B.P. Saraf, J.
1. By this reference under Section 256(1) of the Income-tax Act, 1961, the Income-tax Appellate Tribunal has referred the following two questions of law to this court for opinion, both at the instance of the Revenue and the assessee ;
At the instance of like Revenue:
'(1) Whether, on the facts and in the circumstances of the case, the assessee is entitled to development rebate under Section 33(1)(b)(B)(i)(b) of the Income-tax Act, 1961, so that the orders under Section 263 of the Income-tax Act, 1961, passed by the Commissioner of Income-tax deserved to be cancelled ?
At the instance of the assessee :
(2) Whether, on the facts and in the circumstances of the case and in law, the Commissioner of Income-tax Bombay City VI, Bombay, was right in exercising the jurisdiction under Section 263 in revising the order of the Income-tax Officer ?'
This reference pertains to the assessment years 1973-74 and 1974-75. The assessee is a limited company engaged in the business of selling and/ or leasing computers. For the assessment years 1973-74 and 1974-75, the assessee claimed development rebate at the rate of 25 per cent, on computer systems hired out to third parties. The Income-tax Officer did not allow any development rebate on the ground that the computer systems were mere office appliances and, as such, the assessee was not entitled to any development rebate thereon. On appeal, the Commissioner of Income-tax (Appeals), relying on the decision of this court in CIT v. International Computers Ltd. : [1981]131ITR1(Bom) , held that the computer systems were not office appliances and were entitled to development rebate. The Commissioner of Income-tax (Appeals), therefore, directed the Income-tax Officer to allow development rebate admissible under the law. The Income-tax Officer allowed development rebate at the rate of 25 per cent.
2. The Commissioner of Income-tax, on perusal of the above order of the Income-tax Officer, found that the development rebate was allowed erroneously at the rate of 25 per cent. According to him, the assessee was entitled to development rebate, only at the rate of 15 per cent. The Commissioner of Income-tax was of the opinion that the Income-tax Officer had not applied his mind to the question of the rate of development rebate applicable to computer system in this case. He, therefore, initiated proceedings for suo motu revision and after hearing the assessee, directed the Income-tax Officer to modify his order by allowing development rebate at 15 per cent, as against 25 per cent, allowed by him. This order was passed by the Commissioner in view of his finding that the system hired out by the assessee-company was not used by it for the purpose of production, etc., of any one or more of the Articles or things specified in the Fifth Schedule. The assessee-company appealed to the Income-tax Appellate Tribunal (the 'Tribunal') against the order of the Commissioner of Income-tax. The Tribunal reversed the order of the Commissioner. The Tribunal held that the user by the hirer amounted to user by the assessee-owner. The Tribunal also recorded that there was no dispute that the computers under consideration were in fact used by the hirer for the production of the articles specified in the Fifth Schedule. Aggrieved by the above order, the Revenue is before us.
3. We have heard learned counsel for the parties. Two questions arise for consideration. First, whether the assessee who is the owner of the computers and engaged in the business of leasing computers can claim development rebate under Section 33 of the Act in respect of the computers leased out by it. So far as that part is concerned, the controversy now stands concluded by the decision of the Supreme Court in CIT v. Shaan Finance (P.) Ltd. : [1998]231ITR308(SC) , wherein it has been held that where the business of the assessee consists of hiring out machinery and/or where the income derived by the assessee from the hiring of such machinery is business income, the assessee must be considered as having used the machinery for the purpose of its business. In view of this decision of the Supreme Court, the assessee is entitled to development rebate on the computer system hired out by it in this case.
4. So far as the rate of development rebate is concerned, in view of the statement of the Tribunal in its order that there was no dispute that the assets under consideration were in fact used for production of the articles specified in the Fifth Schedule, there can be no controversy about the fact that the assessee was entitled to development rebate at the higher rate of 25 per cent.
5. Having regard to the above discussion, question No. 1 is answered in the negative, i.e., in favour of the assessee and against the Revenue. Having regard to the above answer to question No. 1, question No. 2 has become academic and the same need not be answered. Question No. 2 is, therefore, returned unanswered.
6. The reference is disposed of accordingly With no order as to costs.