1982 PLP 29 (PTD)

NASIR ASLAM ZAHID, J.‑In this case in the assessment year 1967‑68 an assessment order was passed by the Income‑tax Officer on 25‑4‑1969 and certain add‑backs were made which included the expenses of Rs. 63,055 on account of spares and cards. This expense was disallowed by the Income tax Officer on the ground that it was expense of a capital nature. An appeal was filed by the assessee and the Appellate Assistant Commissioner granted some relief in respect of other add‑backs but in respect of aforesaid item of Rs. 63,055 the order of Income‑tax Officer was maintained. A further appeal was preferred by the assessee which was disposed of by the Income tax Appellate Tribunal (Karachi Bench), Karachi by its order dated 5‑2‑1971. The Tribunal allowed the appeal of the assessee in respect of aforesaid item of Rs. 63,055 and the relevant part of its order dated 5‑2‑1971 is reproduced here "It does not appear to us how the Income‑tax Officer was justified in treating the spare parts and these cards as items representing capital. It has been submitted before us that these spare parts and cards are maintained by the Company for the purpose of servicing and repairs of the machines which have been sold by the appellant to its customers. The computers and the accountancy machines which were sold to the customers would represent capital as far as the customers are concerned but the spare parts and the cards which were maintained by the appellant for the purpose of servicing and repairing these computors and accountancy machines, were stock‑in‑trade of the appellant and when the machines became obsolete the spare parts and cards ceased to be of any value and the appellant was justified in writing off the amounts representing their value from its books.

3. The learned DR vehemently argued that it cannot be said that spare parts and the cards would be of any value whatsoever at least even the scrap had certain value and they should have been shown by the appellant in the books.

4. We, however, find that in the circumstances as stated by the learned authorised Representative of the appellant the appellant was justified in writing off the value of the spare parts and the cards and as such the expenses claimed should have been allowed by the Income‑tax Officer. We, therefore, direct that the disallowance of Rs. 63,055 be deleted. However as urged by the learned DR [if any value in the shape of scrap or otherwise is recoverable by the appellant in respect of the spare parts and cards they will be subjected to tax in the year in which the income accrues." In the circumstances the Commissioner of Income‑tax made an applica tion to the Tribunal for referring two questions to this Court under sec tion 66 (1) of the Income‑tax Act, 1922. The aforesaid application was dis missed by the Tribunal by its order dated 10-8-1971 and thereafter the present application under section 66 (2) of the Income‑tax Act, 3 92? was mad;, to this Court which was admitted. We have heard Mr. Nasrullah Awan learned counsel for the Commis sioner, Income‑tax and Mr. Iqbal Naeem Pasha learned counsel for the assessee. The two questions which are referred to us for our decision are as follows "(1) Whether on the facts and in the circumstances of the case, the Tribunal was justified in holding that the amount of Rs. 63,055 claimed on account of the cost of spares and cards relating to obsolete machines was not a loss of capital nature ? (2) Whether on the facts and in the circumstances of the case, the Tribunal was justified in treating the spare parts and cards as stock‑in‑trade of the assessee‑Company? Mr. Nasrullah Awan learned counsel for the applicant, Commissioner of Income‑tax, has contended that from the record it would appear that the machines in which dealings were made by the assessee had not become obsolete. According to us this is a question of fact and this finding of the Tribunal that the machines were obsolete cannot be reopened by us in the present Income‑tax case under section 66 (2) of the Income‑tax Act in view of the two questions referred to us. 1f according to an applicant under section 66 the finding has been arrived at or reached by the Income‑tax Tribunal on no evidence or the finding is perverse then a specific question must be referred for answer by this Court under section 66 and such a ques tion admittedly has not been referred to us as would be apparent from the two questions that have been referred in this Income‑tax case. In the two questions that are referred to us for our answers, the words that are us.‑d are "whether on the facts and in the circumstances of the case" and these words would be taken as meaning facts and in the circumstances of the case as found by the Income‑tax Tribunal unless, as observed earlier a specific question is referred that the finding of fact of the Tribunal is perverse or is not based on any evidence. In the circumstances we proceed to consider the questions referred to us on the assumption that the machines in question had become obsolete. In the above order dated 5‑2‑1971 the 'Tribunal has referred to the fact that machines were being sold by the assessee to its customers and that further such computors and accountancy machines which were sold to its customers would "represent capital as far as the customers are concerned." If the Company was dealing in sales of computors and accountancy machines, these computors and accountancy machines would be treated under the Income tax Law as stock‑in‑trade and not as a capital and as correctly pointed out by the Tribunal such computors and accountancy machines would represent capital only in so far as the purchasers/customers are concerned. In the circumstances if the machines are to be treated as the stock‑in‑trade, spare parts and cards which were maintained by the assessee for the purpose of servic ing and repairing these computors and accountancy machines cannot but be stock‑in‑trade of the assessee. In our view the Tribunal had taken a correct decision that in the circumstances of the case the spare parts and cards were stock‑in‑trade and could not be treated as of capital nature. Mr. Nasrullah Awan learned counsel for Commissioner for Income‑tax had referred to section 10 (2) (vii) of the Income‑tax Act for the contention that the entire amount has been allowed to be written off by the Tribunal and according to the aforesaid provision of the Act this could not be done as even discarded machines or 'spare parts have also some value. In our view sec tion 10 (2) (vii) is not applicable as it refers to "building, machinery tar plant" and this provision is not applicable to stock‑in‑trade. Further it has been noticed that by its order dated 5‑2‑1971 the Tribunal had made it clear that if any value in the shape of scrap or otherwise was recovered by the assessee in respect of the spare parts and cards in question, such income will be subject to tax in the year in which the income accrues. In our view the Income‑tax Tribunal had correctly decided the case before it. In the circumstances the two questions referred to us are decided in the affirmative. Questions answered in affirmative.