi
Data Base Industries vs Income-Tax Officer on 11 October, 1990
Equivalent citations: [1991]36ITD209(DELHI)
ORDER
G. Krishnamurthy, President
1. This appeal filed by the assessee is directed against an order of the Commissioner of Income-tax, Delhi-VII, New Delhi, passed under Section 263 of the Income-tax Act, setting aside the assessment made by the Income-tax Officer and directing him to make a fresh assessment.
2. In brief the relevant facts are that the assessee a firm which comprised of some resident and some non-resident partners purchased one Computer imported from abroad and leased it on hire to M/s Tata Consultancy Services on a monthly rent. The terms of the lease were reduced to writing under an Agreement dated 2-5-1980 between the partners of the assessee-firm and M/s Tata Consultancy Services. The hire charges fixed was Rs. 35,000 per month. There was also a provision to pay an advance of Rs. 2,00,000 to be adjusted against monthly instalments of the hire rent. The assessee claimed, inter alia, that it was carrying on the business leasing out of its Computer on a monthly rent and, therefore, it was entitled to claim investment allowance. The Income-tax Officer after going through the claim by the assessee and after calling for certain other particulars allowed the assessee's claim. In this process he allowed an investment allowance of Rs. 1,84,872. The Commissioner of Income-tax who examined the assessment record of the assessee formed an opinion that the Income-tax Officer had come to a wrong conclusion in that the assessee was carrying on business by leasing out the Computer on hire. According to him, such a leasing could not amount to carrying out of business. The income derived by way of hire should have been assessed under the head 'other sources' and not under the head 'business'. He was also of the opinion that even if the leasing out of the Computer could be held to be business, still the investment allowance could not be allowed because the assessee in order to claim investment allowance should carry on the business of working the Computer by itself and should not lease it out. So, according to the Commissioner of Income-tax, the Assessing Officer was not justified in allowing the investment allowance on the Computer purchased but leased out to another party for working. After giving the assessee an opportunity of hearing and after considering the explanation offered by the assessee passed an order under Section 263 directing as stated above, the Assessing Officer to re-examine the issue and to decide again whether the assessee could be said to be carrying on the business and in any case not to allow investment allowance.
3. It is against this order that the present appeal was filed by the assessee. The learned counsel for the assessee Shri C.S. Aggarwal, by filing before us the lease Agreement and other relevant papers submitted that there was an inconsistency in the order passed by the Commissioner of Income-tax and that when he held that the assessee was not carrying on the business by leasing out the Computer should not have held that the assessee was not entitled to investment allowance. He also submitted relying upon a decision of the Income-tax Appellate Tribunal in the case of First Leasing Co. of India Ltd. v. ITO [1983] 3 ITD 808 (Mad.) that leasing out of machinery would amount to business and that investment allowance under Section 32A was admissible on such leased out machinery. He also submitted that the Computer was not only utilised for leasing out but also was available for own use and, therefore, it could not be said that Computer was exclusively leased out. For this purpose he placed reliance upon Clause 5 of the Agreement and also the preamble. He also submitted that in the next assessment year the Income-tax Officer even though was aware of the fact that the relevant allowance of investment allowance was sub judice before the Commissioner of Income-tax still held the income derived by the assessee as income from business and not income from other sources. Such being the case and those orders not having been set aside under Section 263 the presumption should be that the assessee was carrying out of the business of leasing and that leasing was a business and in any case no useful purpose would be served by setting aside the assessment to probe into that very question which the department had already probed into and arrived at a conclusion in favour of the assessee.
4. On the other hand, the Departmental Representative, Shri Sandeep Tandon, submitted placing reliance upon the Supreme Court decision in the case of Sultan Bros. (P.) Ltd. v. CIT [1964] 51 ITR 353, that the Income-tax Officer had not properly and adequately investigated into the facts whether the leasing out of the Computer would amount to carrying on of business or whether the income derived from hire charges should be assessed as income from other sources. This investigation is essential for the purpose of this case. The Commissioner of Income-tax was, therefore, justified in directing the Assessing Officer to investigate into the matter. Nevertheless, since the assessee had not worked out the Computer on its own but leased it out, the requirements of Section 32A were not complied with and, therefore, the investment allowance was not allowable at all. Placing reliance upon the words "wholly used" used in Section 32A of the Income-tax Act, the learned Departmental Representative submitted that the use of the machinery must be exclusive by the assessee and if it is leased out, it would not satisfy the requirement of using it wholly by the assessee and, therefore, investment allowance becomes inadmissible. The Commissioner of Income-tax was, therefore, justified in holding that the assessment made by the Income-tax Officer allowing investment allowance was erroneous and prejudicial to the interests of the revenue. He sought to justify the argument of the Commissioner of Income-tax on these lines.
