TMI Blog2005 (2) TMI 762X X X X Extracts X X X X X X X X Extracts X X X X ..... y Housing Ltd. and Alacrity Electronics Ltd. According to the learned representative, the assessee-company entered into manpower transfer agreement to depute experienced service engineers to Alacrity Electronics Ltd. During deputation period, M/s. Alacrity Electronics Ltd. would pay the salary to the service engineers. Therefore, the service engineers, who were not deputed, continued to remain with the assessee-company and the salary and other emoluments were paid by the assessee-company. According to the learned representative, as per the agreement, Alacrity Foundations (P.) Ltd., the assessee-company agreed to train and depute all future manpower required by Alacrity Electronics Ltd. Therefore, according to the learned representative, expenses were incurred by the assessee for payment of salary and LTA to the said service engineers in a long-term perspective from the point of view of the assessee s business. According to the learned representative, there is no justification in disallowing the payment of salary on the ground that the services of all the employees were not fully utilized by the assessee. According to the learned representative, the salary was paid since the employe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ectronics Division during the year under consideration. Therefore, according to the learned D.R. any further payment of salary and leave travel allowances to service engineers and other employees after the transfer of Electronics Division to the newly formed company cannot be justified. According to the learned D.R. the payment made by the assessee towards salary in respect of the employees working in General Administration, Finance, Accounts have not been disallowed. Therefore, according to the learned D.R. when the Electronics Division has been completely transferred together with all assets and liabilities and the newly formed company confirmed that it took all the personnel working in Electronics Division on deputation, there is no necessity much less commercial expediency for the assessee to pay the salary and leave travel allowance in respect of employees who are already taken on deputation to M/s. Alacrity Electronics Ltd. According to the learned D.R., the agreement for transfer of assets and liabilities to M/s. Alacrity Electronics Ltd. stipulates that once the personnel ceases to be on the pay roll of the assessee, he automatically ceases to be an employee of Alacrity Ele ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... siness of production, marketing, sales, service, accounting, belonging to the Electronics Division, as also the personnel at the various branches taken over, and those manning ancillary services like word processing, delivery of material and the like, numbering in all 130 as on 1-11-1992. (2) During the currency of this agreement, AFPL agrees to train and depute all future manpower required by AEL, wherefor the latter agrees to given reasonable Notice, and, during said period, AEL agrees, not to recruit/engage any personnel, otherwise than, on deputation from AFPL, and also, not to alter, the terms/conditions of service of such personnel, directly/indirectly. It is clearly understood that any person ceasing to be an employee of AFPL for any reason whatsoever shall forthwith cease to work for AEL as well. (3) AEL undertakes to directly pay at its own cost the salaries/benefits/perquisites of such personnel and treat the same as part of its operational expenditure, and agrees to the solely responsible in meeting all concomitant legal/contractual obligations, payment/s, including contributions to Provident/Superannuation/Gratuity Funds, Income-tax Deduction at Source." 5. Ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allowances in respect of personnel who were meant for M/s. Alacrity Electronics Ltd. 6. We have also carefully gone through the judgment of the Madras High Court in the case of Associated Electrical Agencies ( supra ). In the case before the Madras High Court, the assessee was agent of television manufacturing company. The assessee agreed to bear a part of the expenditure which was required to be incurred to promote the sale of the product with a view to expand the market and the sale. In those circumstances, the High Court held that the money agreed to be paid by the assessee to the manufacturing company were incurred with a view to enlarge the market and improve the sales. Expenditure incurred by the manufacturing company resulted in benefit to the assessee as they were selling agent of the company. In the case on our hand, the facts are entirely on different footing. Once the Electronics Division was transferred to the newly promoted company, there is no further business relationship except as a promoter of the new company. Though the assessee-company has to recruit the required manpower and train them, M/s. Alacrity Electronics Ltd. has to reimburse the expenditure and i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see allowed M/s. Alacrity Housing Ltd. to use the machinery for their business. According to the learned representative, the lower authorities disallowed the claim of the assessee on the ground that no matching income was shown by the assessee in respect of machinery leased out to M/s. Alacrity Housing Ltd. According to the learned representative for the assessee, as per clause 2 of the agreement, the consideration for lease of machinery was included in the total payment of Rs. 320 lakhs made when the Housing Division was transferred to Alacrity Housing Ltd. This receipt of Rs. 320 lakhs was treated as revenue receipt. Therefore, it is not correct to say that the assessee has not received any rentals for allowing to use the machinery by M/s. Alacrity Housing Ltd. According to the learned representative, the rentals for the machinery was included in the transfer fee which was already received by the assessee. The learned representative further invited our attention section 32 of the Income-tax Act and submitted that for the purpose of grant of depreciation the assessee has to satisfy two conditions (1) the assessee should be the owner of the machinery; (2) the machinery should be us ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or transfer of business was considered as revenue receipt or capital receipt. The material available on record does not show how the abovesaid receipt was treated by the revenue. The Assessing Officer though observed that the amount was claimed as capital receipt by the assessee, he has not made any observation how it was treated by the revenue after considering the claim of the assessee. Furthermore, we have to find out how the machinery was allowed to be used by M/s. Alacrity Housing Ltd. In other words, we have to find out whether leasing out the machinery is a part of the business of the assessee. Therefore, in our view, the Assessing Officer has to reconsider the entire material available on record afresh and record a specific finding with regard to classification of receipt of Rs. 320 lakhs (whether capital or revenue) and whether the lease rental for the plant and machinery was included in the abovesaid sum. It is also necessary to find out whether the business of the assessee includes leasing out of plant and machinery. 11. In view of the above, we set aside the order of the lower authorities and remand back the issue to the file of the Assessing Officer. The Assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bited a sum of Rs. 13,24,424 in the profit loss account towards obsolete inventory and long pending debts written off. This was disallowed by the Assessing Officer while making a prima facie adjustment since the debt was already transferred to M/s. Alacrity Electronics Ltd. The learned D.R. further submitted that under Schedule 17 of Profit Loss Account, a sum of Rs. 13,24,424 was debited under administrative expenses. The Assessing Officer also found that the assets of the assessee were taken over by M/s. Alacrity Electronics Ltd. on 1-11-1992. Therefore, the deduction claimed by the assessee in respect of assets transferred to M/s. Alacrity Electronics Ltd. on 1-11-1992 does not belong to the assessee. Therefore, the assessee is not entitled to any deduction as claimed. Accordingly, the lower authorities rejected the claim of the assessee. 14. We have considered the rival submissions on either side, and also perused the material available on record. It is not in dispute that the assessee has transferred the entire inventory and the bad debts. In other words, entire assets and liabilities have been transferred to M/s. Alacrity Electronics Ltd. The assessee now claims M/s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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