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Commissioner Of Income-Tax, ... vs T.N. Arvinda Reddy on 5 October, 1979
Kuppuswamy Chettiar vs A.S. P. A. Arumugam Chettiar And ... on 6 September, 1966
Section 32 in The Income- Tax Act, 1995
Section 54 in The Income- Tax Act, 1995

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Income Tax Appellate Tribunal - Nagpur
Hotel Radhika vs Deputy Commissioner Of ... on 28 June, 1995
Equivalent citations: 1995 55 ITD 288 Nag

ORDER Per K. P. T. Thangal, Judicial Member - In this appeal, the assessee has taken as many as nine grounds. However, when the matter was taken for hearing, the learned Authorised Representative for the assessee submitted that he is under instruction not to press any other ground other than the ground Nos. 7 and 8 which is directed against the order of the CIT (A) in disallowing investment allowance under section 32AB and depreciation on computer under section 32 of the Income-tax Act, 1961.

2. The facts, in brief, are as under :-

The assessee has claimed investment allowance to the tune of Rs. 42,555. The computer was installed during the year under consideration and was operated by M/s. Total Computer, Bombay. For this purpose, the assessee has rented a room but the tenant without paying any rent left behind the computer and accessories. As a consequence to this, the computer was taken by the assessee in its possession and the price of the computer was got confirmed from the market and the assessee brought it in assessees books by debiting the computer account and crediting the rent account. In other words, the assessee has treated this as purchase during the year under consideration. The assessee has submitted the bill wise clarification of the charges. The amount was capitalised by the assessee on 1-4-1989, by debiting the computer account. The Assessing Officer, however, did not allow the claim of the assessee with regard to investment allowance and depreciation allowance on the ground that the assessee has not purchased the computer.

3. In appeal, the learned CIT (A) confirmed the order of the Assessing Officer on the following lines :-

"The Assessing Officer rightly held that the appellant in this case cannot be regarded as having purchased the computer as it had not obtained the consent of the concerned party in Bombay. It had merely retained the computer as security against the personal bills raised against an employee of the computer firm. When the point was highlighted to the learned counsel, the appellant came forward with an additional ground suggesting that since the bill amount had not been recovered over the years the same should be allowed as a straight forward deduction from the total income as bad debts. Here also I find the amount in question has not been actually written off as bad debts from the books of the firm. That is one of the pre-conditions for allowing the claim as bad debts. The appellant can make a claim in a subsequent year when the amount is actually written off as bad debts. The claim for this year is rejected."

It is against this order, the assessee is in appeal before the Tribunal.

4. The learned Authorised Representative for the assessee relied upon the decision of the Honble Supreme Court in the case of CIT v. T. N. Aravinda Reddy [1979] 120 ITR 46 and submitted that the order of the learned CIT(A) is liable to be set aside.

5. As against this, the learned Departmental Representative supported the order of the revenue authorities and submitted that by no dint of imagination, it could be said that the assessee has purchased the computer and as such, the assessee is not entitled to the claim of investment allowance and depreciation.

6. We have heard the rival submissions and have gone through the orders of the revenue authorities and the decision of the Honble Supreme Court. In the case of T. N. Aravinda Reddy (supra), the Honble Supreme Court affirmed the decision of the Honble Andhra Pradesh High Court in the case of CIT v. T. N. Aravinda Reddy [1979] 116 ITR 551. The question before the Honble High Court was when some of the members of HUF relinquished their rights in favour of the assessee and whether this would constitute ownership right in the assessee. The Honble High Court held that the assessee by virtue of the release deed of other members of the HUF, acquired the title of the house. Distinguishing the decision of the Supreme Court in the case of Kuppuswami Chettiar v. Arumugam Chettiar AIR 1967 SC 1395, the Honble High Court held that the release deed can be usefully employed as a form of conveyance by a person having right or interest in the property in favour of any other person and ownership right can be transferred to another person, having no title in respect of the property, by using words of sufficient amplitude in the release deed. Affirming the decision of the Honble High Court, speaking for the Court, the Honble Justice Shri V. R. Krishna Iyer held that the word "purchase" in section 54(1) of the Income-tax Act, 1961 had to be given its common meaning, viz, buy for a price or equivalent of price by payment in kind or adjustment towards a debt or for other monetary consideration.

7. Coming to the issue before us, it is a fact that the computer was installed in a room in the assessees premises. The operator was not paying anything towards his boarding and lodging expenses. One fine morning, he disappeared. Thereafter, the company never claimed the computer nor tried to pay any amount towards expenses incurred by the operator. In other words, by action/inaction the other party relinquished the property, i.e., computer to the assessee and agrees that he is at liberty to adjust the value of the computer towards expenses expended by the computer operator. We find sufficient support from the decision of his lordship of the Supreme Court to come to the conclusion that the assessee has purchased the good. The word "purchase" as held by his lordships in the decision of the Supreme Court, (supra) means "buy for a price or equivalent of price by payment in kind or adjustment towards a debt or for other monetary consideration". It can reasonably be presumed that even an adjustment towards a debt of a property would amount to a purchase in the given circumstances. In the instant case of the assessee, the cost of the computer has been adjusted by the assessee towards a debt, i.e., a debt owed by M/s. Total Computers, Bombay.

8. In the light of the above discussion and also in the light of the decision of the Honble Supreme Court in the case of T. N. Aravinda Reddy (supra), we are in agreement with the arguments of the learned Authorised Representative.

9. In the result, the appeal of the assessee is allowed.