1989 (12) TMI 125 - AT - Income Tax

Tribunal grants investment allowance but upholds tax on camera value as business income

SURESH ARTS. Versus INCOME TAX OFFICER.

The Tribunal allowed the appeal in part, granting the investment allowance claimed by the assessee for plant and machinery. However, it upheld the ... - Issues Involved:1. Investment Allowance on Plant and Machinery.2. Taxability of Camera Gifted under Section 28(iv) of the IT Act.Issue-wise Detailed Analysis:1. Investment Allowance on Plant and Machinery:The assessee, a registered firm engaged in the production of feature films and hiring out of outdoor equipment, claimed an investment allowance of Rs. 67,662 on plant and machinery purchased and utilized for hiring outdoor equipment. The ITO disallowed the claim, stating that the machinery was not wholly used for the business carried on by the assessee, as it was lent out on hire to third parties. The CIT(A) upheld this decision, citing non-compliance with Section 32A of the IT Act.The assessee appealed, citing the Special Bench decision in ITO vs. First Leasing Co. of India Ltd., which allowed investment allowance for machinery leased out, provided the lessee used it for specified purposes. The Tribunal observed that the assessment order treated both the production of films and hiring out of equipment as equally important businesses. The Tribunal held that there is no requirement in Section 32A that investment allowance can only be allowed if the principal business is leasing. Therefore, the assessee was entitled to the deduction of Rs. 67,662 by way of investment allowance.2. Taxability of Camera Gifted under Section 28(iv) of the IT Act:The ITO brought to tax an amount of Rs. 1,73,670, the value of a camera gifted to the assessee by Maharaja Organisation Ltd., under Section 28(iv) of the IT Act, stating it was a benefit arising from business. The CIT(A) upheld this, stating the camera was not a gift in the legal sense as there was adequate consideration for the same.The Tribunal examined the agreement between the assessee and Maharaja, noting mutual services rendered and remuneration fixed separately. The Tribunal considered whether the value of the camera could be considered income. The Tribunal referred to the Madras High Court's decision in CIT vs. M. Balamuralikrishna, which distinguished between personal gifts and remuneration. The Tribunal noted that the camera was given as a gesture of appreciation for cooperation and to continue good relationships for the future, implying it was a spur for future cooperation.The Tribunal concluded that the business of producing the film and the work undertaken was the immediate cause for the gift, making it remuneration liable to tax. The customs duty paid on the camera was taken as the cost, and investment allowance was claimed, indicating its use as a business asset. The Tribunal upheld the findings of the authorities below regarding the taxability of the camera's value.Conclusion:The appeal was allowed in part, granting the investment allowance but upholding the taxability of the camera's value as business income.