Judgment:
"The learned CIT(A) has erred in law and on facts in holding that rental income on hiring of the machinery is business income and, therefore, (sic), for depreciation and investment allowance." 2. The assessee, an individual, derives income from her 50 per cent share in the partnership firm styled as M/s Surya Corporation, her proprietary concern and from other sources like interest, etc. During the year under appeal, she purchased a cutter machine for Rs. 4,17,600 on 21st March, 1989, and rented it out to M/s Pramukh Steel Co. on the same date. In this month, for the remaining period of 10 days rent of Rs. 3,903 was earned. This income was declared as income under the head "business". The assessee claimed depreciation and investment allowance on the said machine. The AO was of the view that this transaction had taken place for the first time and also at the end of the year.
According to him it was not the regular business of the assessee to purchase machinery and let it out. The AO, therefore, held the rent of Rs. 3,903 as income from other sources and disallowed the claim for investment allowance. The claim for depreciation was however, carried forward to the next year as there was no positive income in this year, i.e. AO allowed the depreciation on the said machine.
3. On appeal, the CIT(A) held that the rental income of Rs. 3,903 earned by the assessee on letting out the machine was income from 'business'. He observed that it was clear from the records that the intention of the assessee for purchasing this machine was to let it out and not for her own use. There was intention to earn rental income and it cannot be said as income from other sources but has to be assessed under the head "income from business". He accordingly directed the AO to allow the claim of investment allowance.
4. Shri Ramesh Chander, the learned Departmental Representative submitted that the cutter machine was purchased by the assessee on 21st March, 1989, i.e., at the fag end of the financial year. It was rented out to M/s Pramukh Steel Co. and accordingly the AO was justified in treating rental income as income from other sources and not allowing the claim of the assessee with regard to depreciation and investment allowance. In support of his contentions he relied upon the judgment of the Delhi High Court in the case of CIT vs. Northern India Iron & Steel Co. Ltd. (1995) 211 ITR 370 (Del).
5. Shri S. N. Soparkar, the learned counsel for the assessee, strongly supported the order of the CIT(A). He submitted that the cutter machine was purchased in the course of business of letting out the machinery and the purchase was not in doubt. In the subsequent year also it continued and there was no intention to let out only for this year. It was purchased for commercial exploitation and accordingly the rental income has rightly been treated by the CIT(A) as income from business.
He further submitted that the AO himself had allowed depreciation and that implied that he had accepted the machinery as commercial asset. In support of his contentions, he relied upon the following decisions : He further submitted that the reliance placed by the Departmental Representative on the decision in the case of Northern India Iron & Steel Co. Ltd. (supra) was of no assistance to the Revenue as the facts of that case are distinguishable from the facts of the case before the Tribunal. In the case before the Delhi High Court the business had been closed and the plant and machinery had been leased out temporarily whereas in the case of the assessee the machinery was purchased with intention of letting it out for earning business income.
6. We have considered the rival submissions and perused the facts on record. The machine viz., cutter machine was a commercial asset and had been rented out for the purpose of better commercial exploitation. The intention of the assessee was not to part with the asset but to rent it out for commercial exploitation. In such circumstances it could not be said that no business was carried on or that the income derived by the assessee from letting out the machinery was only rental income. In our considered view the issue stands squarely covered in favour of the assessee and against the Revenue by the judgment of the jurisdictional High Court in the case of Vania Silk Mills (supra) where the Hon'ble High Court applying the settled legal position in CEPT vs. Shri Lakshmi Silk Mills Ltd. (1951) 20 ITR 451 (SC) and CIT vs. National Mills Co.
Ltd. (1958) 34 ITR 155 (Bom) held as under : "The yield of income by a commercial asset is the profit of the business irrespective of the manner in which the asset is exploited by the owner of the business. He is entitled to exploit it to his best advantage and he may do so either by using it himself personally or by letting it out to somebody else." 7. In the cross-objection, the first grievance of the assessee is that the CIT(A) is not justified in upholding the addition of Rs. 5,880 for the alleged unexplained investment in silver ornaments. At the time of search at the residence of the assessee silver ornaments weighing 980 gms. were found and the assessee explained that these belonged to her children and were received on various occasions like birth, mundan, etc. This explanation was not accepted by the AO and he accordingly made an addition of Rs. 5,880 as income from undisclosed sources.
7.1. On appeal, the CIT(A) confirmed the addition holding that regarding the ownership of the silver ornaments by the children there was no documentary evidence.
7.2. Shri S. N. Soparkar, the learned counsel for the assessee submitted that the authorities below failed to appreciate that the petty silver ornaments weighing 980 grams found during the course of search belonged to various children of the assessee and were received by them on social occasions like birth, mundan, etc. He further submitted that having regard to the status of the assessee there was no justification in rejecting such explanation on the mere ground that no evidence had been brought on record. The learned Departmental Representative, on the other hand, relied upon the orders of the authorities below.
7.3. We have considered the rival submissions and perused the facts on record. It is customary in Hindu families that on occasions like birth, mundan, etc. and other auspicious occasions like Diwali, etc. small gifts of gold and silver ornaments are given by the relatives to children. In our view the authorities below failed to appreciate this age-old practice in traditional Hindu families and that the petty silver ornaments weighing 980 gms found during the course of search belonged to various children of the assessee and were received by them on social occasions like birth, mundan, etc. Having regard to the status of the assessee (she was assessed at an income of Rs. 6,14,000 during the year under appeal and has been an assessee assessed to income-tax and wealth-tax since long) we hold that there was no justification in rejecting the explanation of the assessee. We accordingly delete the addition of Rs. 5,880.
8. The next objection relates to upholding by the CIT(A) of the part of addition of Rs. 6,500 out of addition of Rs. 18,500 for the alleged low household expenses. During the course of search the assessee stated that her monthly household expenses were of Rs. 4,000 to Rs. 5,000. The AO accordingly estimated the expenditure of Rs. 60,000 and considering the withdrawals of Rs. 18,500 shown by the assessee the balance of Rs. 41,500 was added towards household expenses.
8.1. On appeal, the CIT(A) considering the size of the family of the assessee (she had only two children) estimated the household expenditure at Rs. 48,000. He thus gave a part relief of Rs. 12,000.
8.2. Shri S. N. Soparkar, the learned counsel for the assessee submitted that the CIT(A) ought to have appreciated that the AO had not brought any evidence to establish that the withdrawals for household expenses were inadequate nor any instance of suppression of the expenditure had been brought on record by the AO and, therefore, there was no justification for making the addition as held in the case of Rajkumar Jain vs. Asstt. CIT. The learned Departmental Representative relied upon the orders of the authorities below.
8.3. We have considered the rival submissions and perused the facts on record. Merely because the assessee during the course of search gave a statement that her household expenses were Rs. 4,000 to Rs. 5,000 is no ground for estimating the household expenses at Rs. 60,000 for the year. What she stated was that the expenditure was on approximate basis. It is an admitted fact that the assessee had a small family of two children and keeping in view the small size of the family, we hold that there is no justification for the impugned addition of Rs. 6,500.
The same is deleted.
9. The last objection raised by the assessee is that the CIT(A) erred in not adjudicating upon the ground regarding the levy of interest under s. 234A, 234B, & 234C when the assessee objected to the very levy of interest. This ground is consequential in nature. The AO is directed to levy interest, if any, after giving appeal effect to this order.
10. In the result, the Revenue's appeal is dismissed. The cross-objection by the assessee is allowed in part.