5. On a careful consideration of all these arguments and facts, we are of the view that the assessment made by the Income-tax Officer could not be said to be erroneous and prejudicial to the interests of the revenue. First of all, the leasing out of the Computer is a business carried on by the assessee. There is no requirement of law that in order to constitute a business there must be more than one Computer and there should be more than one customer. The argument of the learned Departmental Representative and also the Commissioner of Income-tax seemed to proceed on the assumption that because the Computer was leased out to one party alone, it would not constitute business. As we have said earlier that there is no basis or justification or authority for this view. A person who spent a vast sum of money on the purchase of a Computer can commercially exploit the same by using it itself or by leasing it out to one or more parties. All that Section 32A states is that the machinery must be used wholly by the assessee in the business carried on by it. In other words, if the machinery purchased was wholly used for the purpose of business carried on by the assessee and if other conditions mentioned in Section 32A are satisfied then allowance of investment allowance cannot be denied. Here the assessee has leased out its machinery and leasing out was the business of the assessee and the machinery was wholly used for the purpose of the business carried on by the assessee, namely, leasing out. Since there is no authority for the view that the leasing out of machinery does not amount to carry on of business, we cannot say that the Computer purchased by the assessee was not wholly used for the purpose of the business carried on by it, namely, leasing out of Computer does amount carrying on of business. It is, therefore, in our opinion, not proper and correct to say that the income from leasing out of the Computer should be assessed only under the head 'other sources'.
6. There is no dispute before us that the Computer used and purchased by the assessee was not machinery. We do not, therefore, have to bestow our attention on this question. However, in a recent decision given by the Income-tax Appellate Tribunal in the case of Softek (P.) Ltd. v. ITO [1990] in 32 ITD 540 (Delhi) it was held that Computers are entitled to investment allowance under Section 32A of the Income-tax Act. In this decision several other decisions of the Tribunal were considered to arrive at the finding that Computers are entitled to investment allowance within the meaning of Section 32A of the Income-tax Act. We are in respectful agreement with this view and following with respect this decision we hold that the Computer in the present case is also entitled to investment allowance. The next question that remains is whether leasing out of machinery, i.e., computer would amount to carry on of business. A similar question had come up for consideration perhaps for the first time before the Tribunal in the case of First Leasing Co. of India Ltd. (supra).
The Bench held:
Section 32A(1) lays down the quantifications for the allowance of investment allowance, viz., firstly the machinery or plant must be such as specified in Sub-section (2), secondly, it must be owned by the assessee; finally, it must be wholly used for the purpose of the business carried on by the assessee. The conditions mentioned in Sub-section (2) are that the machinery and plant must be new, it must be installed after 31-3-1976 in an industrial undertaking for the purpose 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. The primary requisite of 'installation' of machinery and plant is not further qualified, or conditioned by any requirement that the assessee should instal it. The machinery and plant must be installed in any industrial undertaking for the purpose of the business specified therein. The machinery and plant that the assessee had leased out in the instant case, had been installed by the hirers in their industrial undertakings for the purpose of the business referred to in Section 32A(2)(b)(iii). The installation by the lessee was installation by the assessee. The assessee did not part with his title over the machinery and plant. He continued to be its owner. Further the assessee was using the plant and machinery wholly for the purposes of the business carried on by the assessee, i.e., leasing of plant and machinery. Thus all the three aforesaid conditions laid down in Section 32A(1) were fulfilled and the assessee was entitled to the investment allowance. Section 32A(2), which requires the plant or machinery to be used in a specified category of industrial undertaking does not require that the industrial undertaking should be carried on by the owner of the plant or machinery who claims investment allowance. CBDT Circular No. 229 dated 9-8-1977, relied on by the revenue in the instant case, does not make any difference to this position.
