TaxTMI 
TaxTMI 
1996 (2) TMI 37
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....siness?" The assessee was a firm having a factory for bleaching and dyeing. In the previous year ended October 20, 1977, corresponding to the assessment year 1978-79, the assessee purchased certain machinery for its business. But the machinery was in fact let out to another firm under a deed dated February 24, 1977, on a monthly rent of Rs. 4,000 for a mutually agreed period with an option for either party to terminate it with six months notice. The assessee claimed investment allowance under section 32A of the Income-tax Act, 1961 (hereinafter referred to as "the Act"), in respect of cost of machinery. The Income-tax Officer disallowed the claim. But, the Commissioner of Income-tax (Appeals) concluded that the income derived under lease was also income from business and, therefore, the assessee was entitled to investment allowance. Aggrieved, the Department filed appeal before the Appellate Tribunal. The Appellate Tribunal found that there was no indication of an intention to permanently part with the machine or go out of business. Therefore, the Appellate Tribunal found that the assessee was only exploiting the machinery as commercial assets and the income derived from the lea....
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....h the newly purchased machinery was let out for a temporary purpose, learned counsel for the assessee relied upon the decision in CIT v. First Leasing Co. of India Ltd. [1995] 216 ITR 455 (Mad) ; CIT v. Shaan Finance (P.) Ltd. [1993] 199 ITR 409 (Kar) and in Ajodhya Prasad Tara Chand Khekra v. CIT [1967] 66 ITR 576 (All). According to learned counsel for the assessee when the machinery cannot be exploited or used for a particular kind of business, and if the assessee used or exploited the machinery by letting out the same for a temporary period then also it should be considered as use of the machinery for the business of its own. Finally, it was submitted that the assessee was only exploiting the machinery as commercial assets and the income derived under the lease did not cease to be part of the income from business carried on by the assessee. For these reasons, learned counsel submitted that there is no infirmity in the order passed by the Tribunal in granting investment allowance under section 32A of the Act. We have heard learned senior standing counsel appearing for the Department as well as learned counsel appearing for the assessee. The point for consideration is whether ....
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....k Mills Ltd. [1951] 20 ITR 451, the Supreme Court held as under : "If a commercial asset is not capable of being used as such, then its being let out to others does not result in an income which is the income of the business, but it cannot be said that an asset which was acquired and used for the purpose of the business ceased to be a commercial asset of that business as soon as it was temporarily put out of use or let out to another person for use in his business or trade. The yield of income by a commercial asset is the profit of the business irrespective of the manner in which that asset is exploited by the owner of the business. He is entitled to exploit it to his best advantage and he may do so either by using it himself personally or by letting it out to somebody else. The view that in order to constitute business income the commercial asset must at the time it was let out be in a condition to be used as a commercial asset by the assessee himself is not correct." According to learned counsel for the assessee, since the income earned by way of letting out the machinery temporarily could be assessed as income from business and the business done by the lessee should be con....
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....ng in the present case, the assessee was doing business in bleaching and dyeing. The business of the assessee was not hiring and letting out machinery as in the facts arising in the abovesaid decisions cited supra. Therefore, these decisions are distinguishable on facts. In Watkins Mayor (Agrico) P. Ltd. v. CIT [1979] 117 ITR 202, the Punjab and Haryana High Court held as under : ". . . . that the mere fact that there was a clause in the memorandum of association of the assessee-company that the company could hire out the machinery did not mean that it actually carried on business of letting on hire the machinery or that every machinery purchased by the assessee-company was for the purpose of hiring out the same. The intention of the assessee-company at the time of purchase of the machinery was the basic important thing and the intention was to be known from the circumstances of each case prevailing at the relevant time. In the instant case, the dominant intention of the assessee-company at the time of purchasing the machinery was to use it for manufacturing discs for tractors and not to let it on hire, for the machinery was purchased for giving practical shape to the plan of....