Commissioner of Income Tax vs Gautam Chand

V.K. Singhal, J.—The Tribunal has referred the following question of law arising out its order dated 19-1-1986, in respect of the assessment year 1979-80 u/s 256(1) of the income tax Act, 1961 (''the Act'') :

Whether, on the facts and in the circumstances of the case, the Tribunal was legally justified in upholding the claim of the assessee in regard to investment allowance on cost of plant and machinery, particularly when assessee was not using these assets for his own business, but on the other hand, these were let out on hire ?

The brief facts of the case are that the assessee constructed a factory building at the cost of Rs. 2,41,000. The machinery was also installed but on account of lack of finance the assessee could not run the textile mill and let it out to Pushpa Prints. The assessee claimed investment allowance on the plant and machinery and depreciation. The ITO allowed the claim of depreciation but refused to allow investment allowance on the ground that the income from letting out of the plant and machinery is not a business of the assessee and since the income is assessable u/s 57 of the Act, the only deduction permissible u/s 57(ii) is depreciation, repair, etc. Aggrieved by this order, the assessee preferred an appeal to the AAC, (A) Range, Jodhpur, who came to the conclusion that the assessee is not carrying on any business and the property has been let out from the date it was constructed. For the purpose of claiming the said benefit it is necessary that he should carry on the business. It was considered from other sources.

In the second appeal before the Tribunal relying on the decision in the case of CIT v. K. Ramaiah, K. Ramkrishna Murthy [1995] 49 CTR (AP) 76, it was held that the income from hiring out of building and machinery is assessable under business only as the commercial asset, namely, the building, the plant and machinery having been let out for the sole reason that the assessee not being able to do business himself results only in another kind of business. Therefore, the relief for investment allowance on the cost of plant and machinery was allowed. u/s 32A of the Act, the investment allowance is given on machinery or plant which is owned by the assessee and is wholly used for the purposes of business carried on by him. So far as the question that the plant and machinery was owned by the assessee is not disputed. Only this point is to be seen whether plant and machinery could be considered wholly used for the purpose of business carried on by the assessee. If it was the business of the assessee to let out the plant and machinery then it will be entitled for investment allowance. Similarly, if the business could not be carried on temporarily and the commercial asset has been given on lease, it will still be the business income and it will be deemed that the machinery and plant was wholly used for the purpose of business carried on by the assessee. The commercial asset has come into existence and is a business asset. The exploitation of such an asset which could be by the assessee even by giving it on lease in such a situation, it will be considered to be a business income. The provisions of section 56 of the Act are applicable if the income is not chargeable under any of the heads specified u/s 14 of the Act from items (a) to (e). If it is considered to be the income from profits and gains of the business then the assessee is entitled to claim the deduction in respect of investment allowance. In the present case, the commercial asset is exploited and, therefore, it has to be considered as the business income. The Tribunal was legally justified in upholding the claim of the assessee in regard to investment allowance on the cost of plant and machinery even if the assessee was not using the assets for his own business since the letting out of the plant and machinery, etc., was considered as business. Consequently, the reference is answered in favour of the assessee and against the revenue. No order as to costs.