TMI Blog2012 (9) TMI 628X X X X Extracts X X X X X X X X Extracts X X X X ..... erred the benefit of ownership upon the assessee without the actual sale during the current accounting year. The Tribunal observed that the assessee had the right of user of the property for a long period and also obtained a future right to exercise the option to purchase the property after five years from the date of commencement of the lease. The Tribunal held that the assessee had acquired a capital asset and the expenditure had to be treated as capital expenditure - against assessee. Disallowance of depreciation - payment which was treated as capital expenditure for acquiring a capital asset - Held that:- There appear to be contradictory findings by the Tribunal. On the one hand, the Tribunal held that the arrangement between the parties was to confer the benefit of ownership upon the assessee and that the assessee had acquired a capital asset and the expenditure in doing so had to be treated as capital expenditure. On the other hand, the Tribunal held that the assessee being a lessee under the agreement, cannot be said to be the owner of the property and was, therefore, not entitled to depreciation under section 32 - as arrangement between the lessor and the assessee was, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /- which was treated as capital expenditure for acquiring a capital asset ? The Tribunal also sought the opinion of this Court on the following question at the request of the Department : Whether on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the disallowance under rule 6-D should be worked out on each employee basis rather than on trip basis ? 2. It is agreed between the parties that Question Nos.(i) and (ii) are liable to be answered in the negative and in favour of the assessee in view of the judgment of this Court in Commissioner of Income Tax v. Gannon Dunkerly Co. (1993) 114 CTR (Bom) 56 and Ceat Tyres of India Ltd. v. Commissioner of Income Tax (1994) 121 CRT (Bom) 80, respectively and that Question No.(iii) is liable to be answered in the affirmative in favour of the respondent in view of the judgment of this Court in Commissioner of Income Tax v. British Bank of Middle East (2001) 251 ITR 217. It is also agreed that Question No.(vii), which was referred on the Department's request, is liable to be answered in the negative in favour of the respondent in view of the judgment of this Court in Commissioner of Income Ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , a Division Bench of the Andhra Pradesh High Court considered a similar case. The relevant assessment year in that case included the assessment year 1983-84. The question that fell for consideration in that case was the same viz. whether the Tribunal was right in holding that the assessee was entitled to depreciation at the higher rates for the assessment year 1983-84 as per the Income-tax (Fourth Amendment) Rules, 1983. The Division Bench answered the question in the negative and in favour of the Department. We are entirely in agreement with the judgment of the Andhra Pradesh High Court and we find it unnecessary to do anything more than to refer to the relevant observations therein. They read as under : The main argument of learned counsel for the assessee is, since the rules are substituted, they are deemed to have come into force with effect from April 1, 1983, though the Fourth (Amendment ) Rules were brought into force on April 2, 1983 ; therefore, the Tribunal is right in holding that the assessee is entitled for higher rate of depreciation for the assessment year 1983-84. The contention of learned counsel for the assessee cannot be accepted as it is a well-settled pri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Lessees. (a) That the Lessees shall at all times during the said term be at full liberty to transfer, assign, underlet or to give on leave and licence basis on such terms and conditions as the Lessees may in their absolute descretion deed fit and demised premises or any part thereof at such rent and/or charges, fee or compensation and subject to such terms and conditions as the Lessees may in their absolute descretion deem fit. It is however agreed that such underletting or giving on leave and licence basis will not be a period exceeding the period of the lease hereby fixed. .......... (d) That the Lessor shall not, during the continuance of this lease sell, transfer or otherwise dispose of or charge or encumber the demised premises or any part thereof so as to prejudice or adversely affect in any way the Lessees's rights and interests under these presents and in the event of any advance rent being paid by the Lessee to the Lessor pursuant to clause V(b) hereunder, the Lessor agrees and undertakes not to sell, lease, transfer or otherwise dispose of or charge or encumber the demised premises or any part thereto to or in favour of any third party. .......... 5. Provided ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wards at Rs.4,750/- per month. The lessor also issued a receipt in the sum of Rs.28,500/- at the foot whereof the payment was described as pre-paid rent at Rs.4,750/- per month from March, 1982 to August, 1982. 11. We will presume that these facts may also, in certain circumstances, indicate nothing more than a regular agreement of lease between the lessor and the assessee. It is not unusual that parties enter into an arrangement for the payment of rent in advance. The entire significance of the sub-clauses of clauses 4 and 5 set out above and the arrangement of the parties on the same day as the execution of the lease is disclosed by what transpired between the parties purportedly on the next day viz. 30th March, 1982. We use the word purportedly advisedly for it is clear to us that the document that we will now refer to though dated 30th March, 1982, was part of a single, composite transaction between the lesssor and the assessee for the purchase of property by the assessee from the lessor. Suffice it to state at this stage that clause 5 is incapable of misleading anyone into believing that it conferred a genuine option to the lessor to demand payment of rent in advance. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore the expiration of 6 years from the date of commencement of the said in Indenture of Lease have the option, to be exercised in the manner hereinafter provided, to purchase and acquire the demise premises. 4. The aforesaid option shall be exercised by the Company giving to Mr Kothari 60 days notice in writing in that behalf. 5. Upon the Company complying with the requirements of clauses 3 and 4 above, the option to purchase or acquire the demise premises shall be deemed to have been duly exercised by the Company. 6. Notwithstanding anything to the contrary contained herein or implied, the purchase and acquisition of the demise premises by the Company in exercise of the aforesaid option shall become effective only upon the expiration of 25 years from the date of commencement of the said Indenture of Lease (that is to say, on 1st of March 2007) and upon such expiration, the Company shall become the full and absolute legal owner of the demise premises and as such owner shall become entitled to full/and exclusive use occupation possession and enjoyment thereof for ever. Mr Kothari for himself and his heirs and legal representatives, hereby irrevocably agrees and undertakes to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as exactly Rs.2,85,000/-. Clauses 3, 4, 5 and the first part of clause 6 are really of no substance or effect whatsoever. They merely purport to confer upon the assessee, an option to purchase the property. It is inconceivable that a party, who has paid the entire consideration in advance, would not exercise the option. It was merely a feeble and an infructuous attempt at indicating that the sale had not taken place on 29th March, 1982 itself. The latter part of clause 6 merely safeguarded the assessee against any possible attempt by the lessor to take advantage of the situation and deny the assessee's right as an owner. It is obviously for this reason that the power was conferred upon the assessee to perfect it's title by doing all things necessary and executing all documents, deeds and writings as may be necessary in respect thereof. To reiterate, therefore, the arrangement between the lessor and the assessee constituted a sale of the property by the lessor to the assessee. 16. The Assessing Officer rightly denied the assessee, deduction in respect of the lease rent. The Commissioner of Income-tax (Appeals) upheld the order of the Assessing Officer in this regard. He, however, ..... 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