TMI Blog1992 (11) TMI 142X X X X Extracts X X X X X X X X Extracts X X X X ..... 54 vehicles was made and (e) the movable property namely commercial vehicles were delivered to the assessee. Simultaneously, the assessee had entered into an agreement for leasing the 54 vehicles to M/s DCM Toyota Ltd., vide agreement dt.29th March, 1988. M/s DCM Toyota Ltd., were required to pay the lease and hire charges to the assessee immediately on signing of the agreement and on that basis, they had paid the assessee a sum of Rs. 2,98,430. This lease amount received from M/s DCM Toyota Ltd., was duly credited to the P L account and was treated as income for the year ended on31st March, 1988. The assessee has been carrying on the business of leasing of various kinds of machineries in the last few years and in the year had leased the commercial vehicles purchased by it. The temporary certificate of registration, which is normally issued by the dealers so as to enable the purchaser to lift the vehicles, from show-rooms to its own premises was duly carried out. The vehicles were sold to the assessee by means of several invoices that have been raised on the assessee by M/s DCM Toyota Ltd. and each of the 54 vehicles was duly insured with United India Insurance Co. Ltd. a divi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the above mentioned facts, the assessee had established that: (a) it had become the owner of 54 vehicles; (b) it had leased them, as per the objects of the company; (c) the temporary registration as well as the insurance have been effected onthe 29th March, 1988; and (d) received hire charges and credited the same to the P L account. He accordingly pleaded that, in so far as s. 32 of the IT Act is concerned, the requirement for allowing of depreciation are that: (a) the assets should be owned by the assessee and (b) it should be used by the assessee for its business. Shri Vaish submitted that the facts as narrated and as are accepted by the Revenue, clearly establish that both the conditions as are necessary for allowing of depreciation are satisfied, namely, (a) ownership of vehicles and (b) their use for the purpose of business which is leasing or hiring. He accordingly pleaded that there being no further requirement, in so far as s. 32 is concerned the claim of the assessee for allowing depreciation should be accepted and deduction allowed to it as such. He submitted that the primary major objection of the authorities in not allowing depreciation to the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iation was examined and it was concluded that the non-registration of the vehicle under the Motor Vehicles Act would not disentitle the assessee from obtaining the benefit of depreciation. He submitted that, therefore, this objection of the Revenue has no force at all and the assessee cannot be deprived of the deduction of the depreciation. Sh. O.P. Vaish made reference to the extracts of the Motor Vehicles Act which have been placed at pages 48-58 and submitted that these provisions are specially enacted under the Motor Vehicles Act, for allowing a vehicle for moving in public and other places and States. The only business of the assessee is leasing and the assessee does not carry on the business as a transporter of either passengers or goods and, therefore, the provisions of the Motor Vehicles Act have no applicability. He submitted that s. 22 of the Motor Vehicles Act makes it incumbent on the owner not to permit the vehicles to be driven in public places unless the vehicles are registered with that effect and certificate of registration is obtained. Shri Vaish submitted that as owner of the vehicles he has leased out the vehicles to DCM Toyota. The DCM Toyota had given an under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w. He laid emphasis on this short period of four days, within which all the transactions have been stated to have taken place. He submitted that, the invoice is dt. 28th March and the cheque is paid on the 29th March on which date itself the lease agreement is signed by the parties and the temporary registration only has been effected on the 30th March. He submitted that all these are insufficient to establish that the assessee had become the owner of the vehicles. Referring to the order of the CIT(A) para 5 and para 7, he submitted that the manner in which the entire transaction had been so arranged, needs to be looked closely through the microscope. He further submitted that under the Motor Vehicles Act, using any vehicle for transportation of passengers or goods, without a permit is an offence. He submitted that the temporary registration certificate issued by the M/s DCM Toyota Ltd., purported to be under s. 25 of the Motor Vehicles Act, as a special authority, is no registration in the eye of law. He submitted that there is no evidence on record for the actual use of the trucks. He submitted that between the date of lease and the date of closing of the account there were hardl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y