1990 (10) TMI 135 - AT - Income Tax

Summary

Issues Involved:
1. Whether the leasing out of a computer by the assessee constitutes carrying on a business.
2. Whether the income from leasing out the computer should be assessed under the head 'business' or 'other sources'.
3. Whether the assessee is entitled to claim investment allowance under section 32A of the Income-tax Act for the leased computer.

Detailed Analysis:

1. Leasing Out of Computer as Business:
The primary issue is whether the leasing out of a computer by the assessee constitutes carrying on a business. The Commissioner of Income-tax opined that leasing out a computer does not amount to carrying on business, and thus, the income derived should be assessed under 'other sources'. However, the Tribunal disagreed, stating, "The leasing out of the Computer is a business carried on by the assessee." The Tribunal noted that there is no legal requirement for more than one computer or customer to constitute a business. The Tribunal emphasized that a person can commercially exploit a computer by using it themselves or leasing it out. Thus, leasing out the computer constitutes carrying on a business.

2. Assessment of Income:
The second issue is whether the income from leasing out the computer should be assessed under 'business' or 'other sources'. The Tribunal held that the income from leasing out the computer should be assessed under 'business'. The Tribunal stated, "It is, therefore, in our opinion, not proper and correct to say that the income from leasing out of the Computer should be assessed only under the head 'other sources'." The Tribunal further noted that the leasing out of the computer was the business of the assessee, and the machinery was wholly used for the purpose of this business.

3. Entitlement to Investment Allowance:
The third issue is whether the assessee is entitled to claim investment allowance under section 32A of the Income-tax Act for the leased computer. The Commissioner of Income-tax argued that even if leasing out the computer is considered a business, the investment allowance should not be allowed because the computer was not used by the assessee itself but leased out. The Tribunal, however, disagreed, stating, "All that section 32A states is that the machinery must be used wholly by the assessee in the business carried on by it." The Tribunal referenced the decision in the case of First Leasing Co. of India Ltd., which held that leasing out machinery amounts to carrying on business and fulfills the requirements of section 32A. The Tribunal concluded that the assessee's claim for investment allowance was permissible and legally allowed by the Income-tax Officer.

Additional Considerations:
The Tribunal also addressed the argument based on section 32A(2)(b)(iii), which requires that the machinery must be used in an industrial undertaking for the purpose of business of production of any article or thing. The Departmental Representative argued that M/s Tata Consultancy Services is not an industrial undertaking. The Tribunal rejected this argument, noting that there was no evidence to show that M/s Tata Consultancy Services was not an industrial undertaking and that the proceedings had gone on the basis that the requirement was satisfied.

Furthermore, the Tribunal referenced the Supreme Court decision in Sultan Bros. (P.) Ltd. v. CIT, which laid down tests to determine whether letting out a building amounts to carrying on a business. The Tribunal distinguished this case, noting that the Supreme Court case involved a building fitted with furniture and fixtures for running a hotel, whereas the present case involved leasing out a computer, which is a commercial asset used for commercial exploitation.

Conclusion:
The Tribunal concluded that the order passed by the Income-tax Officer was neither erroneous nor prejudicial to the interests of the revenue. The Tribunal allowed the assessee's appeal and set aside the order passed by the Commissioner of Income-tax.