Thus, the assessee having satisfied all the conditions necessary for the grant of investment allowance, it could not be denied investment allowance on the ground that it was not an industrial undertaking using the machinery in its own business.
This decision is, therefore, a complete answer to the question posed by the Commissioner of Income-tax that leasing was not the business. We are in respectful agreement with this view and hold that the leasing out of the Computer by the assessee amounts to carry on of business and the Computer having been wholly used in that business the requirement of Section 32A was complied with.
7. At this stage, the Departmental Representative's argument based upon Section 32A(2)(b)(iii) has to be dealt with. That Sub-section prescribes three conditions to be satisfied for the allowance of investment allowance. The third of the conditions is mentioned in Sub-section (iii) and is in the following words :
(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.
This requires that the machinery, i.e., Computer must be used in an industrial undertaking for the purpose of business of (deleting the words not necessary for our present purpose) production of any article or thing not being an article or thing specified in the list in the Eleventh Schedule. The argument of the Departmental Representative is that M/s Tata Consultancy Services is not an industrial undertaking. We cannot accept this contention for two reasons. One is, this is not the reason given by the Commissioner of Income-tax in his order or in the notice given by him to the assessee calling for his explanation. Secondly, there is no evidence to show that M/s Tata Consultancy Services was not an industrial undertaking. On the other hand, the proceedings have gone on, on the basis that the requirement was satisfied. We, therefore, do not accept this argument of the Departmental Representative. Secondly, it is now decided unanimously by several Benches of the Income-tax Appellate Tribunal that whatever was given out by a Computer amounts to production of an article or thing. We do not have to refer to the decided cases on the subject except to refer to a case decided by the Bangalore Bench of the Income Tax Appellate Tribunal in the case of Krishna Associates v. ITO [1987] 22 ITD 530 which was followed by Delhi Bench of the Tribunal in the case of Softek (P.) Ltd. (supra). Thus, we find that all the requirements of Section 32A are satisfied and it must be held that the assessee's claim for the allowance of investment allowance was permissible and was legally allowed by the Income-tax Officer and no error was committed by him in accepting the assessee's claim. We are also of the opinion that in this case no further enquiry is really needed to be made by the Income-tax Officer because all that was needed to be looked into had already been looked into by the Income-tax Officer. Before we part with this case, we will have to refer to the judgment of the Supreme Court in the case of Sultan Bros. (P.) Ltd, (supra). In that case, the assessee was a Private Limited Company, constructed a building on a certain plot of land fitted it with furniture and fixtures and let it out on lease for the purpose of running a hotel. The question arose as to whether the income is to be assessed under the head 'business' or under the head 'other sources'. The Supreme Court holding that the income from letting out of this building did not amount to carrying on of the business laid down certain tests to find out as to when letting of the building would amount to carrying on of business and in what circumstances the letting out would amount to deriving income from other sources. The Supreme Court laid down as under:-
Whether a particular letting is business has to be decided in the circumstances of each case. Each case has to be looked at from a businessman's point of view to find out whether the letting was the doing of a business or the exploitation of his property by an owner. A thing is not by its very nature a commercial asset. A commercial asset is only an asset used in a business and nothing else and business may be carried on with practically all things. Therefore, it is not possible to say that a particular activity is business because it is concerned with an asset with which trade is commonly carried on.
This case nor the tests referred to therein do not determine the issue before us. What was let out in the case before the Supreme Court was a building fitted with furniture and fixtures for the purpose of running a hotel, whereas, in the case before us what was leased out was only a Computer which is nothing but a commercial asset used for commercial exploitation as mentioned by the Supreme Court in the observation extracted above. Therefore, nothing turns upon the decision of the Supreme Court in the case of Sultan Bros. (P.) Ltd. (supra).
8. For the above reasons, we are of the opinion that the order passed by the Income-tax Officer was neither erroneous nor did it cause any prejudice to the interests of the revenue. The Commissioner of Income-tax was, therefore, not justified in interfering with that order under Section 263 of the Income-tax Act. We, therefore, allow the assessee's appeal and set aside the order passed by the Commissioner of Income-tax.