in advance on 1st day of each month commencing from May, 1988 for the balance period of 35 months. The total lease rental for 36 months lease period amounting to Rs. 1,07,43,480 (Rupees One Crore seven lacs forty three thousand four hundred eighty only). Sales-tax and other taxes on lease rentals, as may be applicable, will be extra on lessee's account." The preamble of the lease agreement provides that the assessee carries on the business of giving on or letting out of various types of equipment and other capital assets. The assessee has offered to give on lease and that the lessee has agreed to take on lease the (vehicles as described in Schedule 'A') which have been individually referred to as vehicle for a term of 3 years and that the lessor has agreed to give on lease to the lessee equipment, on the terms and conditions provided in the agreement. Clause (1)(b) of the said agreement reads: "The vehicles shall be put to use for commercial running either by the lessee himself or through its sub-lessees before 31st March, 1988 and will continue to use for commercial running till the termination of the lease provided that where the sub-leasing is done the same shall be on the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in respect of most of the vehicles have been provided for and the perusal of which indicate that registration have been duly effected in favour of the assessee company. The invoices of the 54 DCM Toyota trucks are dt.28th March, 1988and the assessee had paid for the same onthe 29th March, 1988in full. All the temporary registration are dt.28th March, 1988. The perusal of the above facts indicate that M/s DCM Toyota Ltd. had sold 54 trucks by means of several of its invoices to the assessee, on28th March, 1988. The ownership of the vehicles are established by the fact that the invoices are made out in favour of the assessee and the insurance has also been effected in favour of the assessee and the assessee on its part had paid the due consideration. To this extent, the requirement of ownership, in our opinion, stands satisfied, because, as per the Sale of Goods Act, all goods other than immovable goods, the ownership gets transferred consequent to both the parties performing their parts of contract and also the delivery which is usually in the shape of receipt of the documents. The title to the goods, especially in the case of motor vehicles, is passed the moment the invoices are p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the first of each month. He accordingly pleaded that cl. 3 of Schedule 'B' to the agreement could not in any manner be interpreted to mean that the leased commenced fromthe 1st of April, 1988only. In our opinion, there is considerable merit in the argument advanced by the Senior Advocate, Sh. O.P. Vaish that the agreement has to be read as it is. The Schedule 'B' is an annexure and forming part of the lease agreement dt.29th March, 1988. The preamble of the lease agreement indicates that the agreement has been effected on29th March, 1988and for a period of 3 years. In order to clarify the doubt, Sh. O.P. Vaish produced a copy of the letter dt.1st April, 1992from DCM Toyota Ltd. by which they had called for the sale of 54 vehicles to them as per the second lease agreement entered into on28th March, 1991. He submitted that this clearly clarifies that the leases commenced on29th March, 1988and the first lease rental income on account of lease was from29th March, 1988. There is considerable force in the argument advanced by Sh. Vaish that reading of Schedule 'B' to the agreement could not be interpreted to mean that it was given effect to from 1st April, 1988. The counsel's argument th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as under: "32(1) In respect of depreciation of buildings, machinery, plants or furniture owned by the assessee and used for the purpose or the business of profession, the following deductions shall, subject to the provisions of s. 34, be allowed......" The reading of the above clearly implies satisfaction of only two conditions (i) the assets should be owned by the assessee and (ii) they must be used for the purposes of business of the assessee. In so far as the ownership is concerned, in the earlier paragraphs, we have found that the evidence on record such as invoices, insurance and the registration that have been effected followed by payments made by the assessee in full, giving the right of the assessee to lease them on hire, clearly establish the fact that the assessee owned the 54 vehicles. In so far as the usage for the purpose of business is concerned, it has been found that the vehicles have been leased out on hire which is the business of the assessee. Therefore, the conditions as are required under s. 32(1) having been fully satisfied, then, as per the provisions contained in the Act, the deductions on account of depreciation have to be allowed and there is no altern ..... X X X X Extracts X X X X X X X X Extracts X X X X
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