Mcorp Global Pvt.
Ltd. Vs. Commissioner of Income Tax, Ghaziabad [2009] INSC 295 (12 February 2009)
Judgment
CIVIL APPELLATE
JURISDICTION CIVIL APPEAL NO. 955 /2009 (arising out of SLP(C) No. 4286/2007)
MCorp Global Pvt. Ltd. ... Appellant(s) versus Commissioner of Income-tax,
Ghaziabad ... Respondent(s)
S.H. KAPADIA, J.
1.
Leave
granted.
2.
This
civil appeal filed by the assessee is directed against judgment and order dated
22.9.2006 in ITA No. 164/04 by the Delhi High Court. By the impugned judgment,
confirming the decision of the Tribunal, the High Court has held that the
appellant (assessee) is not entitled to claim depreciation under Section
32(1)(ii) of the Income-tax Act, 1961 ("1961 Act" for short) in
respect of two separate transactions dated 15.2.1991 and 15.3.1991. The
impugned 2 judgment has been rendered in respect of Assessment Year 1991-92
(corresponding to the previous year ending 31.3.1991).
(A) Facts Regarding
Lease dated 15.2.1991 (Transaction No. I):
3.
Before
coming to the facts, the following is the relationship between the parties:
- M/s Glass &
Ceramic Decorators was the manufacturer of soft drink bottles.
- Assessee was the
`lessor'.
- M/s Coolade
Beverages Pvt. Ltd. was the `lessee'.
4.
During
the relevant assessment year, the assessee carried on the business of trading
in lamination machines & binding and punching machines. In addition, it was
also engaged in the leasing business.
During the year in
question, the assessee had bought 5,46,000 soft drink bottles from M/s Glass
& Ceramic Decorators worth Rs. 19,54,953/-. The bottles were directly
supplied to M/s Coolade Beverages Pvt. Ltd. ("M/s Coolade" for short)
in terms of Lease dated 15.2.1991. Vide Assessment Order dated 28.3.1994, the
AO found that M/s Coolade had received only 42,000 bottles out of the total of
3 5,46,000 bottles receivable by them from the assessee and that the remaining
bottles stood received after 31.3.1991, i.e., between the period 3.4.1991 and
18.4.1991 and consequently, the AO restricted the depreciation only to 42,000
bottles and consequently dis-allowed the depreciation of Rs. 18,04,572/-. It
may be mentioned that in Appeal the CIT(A) after formulating the "User
Test" remanded the matter to the AO who on remand held that all 5,46,000
bottles stood paid for and dispatched before 31.3.1991 and, therefore, the
assessee was entitled to 100% depreciation on all 5,46,000 bottles. This
finding was given when the Appeal(s) was pending before the ITAT.
However, till date
the findings of the AO (on remand) has not been challenged. To complete the
chronology of events, when the Appeal (s) came before the Tribunal, it was held
that since the lease was not renewed and since the bottles were not returned on
expiry the transaction in question was only a financial arrangement and not a
Lease, hence, ITAT dis-allowed the depreciation claim of the assessee which
finding stood confirmed by the impugned judgment, hence this Civil Appeal.
5.
At
this stage, it may be noted that out of the total claim for depreciation of Rs.
1,80,30,489/- (in respect of both the transactions), as claimed by the
assessee, the AO disallowed depreciation of Rs. 18,04,572/- in respect of the
First Transaction and depreciation of Rs. 30,17,122 under the Second
Transaction. In all, she disallowed depreciation of Rs. 48,21,694/- in the
first round. In other words, the AO allowed depreciation in respect of both the
transactions amounting to Rs. 1,32,08,795 as against the claim of Rs.
1,80,30,489/-.
Findings:
6.
In
the case of Hukumchand Mills Ltd. v. CIT reported in (1967) 63 ITR 232 this
Court has held that under Section 33(4) of the Income-tax Act, 1922 (equivalent
to Section 254(1) of the 1961 Act), the Tribunal was not authorized to take
back the benefit granted to the assessee by the AO. The Tribunal has no power
to enhance the assessment. Applying the ratio of the said judgment to the
present case, we are of the view that, in this case, the AO had granted
depreciation in respect of 42,000 bottles out of the total number of bottles
(5,46,000), by reason of the impugned judgment. That benefit 5 is sought to be
taken away by the Department, which is not permissible in law. This is the
infirmity in the impugned judgment of the High Court and the Tribunal.
