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TMI Blog1978 (11) TMI 46X X X X Extracts X X X X X X X X Extracts X X X X ..... see is a private limited company. It purchases Toka blades and discs from a sister concern, styled as M/s. Watkins Mayor and Co. and sells the same in the market. During the accounting period ending on March 31, 1969, relevant to the assessment year 1969-70, the assessee appointed Shri P. N. Mayor, as the managing director, on a salary of Rs. 3,000 per month with effect from November 2, 1968, and his son, Shri Ravi Mayor, as executive director, on a salary of Rs. 2,500 per month w.e.f. May 20, 1968. The ITO held that Shri P. N. Mayor was not actively working for the assessee-company and that the salary paid to him was not completely for business consideration. He, therefore, disallowed the entire claim of the assessee-company in respect of the salary paid to Shri P. N. Mayor. As regards Shri Ravi Mayor, the ITO considered his salary at Rs. 1,000 per month to be reasonable on the ground that the remaining salary was not paid for business consideration. Regarding the claim of development rebate the ITO found that the assessee-company had let out the machinery worth Rs. 1,55,048 to M/s. Watkins Mayor & Co. on a rent of Rs. 6,600 per annum and that this amount was credited to the prof ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court observed as under: " The legislature having specially empowered the Income-tax Officer to find out the reasonableness or otherwise of the allowance claimed, giving certain criteria, where that officer had considered and decided on the allowability of the deduction and his decision had been confirmed by the Appellate Tribunal, the High Court will not interfere unless the decision of the Income-tax Officer or the Tribunal is unreasonable or capricious." In Nund and Samont Co. P. Ltd. v. CIT [1970] 78 ITR 268, it was held by their Lordships of the Supreme Court as under: "In the absence of evidence relating to the duties of the managing director and the deputy managing director, the services rendered by them, the manner in which the profits of the appellant were enhanced by reason of their special aptitude or qualifications, the legitimate business needs of the appellant, and the benefit derived by the appellant in consequence of the services rendered by them, the finding recorded by the Income-tax Officer and confirmed by the Tribunal had to be accepted." The learned counsel for the assessee relied on a decision of their Lordships of the Allahabad High Court in Carlton Hotel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... important thing. The intention is to be known from the circumstances of each case prevailing at the relevant time. In the present case, the intention of the assessee-company at the time of purchasing the machinery was to use it for manufacturing discs for tractors and not to let it on hire. As per the statement of Shri P. N. Mayor itself the machinery was purchased for giving practical shape to the plan of the assessee-company to start manufacturing Toka Blades, etc., but it could not install the said machinery due to paucity of space and, therefore, it let the machinery on hire to Messrs. Watkins Mayor because it was lying idle. Since the assessee's intention was not to let the machinery on hire to third parties, it cannot be held that the machinery purchased was meant for the purpose of hiring out the same to third parties. This is clear from the statement of Shri P. N. Mayor recorded by the ITO on January 23, 1970, which is in the following terms: " The new machine was purchased by the company for setting it up for manufacturing disc (tractor). It was purchased to give practical shape to the plan of Agrico Industries (the company) to start manufacturing itself. It was purchased ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Profit motive in entering into a transaction is also not decisive." In Dalmia Cement Ltd.'s case [1976] 105 ITR 633, their Lordships of the Supreme Court held as follows: ". . .the intention of resale was there almost from the beginning and was really the dominant intention in importing the machinery after the partition of the country. The transaction was, therefore, by way of an adventure in the nature of trade and was as such a business transaction within the meaning of section 2(4) of the Act. It did not matter that the appellant did not earn a profit immediately on delivering the machinery and sold it without any profit in the first instance, because even if the appellant had not earned any profit whatsoever at the time of sale or even thereafter the transaction would none the less have been an adventure in the nature of trade. " From this also, it is plain that it is the dominant intention from the beginning which has to be seen. Dominant intention in the Supreme Court case from the very beginning was of resale. Therefore, it was held by their Lordships that the transaction was by way of an adventure in the nature of trade and was as such a business transaction within the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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