1981 (3) TMI 269 - AT - Income Tax

Summary

Issues Involved:
1. Taxability of the collar turning machine received as a gift.
2. Classification of the machine as a capital or revenue receipt.
3. Burden of proof regarding the nature of the receipt.

Issue-wise Detailed Analysis:

1. Taxability of the Collar Turning Machine Received as a Gift:
The assessee, a private limited company engaged in the export of readymade garments, received a collar turning machine valued at Rs. 5,000 from an overseas customer. The assessee argued that the machine was a gift received in appreciation of its services and should not be taxed as income. The Income Tax Officer (ITO) and the Commissioner (Appeals) treated the value of the machine as income under section 10(3) of the Income-tax Act, 1961, citing the repetitive nature of such gifts from customers. The Tribunal, however, disagreed, stating that the circumstances under which the machine was received indicated it was not a trading receipt but rather a capital asset received without any contemplation of it being income.

2. Classification of the Machine as a Capital or Revenue Receipt:
The assessee contended that the machine was received on capital account, not revenue account, and thus should not be taxed as income. The Tribunal supported this view, referencing the Supreme Court decision in CIT v. Groz-Beckert Saboo Ltd., which established that assets received free of cost could be treated as capital assets. The Tribunal emphasized that the machine was intended to enhance business prospects and was not part of any revenue transaction. The repeated receipt of such gifts did not alter their classification as capital receipts.

3. Burden of Proof Regarding the Nature of the Receipt:
The assessee's counsel argued that the burden of proving the receipt as taxable income lay with the revenue. The Tribunal agreed, noting that the revenue failed to provide evidence that the machine was received as part of a business transaction or under any agreement. The Tribunal reiterated that unless it was shown that the machine was received as part of an under-invoicing or similar arrangement, its value could not be treated as income. The Tribunal concluded that the Commissioner (Appeals) erred in treating the machine as a business receipt merely due to the repetition of such gifts.

Conclusion:
The Tribunal held that the value of the collar turning machine received by the assessee was a capital receipt and not taxable as income. The appeal was partly allowed, reversing the decision of the Commissioner (Appeals).