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TMI Blog1981 (3) TMI 269X X X X Extracts X X X X X X X X Extracts X X X X ..... ntion. The ITO noticed that the assessee received a gift of a sewing machine in the previous year from a customer in Singapore. Receipts of such gifts from customers from abroad year after year according to the ITO, made the value of the gifts received incidental to its business and, therefore, formed part of its income by virtue of the provisions of section 10(3) of the Income-tax Act, 1961 (hereinafter referred) to as "the Act"). He, therefore, brought the sum of ₹ 5,000, the value of this machine, to tax as income, which the Commissioner (Appeals) had confirmed. The Commissioner (Appeals) felt that the value of the collar machine received by the assessee was not a pure and simple gift. For a gift, there must be the relationship between the donor and the donee and there must be love and affection and between a seller and a purchaser no such relationship could be in contemplation other than pure business relationship. There was a decision of the Tribunal in the assessee's own case for the earlier year treating the gift of the sewing machine received from Singapore as not a trading receipt. When that decision of the Tribunal was pressed into service before the C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... venue. Since the revenue had not been able to lead any evidence on this score, this amount could not be regarded as revenue receipt. He also placed reliance upon the order of the Tribunal for the view that the receipt of such machines free of cost could not be regarded as income of the assessee. He also drew support for this view from the decision of the Punjab and Haryana High Court in the case of Groz-Beckert Saboo Ltd. v. CIT [1972] 86 ITR 256 later affirmed by the Supreme Court in CIT v. Groz-Beckert Saboo Ltd. [1979] 116 ITR 125. Lastly, he submitted that it is not every receipt received by an assessee that becomes taxable under the Income-tax Act. In all cases in which a receipt is sought to be taxed as income, the burden lies upon the department to prove that it is within the taxing provision. Where, however, a receipt is in the nature of income, the burden of proving that it is not taxable because it falls within the exemption provided by the Act lies upon the assessee. Since the initial burden was on the revenue and since the revenue has not discharged that burden, the sum in question could not be brought to tax as income. For this proposition, he placed reliance upon a de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... narily be on capital account. If raw material which is used by an assessee in the course of its business is received free of cost, then perhaps a conclusion can be drawn that the value of the raw material was income. But even so, according to the decision of the Supreme Court in the case of CIT v. Groz-Beckert Saboo Ltd. (supra), it is difficult to say that it was income. That was a case where the assessee entered into collaboration with certain West German manufacturers for setting up a factory in India for the fabrication and manufacture of hosiery needles. The collaborators sent along with the machinery certain raw materials of the value of ₹ 44,448 and some semi-finished needles of the value of ₹ 30,000 both free of cost. The receipt of these goods was not entered by the assessee in its accounts immediately but later the assessee made entries in its accounts debiting the amount of ₹ 74,448 to the respective accounts and crediting the account called "capital reserve account". These goods were utilised by the assessee in the manufacture. The sale proceeds of the finished goods were credited to the trading account. The question was whether that cost of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lue of the machine on the date when it was put into business. If that cost was arrived at ₹ 7,000 there should be no objection to treat it as the cost and allow depreciation thereon. Therefore, allowing depreciation upon this asset by putting a value upon it would not militate against treating the asset as a capital asset. The fact that the assessee had received a similar machine in the previous year would not detract from the conclusion that the receipt of a machine would be on capital account. 4. As rightly pointed out on behalf of the assessee, there is nothing in the record to show that the supply of the machine free of cost by the foreign buyer was pursuant to an agreement either tacit or written. If, for example, there has been some under-invoicing of goods and to make up for the under-invoicing some machines were supplied, then the value of the machine so supplied could certainly be regarded as income because the value of the machines in such case takes the character of sale proceeds. That is not the case of the revenue at all. An assessee may receive machine without paying any value for it. The receipt of the machine may be in the course of the business. Still the va ..... X X X X Extracts X X X X X X X X Extracts X X X X
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