1986 (1) TMI 176 - AT - Income Tax

Summary

Issues Involved:
1. Withdrawal of development rebate and investment allowance.
2. Interpretation of 'transfer' under the Income-tax Act.
3. Lease vs. license.
4. Limitation period for withdrawal of allowances.
5. Weighted deduction under section 35B.

Detailed Analysis:

1. Withdrawal of Development Rebate and Investment Allowance:
The core issue in these appeals was whether the development rebate and investment allowance granted to the assessee for the assessment years 1974-75 and 1978-79 to 1980-81 were properly withdrawn. The Income Tax Officer (ITO) had initially granted these allowances but later withdrew them upon discovering that the assessee had leased out the machineries.

2. Interpretation of 'Transfer' under the Income-tax Act:
The ITO argued that leasing out the machineries constituted a 'transfer' under section 34(3)(b) and section 32A(4) of the Income-tax Act, warranting the withdrawal of the allowances. The Commissioner (Appeals) disagreed, stating that the assessee remained the owner of the machineries and continued to pay insurance premiums and claim depreciation. The Commissioner (Appeals) interpreted 'sold or otherwise transferred' based on the principle of ejusdem generis, concluding that the lease did not amount to a transfer.

3. Lease vs. License:
The Commissioner (Appeals) accepted the assessee's argument that the agreement was a license to use the machineries, not a lease. The Tribunal examined whether the agreement constituted a lease or a license. It concluded that the machineries were movable properties and the agreement was a form of bailment rather than a lease. The Tribunal noted that the term 'lease' in the Transfer of Property Act pertains to immovable property, and since the machineries were not embedded in the earth, the agreement was more akin to a bailment.

4. Limitation Period for Withdrawal of Allowances:
The assessee argued that the withdrawal of the development rebate and investment allowance was barred by limitation, as it should have been done within four years from the end of the previous year in which the machinery was transferred. The Tribunal, however, found that the appellate authority's powers are coterminous with those of the ITO and that time limits under section 153 do not apply to the Commissioner (Appeals) when enhancing assessments. Therefore, the contention of limitation was without merit.

5. Weighted Deduction under Section 35B:
The Commissioner (Appeals) had directed the ITO to allow weighted deduction under section 35B at 90% of the commission paid to certain agents and the entire amount paid to Export Credit Corporation. The department contested this, but the Tribunal upheld the Commissioner (Appeals)'s direction, referencing its earlier decision in the assessee's case for previous years and noting that the agents provided valuable services such as market information and canvassing orders, which fell under sub-clauses (i) or (ii) of section 35B(1)(b).

Conclusion:
The Tribunal dismissed the department's appeals, holding that the development rebate and investment allowance should not be withdrawn and upholding the weighted deduction under section 35B as directed by the Commissioner (Appeals). The Tribunal emphasized that the agreement between the assessee and the lessee was a bailment, not a transfer, and therefore did not warrant the withdrawal of the allowances.