Law:

Section:

Section 33(1)(a) of the Income-tax Act, 1961 - Development rebate - Allowance of - Assessee carried on business of manufacturing and selling optical lenses, prisms, etc. - In relevant accounting year, assessee leased out entire plant and machinery but retained and continued trading business - Whether assessee's income from lease could be treated as income from business and assessee was entitled to development rebate under section 33(1)(a) in respect of plant and machinery - Held, yes Section 28(i) of the Income-tax Act, 1961 - Business income - Whether in view of facts mentioned under heading 'Development rebate, - Allowance of assessee's lease income was to be treated as business income - Held, yes Facts The assessee, an individual, carried on the business of manufacturing and selling optical lenses, prisms, etc. During the relevant accounting year, he leased out the entire plant and machinery on an annual rent of Rs. 48,000. However, he retained and continued his trading business. The lease deed provided that all the orders obtained by the assessee including the pending orders would be executed by the lessee. After executing the orders of the assessee, the lessee was free to take up orders from third parties. The assessee claimed development rebate in respect of the machinery for the relevant accounting year. The ITO, however, rejected the assessee's claim on the ground that since the machinery had been let out, it could not be said that it was being used wholly for the purpose of assessee's business within the meaning of section 33(1)(a) and that the lease income was not business income, but had to be assessed under the head 'Income from other sources'. On appeal, the Tribunal reversed the ITO's order holding that once it was held that leasing out of the machinery was one mode of doing business by the assessee and the income derived from leasing out was treated as business income, it would be contradictory, in terms, to say that the machinery was not used wholly for the purpose of the assessee's business, and allowed the claim of the assessee. On reference : Held It is true that section 33(1)(a ) requires that for claiming development rebate, the machinery…

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