JUDGEMENT
F.C. Rustagi, Judicial Member -
(1.)THIS is an appeal, preferred by the assessee, pertaining to assessment year 1983-84, against the order of CIT (Appeals)-I, New Delhi. The three grounds raised are that, income from hiring of commercial assets is 'business income' and not income from 'other sources', as held by the two lower authorities and assessee's claim in respect of set off of unabsorbed losses of earlier years and unabsorbed depreciation brought forward from earlier years is admissible to be set off.
(2.)Briefly to state the facts the assessee is a private limited company. It was incorporated in December 1971 for carrying on the business of manufacture and sale of castings. The said business was carried on till 31-3-1980. However, w.e.f. 1-4-1980 the entire business assets were leased out on rent including the cars owned by the appellant company to a sister concern styled as M/s Indure (P.) Ltd. The claim of the assessee in respect of hire charges from, the commercial assets was that 'income from business' and against the same the assessee had also claimed set off of losses pertaining to earlier years and also unabsorbed depreciation coming from earlier years. The ITO not only held that income from hiring out of commercial assets to M/s Indure (P.) Ltd. as income from 'other sources', but rejected assessee's claim regarding set off of unabsorbed losses and depreciation coming from earlier years. The CIT (Appeals) confirmed the finding of the ITO in respect of all the three years.
Aggrieved by the said order of CIT (Appeals) the assessee has come before the Tribunal, raising three substantial grounds, disputing the finding of CIT (Appeals), who held the income from hiring charges as income from 'other sources' and also who did not hold the admissibility regarding set off of unabsorbed losses and depreciation. The learned counsel for the assessee while disputing the main finding given by the CIT (Appeals) regarding income from hiring charges as 'income from other sources', submitted that in case the said is held as 'income from business', than assessee's claim regarding set off of unabsorbed losses and unabsorbed depreciation from earlier years would be admissible in consequence. He submitted that right from the inception the assessee had been running the said concern till 31-3-1980, but as ill luck could have it, Shri D.R. Mehta, who was the managing director of the assessee company and was an expert of repute in metallurgy, resigned in 1980-81 due to cancer. He submitted that the vacuum created by Shri Mehta's departure could not be easily filled and despite search for a specialist, the assessee company could not find one. As the monthly rent of Rs. 2850. in addition to the expenditure on staff, who was looking after the plant and machinery and factory building, were the expenses, faced by the assessee company, the assessee company elected to hire out the said plant to M/s Indure (P.) Ltd. and M/s Desein (New Delhi) Pvt. Ltd., both respectively incorporated on 22-4-1970 and 15-12-1970. It was submitted by him that M/s Indure Pvt. Ltd. had been engaged in the manufacture and sale of ash handling plants for Thermal Power houses, whereas M/s Desein (New Delhi) Pvt. Ltd., owned by Shri N.P. Gupta and his uncle Shri Mohan Gupta with other members of their family had been engaged in the consultancy business for power houses. He submitted that it was only for a temporary period till the assessee company was in a position to resume its run, the commercial assets were rented out. He drew our attention to explanation submitted before the Commissioner of Income-tax under 263 proceedings for assessment year 1982-83, which finds place on assessee's compilation on pages 5 to 10. He drew our attention to page 12 a letter written by the assessee company on 15-3-1980 to M/s Indure Pvt. Ltd. regarding leasing out of the said commercial assets and also pointed out that the said letter was not only offer for lease, but it was duly accepted by Shri N.P. Gupta on behalf of M/s Indure Pvt. Ltd. He submitted that there was no lease-deed as such and whatever the terms of the lease could be seen from the said letter. He submitted that in the said letter it is mentioned that it was due to ill health of Shri D.R. Mehta that it was proposed to shift the factory from Faridabad at near places either at Sahibabad or in Delhi. It was also indicated therein, as pointed out by the learned counsel for the assessee that in the meantime till alternative arrangements were made to employ a reliable and competent production in charge, the assessee had agreed to lease the captioned assets to the lessee. From the said Setter he projected that no sooner the assessee was in a position to resume its manufacturing operations, the said lease will be terminated. He drew our attention towards the annexure in which each of the nine assets including motor vehicle were leased out for different monthly charges. He relied on a catena of decisions viz. CEPT v. Shri Lakshmi Silk Mills Ltd. [1951] 20 ITR 451 (SC), CIT v. National Mills Co. Ltd. (.19581 34 ITR 155 (Bom.), [1962] 46 ITR 181 (sic), CIT v. Varna Silk Mills (P.) Lid. [1978] 112 ITR 701 (Guj.), CIT v. Katihar Jute Mills (P.) Lid. [1.979] 116 ITR 781 (Cal.),Addl. CIT v. Rajindra Flour & Allied Industries (P.) Ltd. [1981] 123 ITR 402 (Delhi) and CIT v. Premchand Jute Mills Ltd. [1987)164 ITR 288 (Cal.) from which he specifically read from page 300 of the report. He submitted that all these cases support the contention of the assessee and read certain relevant paras from some of these cases, He submitted that cases relied upon by the CIT (Appeals) and the Income-tax Officer in their orders are such on which Revenue's reliance is misplaced, the learned D.R. on the other hand besides relying on the orders of the two lower authorities, relied on the decisions in New Savan Sugar & Our Refining Co. Ltd. v. CIT [1969] 74 ITR 7 (SC), CIT v. Super Fine Cables (P.) Ltd. [1985] 1.54 ITR 532 (Delhi) and Rajindrai Flour & Allied Industries (P.) Ltd.'s case (supra) in addition to the reliance placed by the Revenue on cases dealt with by the two lower authorities.
(3.)IN the rejoinder the learned counsel for the assessee pointed out that Rajindra Flour & Allied INdustries (P.) Ltd.'s case (supra) is a case which directly goes in favour of the assessee and New Savan Sugar & Gur Refining Co. Ltd. $ case (supra) stands considered in the said case. Regarding two disputes pertaining to set off of unabsorbed losses and unabsorbed depreciation pertaining to earlier years both of them agreed that in case the income from hire charges is held to be the income that of business, the same shall be admitted. The learned counsel for the assessee also submitted in the alternative that even if hire charges is considered to be income from 'other sources', he would be failing in his duty if he does not point out that one of the objects in the memorandum was even to hire out the commercial assets and as such the same becomes income from 'business' and even then assessee's claim regarding set off of losses pertaining to earlier years and unabsorbed depreciation has got to be allowed.
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