A.S. Bains, J.
1. The following two questions arising out of the Tribunal's order dated June 30, 1973, passed in I.T.A. No. 1074 of 1971-72 have been referred for the opinion of this court:
'(1) Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal did not misdirect itself in considering the niceties of the question as to what salary was reasonable instead of addressing itself to the question whether the salaries paid to the managing director and the executive director were unreasonable and excessive within the meaning of Section 40(c) of the Income-tax Act ?
(2) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in upholding the disallowance of development rebate to the assessee ?'
2. Facts giving rise to this reference are as under :
The assessee 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.
3. 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 profit and loss account of the assessee-company and not to its trading account. He, therefore, held that the development rebate could not be allowed on the machinery hired out, because letting the machinery on hire was not the assessee's business.
4. The assessee-company filed appeal before the AAC, who held that Shri P.N. Mayor was actively engaged in the conduct of the business of the assessee-company and contributed to some extent to push up its sales. He was of the view that the salary of Rs. 2,000 per month was reasonable for the services rendered by Shri P.N. Mayor. As regards Shri Ravi Mayor, he considered a salary of Rs. 1,500 per month to be reasonable and, therefore, allowed the claim of the assessee to that extent. However, the finding of the ITO on the claim of development rebate was upheld by the AAC and qua that the assessee's appeal was dismissed.
5. The assessee went up in second appeal and the Tribunal, vide its order dated June 30, 1973, modified the order of the AAC to the extent that inthe case of Shri Ravi Mayor a salary of Rs. 2,000 per month was considered to be reasonable. On the question of development rebate, the Tribunal upheld the order of the AAC. Hence this reference.
6. We have gone through the statement of the case and its relevant annexures. It was argued on behalf of the assessee-company that the authorities were not justified in going into the question of quantum of salaries paid to Shri P.N. Mayor and Shri Ravi Mayor and that the said amount was actually spent by the assessee in the business of the assessee and it should have been allowed.
7. Mr. D. N. Awasthy, learned counsel for the revenue, contended that this court cannot go into the findings of fact arrived at by the Tribunal on the question of quantum of salaries paid to Sarvashri P.N. Mayor and Ravi Mayor. I find merit in what Mr. Awasthy says. In J. B. Bottling Co. (P.) Ltd. v. CIT : 98ITR512(Delhi) , their Lordships of the Delhi High Court held as under :
'The findings reached by the Tribunal were conclusions of fact and the Tribunal had not ignored any relevant principles in applying Section 40(c) of the Act in upholding the disallowance of part of the remuneration of the lady directors. No question of law arose out of the order of the Tribunal.'
8. In Sri Krishna Tiles and Potteries (Madras) Pvt. Ltd. v. CIT : 90ITR439(Mad) , their Lordships of the Madras High 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.'
9. In Nund and Samont Co. P. Ltd. v. CIT : 78ITR268(SC) , 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.'
10. The learned counsel for the assessee relied on a decision of their Lordships of the Allahabad High Court in Carlton Hotel (P.) Ltd. v. CIT : 94ITR311(All) , wherein it was held that where there was no material for the Tribunal to hold that the remuneration was excessive and that the legitimate need having been found, a part of the salary could not be disallowed. The facts of the present case are clearly distinguishable from the facts of the Allahabad case. On the facts of that case, their Lordships of the Allahabad High Court held that as there was no material before the Tribunal to hold that the remuneration was excessive, no part of the salary could be disallowed. But, in the present case, the Tribunal had the material before it and after perusing the evidence and the material, it disallowed a part of the salary paid to Shri P, N. Mayor and Shri Ravi Mayor. Since this court cannot go into the findings of fact arrived at by the Tribunal and the principle of law as laid down in the authorities above being applicable, I am not inclined to interfere with the findings of fact arrived at by the Tribunal.
11. For the resons recorded above, I answer question No. 1 in the affirmative, i.e., in favour of the revenue and against the assessee-company.