7.
There
is one more aspect which needs to be mentioned.
According to the
impugned judgments of the High Court and the Tribunal, the transaction dated
15.2.1991 was a financial transaction and not a lease. If depreciation is to be
granted for 42,000 bottles under transaction dated 15.2.1991 then it cannot be
said that 42,000 bottles came within the lease dated 15.2.1991 and the balance
came within the so-called financial arrangement. In the circumstances, we hold
that the benefit of depreciation given to the assessee by the AO in respect of
42,000 bottles out of 5,46,000 bottles cannot be withdrawn by the Department
and to that extent alone the assessee succeeds in this civil appeal. Lastly, as
stated above, in this case the CIT(A) had remitted the matter to the AO who on
remand came to the conclusion that all 5,46,000 bottles stood sold before
31.3.1991. This finding of fact has become final. It has not been challenged.
Hence, the Department has erred in disallowing depreciation of Rs. 18,04,572/-.
6 (B) Facts
Regarding Lease dated 15.3.1991 (Transaction No. II):
8.
Before
coming to the facts, the relationship of the parties, namely, stated:
- Assessee was the
`lessor' - M/s Aravali Leasing Ltd. was the `lessee' - M/s Unikol Bottlers Ltd.
was the `sub-lessee' - M/s Arizona Printers & Packers was the
`manufacturer' of the bottles
9.
On
15.3.1991, lease was executed between the assessee as lessor and M/s Aravali
Leasing as lessee whereas there was a sub- lease between M/s Aravali Leasing
and M/s Unikol Bottlers dated 8.3.1991. The AO came to the conclusion that
transaction dated 15.3.1991 was not proved. It was a sham. The reasons given by
the AO were as follows. Firstly, none of the parties owed up the liability to
pay transport charges though in terms of the lease the liability to pay
transport charges was undertaken by M/s Aravali Leasing.
Secondly, no evidence
was brought on record as to who transported the bottles from the manufacturer,
M/s Arizona Printers and Packers, 7 to M/s Unikol Bottlers (sub-lessee).
Lastly, the AO had doubted transaction dated 15.3.1991 on the ground that the
sub-lease between M/s Aravali Leasing and M/s Unikol Bottlers stood dated
8.3.1991, i.e., before acquiring the rights to the said bottles (which right
stood acquired by M/s Aravali Leasing only on 15.3.1991). Therefore, the AO
came to the conclusion that the transaction was not proved by the assessee and,
therefore, the assessee was not entitled to depreciation.
Accordingly, the AO
disallowed the depreciation amounting to Rs. 30,17,122/-. This finding has been
accepted by the Tribunal and the High Court. It is a concurrent finding.
Findings:
10.
It
was argued vehemently on behalf of the assessee that the findings given by the
AO were perverse. It was urged that the transport charges were, in fact, paid
by M/s Unikol Bottlers, who could not produce evidence as there was a
lock-out/closure in its factory at the relevant time. According to the
assessee, the evidence of the manufacturer, M/s Arizona Printers, clearly shows
that bottles were manufactured before 31.3.1991 and they were delivered to M/s
Unikol Bottlers directly by them. According to the said evidence of 8 the
manufacturer, the transport bills were supposed to be with M/s Unikol Bottlers,
who were responsible for payment thereof. Learned counsel appearing for the
assessee relied upon the evidence of M/s Arizona Printers at pp. 105-106 of the
SLP paper book to show that, according to M/s Arizona Printers, the bottles
were delivered directly to the sub-lessee, M/s Unikol Bottlers. Reliance was
also placed on the "use certificate" furnished by M/s Unikol Bottlers
to M/s Arizona Printers to show that the bottles stood dispatched prior to
31.3.1991.
Further, on behalf of
assessee reliance was placed on the evidence of M/s Khanna Goods Transport Co.
