TaxTMI 
TaxTMI 
2015 (3) TMI 771
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....Ltd. installed its own machinery for the said job work of dyeing and that the assessee charged a sum of Rs. 20,000/- per month as license fee from M/s Dior International Pvt. Ltd. The said sum of Rs. 20,000/- per month charged as license fee has been claimed by the assessee to be business income. Further, it is also clear that the job work undertaken by M/s Dior International Pvt. Ltd., though done wholly for the assessee, was nonetheless charged to the assessee's account and paid for by the assessee. The question that arises on the facts in this case is whether under Section 40(3)(vi) of the Finance Act, 1983, "the building" is used by the assessee as a factory for the purpose of its business. Section 40(3) is set out herein below: "The assets referred to in sub-section (2) shall be the following, namely:- (i) gold, silver, platinum or any other precious metal or any alloy containing one or more of such precious metals (not being any such precious metal or alloy held for use as raw material in industrial production; (ii) precious or semi-precious stones whether or not set in any furniture, utensil or other article or worked or sewn into any wearing apparel; (iii) o....
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....h the view of the authorities below and dismissed the appeal. It held as follows: "The expression "used by the assessee as factory ....... for the purpose of its business" used by the legislature in the aforesaid clause clearly shows that the building or part of such building which is to be excluded from the net wealth must be used by the assessee as factory for the purpose of its own business.... In the present case, there is no dispute that a portion of the building was let out to its sister concern M/s Dior International P. Ltd. which is a subsidiary company of the assessee at rent of Rs. 20,000/- p.m. Further, the AO has given a finding that it was M/s Dior International P. Ltd. which had installed the machinery for the purpose of its own business of manufacturing of readymade garments. This factual aspect is not controverted by the assessee. The Hon'ble Bombay High Court in the case of Phalton Sugar Works, 208 ITR 989 has held that the business of the subsidiary company cannot be considered as business of parent company. In the eye of law, both are independent entities. No doubt, M/s Dior International P. Ltd. was manufacturing the garments for the assessee but it wa....
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.... only by Section 40 of the Finance Act, 1983 w.e.f. the assessment year 1984-1985. The object according to learned counsel was to tax non-productive assets and it is clear that on facts according to learned counsel the present is a case of a productive asset as part of the building was used "for the purpose of the assessee's business". Further, learned counsel stated that not only must the object of the section be viewed to arrive at the true interpretation of Section 40 but equally this being a commercial transaction it must be looked at commercially and if looked at commercially it is clear that the assessee really undertakes various processes under the same roof by itself and by a sister concern, both being under the same management and therefore, the asset, namely, the building, is used by the assessee commercially speaking for the purpose of the assessee's own business. Mr. Guru Krishan Kumar, learned Senior counsel on behalf of the respondent drew our attention to the assessment order, the Commissioner of Income Tax (Appeals) order and the Tribunal order referred to hereinabove and argued that it was very difficult to pierce the corporate veil in a case like the pr....
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....n is concerned. Shri Sabharwal cited a judgment of this Court reported in 53 ITR 140 (SC) in the case of Commissioner of Income Tax, Kerala v. Malayalam Plantations Ltd., and brought to our notice a passage at page 150 which reads as follows:- "The aforesaid discussion leads to the following result: the expression "for the purpose of the business" is wider in scope than the expression "for the purpose of earning profits". Its range is wide: it may take in not only the day to day running of a business but also the rationalization of its administration and modernization of its machinery; it may include measures for the preservation of the business and for the protection of its assets and property from expropriation, coercive process or assertion of hostile title; it may also comprehend payment of statutory dues and taxes imposed as a pre-condition to commence or for carrying on a business; it may comprehend many other acts incidental to the carrying on of a business. However wide the meaning of the expression may be, its limits are implicit in it. The purpose shall be for the purpose of the business, that is to say the expenditure incurred shall be for the carrying on of the....