12. With regard to the second question, it was argued on behalf of the assesses that the Tribunal has on the erroneous assumption that letting out the machinery on hire was not the business of the assessee-company, disallowed the development rebate. The learned counsel referred to the memorandum of association of the assessee-company and stated that, according to para. 3(a)(iii) of the memorandum of association, letting on hire of the machinery was one of the objects of the assessee-company. He also relied upon a decision of the Supreme Court reported as Dalmia Cement Ltd. v. CIT : 105ITR633(SC) , on which reliance was also placed by Mr. Awasthy, learned counsel for the revenue. After giving my thoughtful consideration to the submissions made by the counsel for the assessee-company and the revenue, I am of the considered view that the mere fact that there was a clause in the memorandum of association of the assessee-company that the company could hire out the machinery does not mean that it actually carried on business of letting on hire the machinery or that every machinery purchased by the assessee-company was for the purpose of hiring out the same. The intention of the assessee-company at the time of purchase of the machinery is the basic 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 E. 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 thestatement of Shri P.N. Mayor recorded by the ITO on January 23, 1970, which is in the following terras :
'The new machine was purchased by the company for setting it up for manufacturing disc (tractor). It was purcased to give practical shape to the plan of Agrico Industries (the company) to start manufacturing itself. It was purchased in advance as this was the best imported machine and if we had missed the opportunity then we could not get this type of machine again. We could- not install it as the company had no space to install it. We are now negotiating the purchase of land in Faridabad. So instead of keeping it idle, we let it out on hire to M/s. Watkins Mayor and charged rent. We purchased another lathe with the same idea. But it could not be installed and it had to be hired out to M/s. Watkins Mayor.'
13. From the perusal of this statement of Mr. P.N. Mayor it is evident that the machinery in question was purchased for manufacturing discs of tractors and that since the assessee-company did not possess any building to install the said machinery, it let it on hire for some time. Obviously the intention at the time of purchase of the machinery was to manufacture the discs for tractors and not to let it on hire. Hence, I have no hesitation in holding that the machinery in question had not been let on hire as a business activity. Consequently, the authorities below were fully justified in not allowing the development rebate on the said machinery. In CIT v. P. K. N. Co. Ltd. : 60ITR65(SC) , their Lordships of the Supreme Court held as under :
'The primary object of the company was to take over the assets of the firm, to carry on the business of planters and to earn profits by the sale of rubber ; the acquisition of the estates was not for the purposes of carrying on business in real estate. The incidental sale of uneconomical or inconvenient plots of land could not convert what was essentially an investment into a business transaction in real estate. Existence of power in the memorandum of association to sell or turn into account, dispose of or deal with the properties and rights of all kinds had no decisive bearing on the question whether the profits arising therefrom were capital accretion or revenue. The profits arising from the sale of the properties were not taxable income.
The question whether in purchasing and selling land the taxpayer enters upon a business activity has to be determined in the light 6f the facts and circumstances. The purpose or the object for which it is incorporated where the taxpayer is a company may have some bearing, but is not decisive, nor is the circumstance that a single plot of land was acquired and was thereafter sold as a whole or in plots decisive. Profit motive in entering into a transaction is also not decisive.'
14. In Dalmia Cement Ltd.'s case : 105ITR633(SC) , 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 par- tition 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.'
15. 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 meaning of Section 2(4) of the Act. But, in the present case, the dominant intention of the assessee-company was to manufaqture discs for tractors as is clear from the statement of Shri P.N. Mayor made before the ITO. In State oj Gujarat v. Raipur .  19 STC 1, it was held by their Lordships of the Supreme Court as under :
'Where a company which carried on the business of manufacturing and selling cotton textiles sold a part of the coal which was necessary for the purpose of lighting its furnaces and heating its boilers, the burden of proving that the company was carrying on the business of selling coal was upon the sales tax authorities and if they made no investigation and had come to such a conclusion merely because of the frequency and volume of the sales of coal, the inference could not be sustained.'
16. From the above observations, it is clear that a mere sale of a commodity which the assessee requires for the purpose of its business will not justify an inference that the business of selling that commodity was intended, unless there is other material existing at the time when the commodity was purchased or which has come into existence later which can establish such in intention. It is plain from the ratio of these authorities that it is the intention from the very beginning which has to be seen and then only it can be said that a particular transaction was intended for the purpose of that business for which the assessee-company was established. From the statement of Shri P.N. Mayor, it is clear that the intention of the assessee-company from the very beginning was to manufacture discs for tractors and not to let the machinery on hire to third parties.
17. For the reasons stated above, question No. 2 is also answered in the affirmative, i.e., against the assessee and in favour of the revenue.