(booking agent), who claimed to have received commission in cash for supply of
trucks. In short, it was argued on behalf of the assessee that, the manufacture
and dispatch of bottles from M/s Arizona Printers to M/s Unikol Bottlers,
before 31.3.1991, stood proved by the evidence adduced by the assessee in the
form of the statement of the manufacturer, the "Put to Use"
Certificate given by M/s Unikol Bottlers, the statement of M/s Unikol Bottlers
having accepted delivery of the bottles from M/s Arizona Printers and the
receipt of commission by M/s Khanna Goods Transport Co.. Therefore, according
to the assessee, the 9 manufacture and dispatch of bottles and the receipt of
bottles stood proved by the aforestated circumstances.
11.
We
do not find any merit in the above arguments. In this case, we are concerned
with the nature of transaction dated 15.3.1991. The question to be asked is -
whether the assessee has proved the transaction dated 15.3.1991? The question
of "appropriation" of the bottles to a particular contract is
different from the concept relating to the nature of the transaction. In this case,
the tell-tale circumstance against the assessee was that sub-lease is dated
8.3.1991. It is between M/s Aravali Leasing (lessee) and M/s Unikol Bottlers
(sub- lessee). This sub-lease precedes the lease dated 15.3.1991 between the
assessee (lessor) and M/s Aravali Leasing (lessee). As rightly questioned by
the AO as to how M/s Aravali Leasing (lessee) could have entered into a
sub-lease in favour of M/s Unikol bottlers on 8.3.1991 when it had not acquired
leasehold rights till 15.3.1991 from the assessee as the lessor. Moreover,
there is nothing in the alleged lease deed dated 15.3.1991 indicating
commencement of the lease from a prior date. There is nothing in the so-called
lease dated 15.3.1991 as to the arrangement between the parties prior to 10 15.3.1991.
There is nothing in the so-called lease dated 15.3.1991 indicating any prior
practice as submitted on behalf of assessee. On the contrary, the so-called
lease dated 15.3.1991 recites that it shall commence only from 15.3.1991.
Moreover, under the sub-lease between M/s Aravali Leasing and M/s Unikol
Bottlers it is stated that M/s Aravali Leasing is the absolute owner of the
bottles. Lastly, the so-called lease dated 15.3.1991 stipulated that the
lessee, M/s Aravali Leasing, shall have no right, title or interest to create a
sub-lease without the permission of the lessor. No such permission has been
produced. For the aforestated reasons, we find no infirmity in the concurrent
findings of fact recorded by the authorities below. We accordingly hold that transaction
dated 15.3.1991 is not proved.
Therefore, the AO was
right in disallowing depreciation amounting to Rs. 30,17,122/-.
12.
Before
concluding, we may mention that an alternative submission was advanced on
behalf of the assessee in the context of the second transaction that, if the
said transaction was a financial arrangement, as held by the Department, even
then the assessee could be taxed only on Interest embedded in the amount of
lease rentals 11 received from the lessee, M/s Aravali Leasing. In this
connection, it was submitted that the assessee had earned total income of Rs. 6,33,596/-
over a period of 36 months commencing from 15.3.1991 to 14.3.1994. Therefore,
the matter should be remitted for recalculation.
We do not find any
merit in this argument for the simple reason that the concurrent finding shows
that transaction dated 15.3.1991 is a sham. The finding shows that the
transaction had not been proved by the assessee. In the circumstances, there is
no question of the matter being remitted, as prayed for. Consequently, the AO
was right in coming to the conclusion that transaction dated 15.3.1991 was not
proved and that the assessee was not entitled to claim depreciation of Rs.
30,17,122/- in respect of the second transaction.
13.
In
conclusion, we delete the disallowance of depreciation of Rs. 18,04,572/- under
the First Transaction but we disallow the depreciation of Rs. 30,17,122/- under
the Second Transaction.
14.
Accordingly,
the civil appeal filed by the assessee is partly allowed with no order as to
costs.
.........................J.
(S. H. Kapadia)
.........................J.
(H. L. Dattu)
New
Delhi,
February
12, 2009.
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