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TMI Blog1986 (1) TMI 176X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the assessee in section 264 proceedings before the Commissioner. For the assessment years 1978-79 to 1980-81, the ITO, in the course of the original proceedings, was satisfied that the assessee was entitled to investment allowance in respect of certain machineries installed by him. He had granted such investment allowances for these three years. The investment allowance for the assessment year 1978-79 was Rs. 6,65,290, for the year 1979-80 was Rs. 10,44,159 and for the year 1980-81 was Rs. 3,91,943. 3. Subsequent to these assessments, the ITO came to know that the assessee had entered into a lease agreement by which these machineries had been leased out to certain parties. We may give the details of the lease at this stage. The lessee is Agarwal Industries and lease deed is dated 12-1-1978. As per the lease deed, the lessor, i.e., the assessee gave on lease all the machinery, plant and manufacturing unit for a period of five years from 1-4-1978 on an annual rent of Rs. 3 lakhs. The reasons for the lease are given in the preamble which says that due to the indifference, lack of interest, withdrawal of funds, etc., by some of the partners of the lessor firm, the business of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n that what was granted was not a lease but a licence to use the machineries. Apart from these reasons, he gave another reason why there was no need to withdraw the rebate allowed. He pointed out that specific provisions are in the statute in section 155(4A) and section 155(5A). Both these sections refer to section 154 of the Act for withdrawing the allowances granted. He then pointed out that it was well settled that anything which is debatable cannot come under the purview of section 154 and, as a consequence, section 155(4A) and section 155(5A). He, therefore, held that there was no case for withdrawal of the rebates. 6. The department has come on appeal. Shri Padmanabhan for the department submitted that 'lease' is also a mode of transfer of property recognised under the Transfer of Property Act, 1882. He then submitted that the definition of the word 'transfer' in section 2(47) of the 1961 Act will also be applicable in determining whether a transfer has taken place for the purpose of withdrawal of development rebate and investment allowance. He pointed out that the Supreme Court had an occasion to consider the decision of the Karnataka High Court in the case of Addl. CIT v. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ferred' found in section 34. In that case, the question was whether on a mortgage being made on a property there was a transfer. Under the Transfer of Property Act mortgage is also a transfer. However, the Andhra Pradesh High Court has held that on mortgage there is no question of any transfer for the purpose of capital gains. He then submitted that the entire interest in a property should be transferred in order to satisfy the conditions for withdrawal of development rebate. He then submitted that immovable properties were also involved in this case and since there was no registered document, there could be no question of transfer of those properties. 8. Shri Swamy then pointed out that the lease is only for a period of five years. It is a temporary period. All the major repairs have to be done by the assessee. All replacements have to be done by them. The insurance has also to be affected by the assessee. Thus, for all legal purposes, the assessee continues to be the owner. Depreciation has also been allowed on asset. In the partners' hands their interest is shown for wealth-tax purposes. Taking all these things into account, he submitted that what was granted was only a licenc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the Commissioner is quite in order. It is well settled by the decision of the Supreme Court in the case of CIT v. McMillan Co. [1958] 33 ITR 182, that the powers of the appellate authority are coterminous with the powers of the ITO. He can do what the ITO can do and he can also do what the ITO failed to do. Now, if the ITO, having knowledge that the machineries were transferred had yet granted development rebate and investment allowance, it is an omission and that omission can be made good by the appellate authority. All that the ITO has done here is to bring to his notice that a transfer has taken place. So, the first appellate authority, vested with the powers of the ITO while making the assessment, can very well enhance the assessment by withdrawing the rebates allowed. 11. While the appellate authority takes any action in the course of appeal proceedings exercising the powers vested in him which include the powers of the ITO, it is well settled that the time limits given under section 153 of the Act will not be applicable. It is now well settled by the decision of the Supreme Court in the case of CIT v. National Taj Traders [1980] 121 ITR 535. The Supreme Court therein w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pe of properties are transferred. 15. The schedule to the lease deed of 12-1-1978 describes the properties as under: "All those manufacturing complete units in working order situated in the premises No. 1-8-576 and 576/1 such as (1) Oil expeller section, (2) Refinery Vanaspati Section, (3) Solvent Extraction Plant, (4) Industrial Oils Refining and Bardening Section, and (5) Workshop and all other necessary accessories, such as Boilers, etc. Details of the Machinery have been set out in a separate statement and signed by both the parties." It will be seen from the description that the agreement is more about the machineries, i.e., oil expeller, refining and vanaspati and solvent extraction plant, and it also refers to the premises in which these machineries are situated more as a requirement of identification. The premises mentioned are certain immovable property. The machineries mentioned are movable properties. We may mention here that no case had been made out that these machineries are embedded in the earth. Therefore, we have to consider them only as movable properties. 16. No doubt, the agreement dated 12-1-1978 is styled as 'Lease deed'. It is now well settled that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sfer is involved. 20. We will now take up the question of the machineries which are movable properties. As we have pointed out above, neither the Transfer of Property Act and the provisions regarding lease, nor the Indian Easements Act and the provisions regarding licence, will be applicable to movable property. What would apply appear to be the provisions regarding bailment. The assessee has let out their machineries on hire. Hiring of machineries for a consideration is accepted to be a type of bailment. As per the classification of bailment given in Halsbury's Laws of England, it would come under Locatioet conductio where chattels or services are hired for reward. In this case, the machineries are hired for a rent fixed in the terms. The difference between bailment and any other transfer is too well known to be stated here. In all other transfers, there would be no provision regarding return of the goods transferred. A bailment by contrast requires return of the goods in the original condition after the bailment period is over. In this case, the hire is only for a period of five years, and so it is clearly a bailment for reward or hire charge. 21. The next question would be w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in a narrower fashion for the purpose of the Act. But, as pointed out by Shri Swamy, the Andhra Pradesh High Court had held that a mortgage is not a transfer for this purpose, in National Taj Traders' case. It is a transfer for the purpose of the Transfer of Property Act but would not amount to a transfer for the purpose of the 1961 Act. Therefore. it appears that the expressions cover different fields in the two enactments. 23. He had relied on the decision of the Punjab and Haryana High Court in Watkins Mayor (Agrico) (P.) Ltd.'s case wherein the High Court has upheld the withdrawal of development rebate. In that case, the assessee had purchased certain machineries but could not instal them and put them to business owing to paucity of space. It was let out on hire to another company. The High Court found that the letting out of the machineries was not part of the business activity. Since there was no business activity, they held that no development rebate is to be granted. In this case, the main question was whether where machineries were let out and never installed for the purpose of the assessee's business, it could be considered to be eligible for development rebate. It w ..... X X X X Extracts X X X X X X X X Extracts X X X X
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