Mcorp Global Private Limited v. Commissioner Of Income Tax, Ghaziabad .

S.H Kapadia, J.— Leave granted.

2. This civil appeal filed by the assessee is directed against the judgment and order dated 22-9-2006 in ITA No. 164 of 2004 by the Delhi High Court. By the impugned judgment, confirming the decision of the Tribunal, the High Court has held that the appellant (the assessee) is not entitled to claim depreciation under Section 32(1)(ii) of the Income Tax Act, 1961 (“the 1961 Act”, for short) in respect of two separate transactions dated 15-2-1991 and 15-3-1991. The impugned judgment has been rendered in respect of Assessment Year 1991-1992 (corresponding to the previous year ending 31-3-1991).

(A) Facts regarding lease dated 15-2-1991 (Transaction 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 and 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 assessing officer found that M/s Coolade had received only 42,000 bottles out of the total of 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 assessing officer restricted the depreciation only to 42,000 bottles and consequently disallowed the depreciation of Rs 18,04,572.

5. It may be mentioned that in appeal CIT(A) after formulating the “user test” remanded the matter to the assessing officer 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) were pending before ITAT. However, till date the findings of the assessing officer (on remand) have not been challenged.

6. 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 disallowed the depreciation claim of the assessee which finding stood confirmed by the impugned judgment, hence this civil appeal.

7. 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 assessing officer 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 assessing officer 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

8. In Hukumchand Mills Ltd. v. CIT AIR 1967 SC 455, (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 authorised to take back the benefit granted to the assessee by the assessing officer. 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 assessing officer 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 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.

9. 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.

10. In the circumstances, we hold that the benefit of depreciation given to the assessee by the assessing officer 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.

11. Lastly, as stated above, in this case CIT(A) had remitted the matter to the assessing officer 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.

(B) Facts regarding lease dated 15-3-1991 (Transaction II)

12. 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.

On 15-3-1991, lease was executed between the assessee as lessor and M/s Aravali Leasing Ltd. as lessee whereas there was a sub-lease between M/s Aravali Leasing Ltd. and M/s Unikol Bottlers Ltd. dated 8-3-1991.

13. The assessing officer came to the conclusion that transaction dated 15-3-1991 was not proved. It was a sham. The reasons given by the assessing officer 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 Ltd. Secondly, no evidence was brought on record as to who transported the bottles from the manufacturer, M/s Arizona Printers & Packers, to M/s Unikol Bottlers Ltd. (the sub-lessee).

14. Lastly, the assessing officer had doubted the transaction dated 15-3-1991 on the ground that the sub-lease between M/s Aravali Leasing Ltd. and M/s Unikol Bottlers Ltd. stood dated 8-3-1991 i.e before acquiring the rights to the said bottles (which right stood acquired by M/s Aravali Leasing Ltd. only on 15-3-1991). Therefore, the assessing officer came to the conclusion that the transaction was not proved by the assessee and, therefore, the assessee was not entitled to depreciation. Accordingly, the assessing officer 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

15. It was argued vehemently on behalf of the assessee that the findings given by the assessing officer were perverse. It was urged that the transport charges were, in fact, paid by M/s Unikol Bottlers Ltd., who could not produce evidence as there was a lockout/closure in its factory at the relevant time. According to the assessee, the evidence of the manufacturer, M/s Arizona Printers & Packers, clearly shows that bottles were manufactured before 31-3-1991 and they were delivered to M/s Unikol Bottlers Ltd. directly by them. According to the said evidence of the manufacturer, the transport bills were supposed to be with M/s Unikol Bottlers Ltd., who were responsible for payment thereof.

16. Learned counsel appearing for the assessee relied upon the evidence of M/s Arizona Printers & Packers at pp. 105-06 of the SLP paper book to show that, according to M/s Arizona Printers & Packers, the bottles were delivered directly to the sub-lessee, M/s Unikol Bottlers Ltd. Reliance was also placed on the “use certificate” furnished by M/s Unikol Bottlers Ltd. to M/s Arizona Printers & Packers to show that the bottles stood dispatched prior to 31-3-1991. Further, on behalf of the 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.

17. In short, it was argued on behalf of the assessee that the manufacture and dispatch of bottles from M/s Arizona Printers & Packers to M/s Unikol Bottlers Ltd., 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 Ltd., the statement of M/s Unikol Bottlers Ltd. having accepted delivery of the bottles from M/s Arizona Printers & Packers and the receipt of commission by M/s Khanna Goods Transport Co. Therefore, according to the assessee, the manufacture and dispatch of bottles and the receipt of bottles stood proved by the aforestated circumstances.

18. 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.

19. In this case, the telltale circumstance against the assessee was that the sub-lease is dated 8-3-1991. It is between M/s Aravali Leasing Ltd. (the lessee) and M/s Unikol Bottlers Ltd. (the sub-lessee). This sub-lease precedes the lease dated 15-3-1991 between the assessee (the lessor) and M/s Aravali Leasing Ltd. (the lessee). As rightly questioned by the assessing officer as to how M/s Aravali Leasing Ltd. (the lessee) could have entered into a sub-lease in favour of M/s Unikol Bottlers Ltd. 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 15-3-1991. There is nothing in the so-called lease dated 15-3-1991 indicating any prior practice as submitted on behalf of the assessee.

20. 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 Ltd. and M/s Unikol Bottlers Ltd. it is stated that M/s Aravali Leasing Ltd. is the absolute owner of the bottles. Lastly, the so-called lease dated 15-3-1991 stipulated that the lessee, M/s Aravali Leasing Ltd., shall have no right, title or interest to create a sub-lease without the permission of the lessor. No such permission has been produced.

21. For the aforestated reasons, we find no infirmity in the concurrent findings of fact recorded by the authorities below. We accordingly hold that the transaction dated 15-3-1991 is not proved. Therefore, the assessing officer was right in disallowing depreciation amounting to Rs 30,17,122.

22. 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 received from the lessee, M/s Aravali Leasing Ltd. 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 the 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 assessing officer was right in coming to the conclusion that the 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.

23. 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.

24. Accordingly, the civil appeal filed by the assessee is partly allowed with no order as to costs.