TMI Blog1994 (10) TMI 104X X X X Extracts X X X X X X X X Extracts X X X X ..... he Act were not satisfied. The CIT (Appeals) held that only 11 out of 50 trucks of bottles sent by the manufacturer (Supplier) had entered into the factory premises of the lessee before31-3-1990as evidenced by the Gate Entry Register. Even for these trucks, there was no sufficient time to debag and make them ready for use. Secondly, it was held that these bottles were to be printed with logo, "SEVEN UP ERA" (should be LEHAR SEVEN UP) for which approval of the Ministry of Food and Processing industry was obtained much after the end of the accounting year and only on19-4-1990. It was accordingly held that assets were incapable of being used. The learned CIT (Appeals) in the impugned order has further observed that whole thing was only a paper transaction. The assessee has come up in appeal before the Appellate Tribunal. 3. In appeal, Shri O.P. Vaish, the learned counsel for the assessee drew our attention to agreement dated1-2-1990between the assessee and its lessee. Clause 3 of the said agreement stipulated that the lease would commence from the date of delivery of the equipment or the date of payment for equipment, whichever was earlier. In this case, payment for equipment was ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es round the user of the assets for purposes of business. Before discussing above aspect, we deem it necessary to comment on CIT(A)'s observation that entire transaction appeared to be a paper transaction entered solely to claim depreciation. In this case, the lease of bottles is supported by a lease deed. The lessee paid rent through bank accounts which was credited and assessed. There is no dispute on orders placed with suppliers M/s. Arizona Printers and Packers Limited and despatch of bottles to the premises of the lessee. In fact, lower authorities admit that 50 trucks entered the premises of the lessee before the end of the accounting period. In the light of the above facts and circumstances, it is not known as to how and on what basis the learned CIT(A) affirmed the finding of the Assessing Officer that entire transaction was merely a paper transaction. Having regard to the documentary evidence available on record, we hold that transaction as stated by the assessee was genuinely entered to earn rental income by leasing soft drink bottles. 5. We also find force in the submission of Shri Vaish that in the case of lease of assets, the revenue cannot insist on actual use of as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng delivery. The lessee shall pay any charges in respect of delivery from the supplier to the lessee, and shall accept delivery at such location. The lessor will request the supplied to effect delivery on or before the date of commencement of the leasing but if for whatever reason delivery is not effected by that date the lessor shall not be liable for any loss suffered by the lessee thereby and the leasing shall be deemed to commence from that date and all charges and obligations to be payable and enforceable as if delivery had been effected on that date." It is clear from the aforesaid clause that bottles were to be carried and delivered to the lessee at lessee's risk and cost. The assessee lessor was not liable for any loss to the lessee on account of late delivery or otherwise caused. The legal effect of the stipulated clause was that the leased property passed to the lessee when the supplier agreed to carry the bottles to the location specified by the lessee. The supplier thus became agent of the lessee. There is material on record to show that bottles were despatched by the supplier to the locations specified much before the end of the previous year. The lessee thus took ov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted simultaneously. Violation of an expressed term of arrangement cannot be equated with modification of the arrangement by implied conduct and intention. Since the whole transaction was a paper transaction from the very beginning, the assessee-company was not bothered about the clauses of the agreement or their violation. (iii) The sale invoices did not carry the distinctive number of computers. They are also not mentioned in the Schedule to the Lease Deed. Even the information subsequently furnished during the assessment as such give the serial No. COMP/IRS/009/001 to 022 only places the Repographic System Pvt. Ltd. (the former name of the assessee-company). The identification, specification number of the company at the time of manufacture is still not available even after three years of the agreement. Therefore, the computers, the subject-matter of the above transaction, cannot be stated as specific, ascertainable goods. (iv) There was no payment of security deposit by M/s. Altos India Ltd. to the company. The adjustment by M/s. Altos India Ltd. against the sale price with M/s. PCL only shows a pre-planned exercise where only part payment is required to be made whereas depre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unt. It was, therefore, not right for the revenue to contend that title of computers did not pass on to the assessee because full consideration was not paid. With regard to the objection that, 'intrinsive identification numbers" of computers were not furnished, Shri Vaish submitted that there was no practice to state manufacturer's computer numbers, if at all there is one. At any rate, the lease equipment is identifiable by a sub-identification number put on all items of equipments. The assessee was getting regular information from the lessee and sub-lessee regarding location of computers from time to time and said information was supplied to the revenue authorities. Shri Vaish, in this connection, drew our attention to letter of Altos Ltd. dated30th March, 1989and PCL Ltd. available at pages 177 and 178 of the Paper Book. Shri Vaish also drew our attention to assessee's offer made before CIT(A) in letter available at pages 1 to 15 of the Paper Book to verify identification of computers. Shri Vaish further submitted that purchase price was paid and rent received through bank drafts. Copies of accounts of PCL and Altos as placed on record would further show that these companies are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons were approved and confirmed right upto Tribunal in the case of Goyal Gases (P.) Ltd. Another case, namely Avanti Overseas (P.) Ltd. was now pending before the Settlement Commission. Smt. Sinha relied upon decision of ITAT in the case of Goyal Gases (P.) Ltd. and in the case of apogee International Ltd. v. Asstt. CIT [IT Appeal No. 750 (Delhi) of 1993 dated3-1-1993] (available at page 64 of the Paper Book). 15. We have given careful thought to the rival submissions of the parties. Under the law, there is no bar on a manufacturer to take back on lease an equipment manufactured and sold to the purchaser and pay rent for it. If such a transaction is genuine, the revenue cannot disallow the claim of rent and depreciation by doubting/challenging the necessity of manufacturer to take back the manufactured goods on lease. It is common knowledge that several banks and financial institutions are carrying on leasing business by financing purchase of equipments taken back and used by them on lease. The depreciation and interest to the financier and lease rent and interest etc. to banks are being allowed. However, in all such cases, it has to be proved that transactions were entered into ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his point and restore the matter to the file of the Assessing Officer. 17. The last issue involved in these appeals relates to claim of investment allowance. The Assessing Officer disallowed the claim as in her view, firstly, the transaction of purchase and lease was not genuine. Secondly, she held that as assets were admittedly leased out, the assessee was not entitled to depreciation. She placed reliance on decision of Hon'ble Supreme Court in the case of Mahavir Cold Storage v. CIT [1991] 188 ITR 91. On appeal, the CIT(A) allowed some relief to the assessee. The revenue has come up in appeal. 18. We have heard both the parties. As far as second objection of the Assessing Officer is concerned, we are of view that assessee is entitled to investment allowance on assets leased out by the assessee. This view is supported by decision of Hon'ble Calcutta High Court in the case of CIT v. Eastern Spg. Mills Industries Ltd. [1994] 74 Taxman 318. The decision of Hon'ble Supreme Court in the case of Mahavir Cold Storage relied upon by the Assessing Officer has no application to the facts of the case. However, this question is linked with question of ownership of computers considered b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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