TMI Blog2007 (5) TMI 128X X X X Extracts X X X X X X X X Extracts X X X X ..... re not applicable and in directing the Assessing Officer to accept the receipts shown by the assessee as correct? 3. Whether, on the facts and in the circumstances of the case, the Tribunal was, in law, justified in taking into consideration the surplus of Rs. 12,87,58,000 arising out of amalgamation of shares as approved by the hon'ble High Court, when it had not resulted in generation of any surplus cash funds and the increase in the capital was set off by corresponding increase in the value of assets which were not available for withdrawals by the partners and only the borrowings from depositors were available for withdrawals ? 4. Whether, on the facts and in the circumstances of the case, the Tribunal was, in law, justified in directing the Assessing Officer to allow the entire expenditure on machinery repairs, when as per the terms of agreements the liability of such expenses was alleged by the Department to be on the hirer? 5. Whether, on the facts and in the circumstances of the case, the Tribunal was, in law, justified in holding that depreciation and repairs were allowable in respect of 14 tippers and 1 tipper claimed to have been used as recovery van, when as per th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he reasonable interest was of 20 per cent. which is charged by the bank and, thus interest paid at 24 per cent. and 25 per cent. to some of the creditors being in excess of that 20 per cent, was also a point for the alleged disallowance. The assessee, being aggrieved, had come up in second appeal before the Tribunal. The Tribunal after hearing the parties at length on the point, decided the issue in paragraphs 11 and 12 of its order, which runs as under: "11. We have heard the parties at length and we are of the opinion that the arguments advanced by learned counsel for the assessee have force and the Department appears to have gone on wrong premises and based the entire order on mere surmises and conjectures. The very fact that the assessee is not doing any other business except giving its tippers and dumpers on hire is not borne out from the facts. Admittedly the assessee firm is a sub-contractor and it has taken sub-contracts to the extent of crores of rupees and had been doing the said business for years. It may be possible that this year no other sub contract might have been obtained by the assessee firm, yet it cannot be said that it has completely ceased to have any such b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ive advances received from Jaiprakash Associates in the assessment year 1986-87 itself, then if required to return the said amount, it had only two alternatives, either to sell its assets in the form of shares or to borrow money from the market on interest and pay the same. The company in its wisdom thought it proper to borrow the money from market and pay to Jaiprakash Associates instead of selling the shares and the said wisdom proved to be the real wisdom as the very shares increased in value far more than the interest paid by the firm. The very share of Jaiprakash Associates of Rs. 100 was converted into 75 shares of JFR and the equity shares of JPR exceeded far in value in the assessment year 1990-91 as compared to its face value of Rs. 10. Over and above all this, the assessee received dividends during the year to the extent of more than Rs. 3 crores which was, in our opinion, far more than the interest paid by the assessee on its borrowings to which it had to resort for distress sale of its shares to repay the interest-free excessive advances received by the firm from Jaiprakash Associates. It has been more often than not held by the hon'ble Supreme Court in its various deci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her gave its finding, which runs as under "19. Taking the above circumstances into consideration, we hold that, firstly, there was no excess withdrawals by the partners during the year as the amounts deposited by them during the year (dividends + profits) was far in excess than the withdrawals. Secondly, the shares which were owned by the firm indirectly belonged to the partners and the amounts credited to their accounts in proportion to the shares was far in excess than the withdrawals. Thirdly, the interest paid on the borrowings was for business interest as the amounts borrowed during the year was far less than the amounts paid towards the old borrowings. On the score too, it cannot be said that the partners were advanced money out of the borrowings. In fact, we feel that this whole controversy has arisen in the minds of the taxing authorities by going through a wrong premise that the assessee had no other business except giving his dumpers and tippers on hire. In fact, the assessee was also a sub-contractor and had also invested money in the shares, which was permissible by the Partnership Act and any amount invested in the shares had paid huge dividends to the asses-see whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id disallowance, as under: "33. Now, the only point to be seen is as to how far the hirers were responsible for maintenance or repairs of the tippers and dumpers. A little careful scrutiny of the very agreement, copy of which is in the compilation, will show that the hirers were only responsible for minor repairs. The expenditure shown by the assessee is not on minor repairs but is of major repairs and on replacement of the spares of the machinery. It is also a hard fact that hirers are never responsible for major repairs unless specifically agreed upon in the agreement deed. Here, both the companies, M/s Friends Construction Co. and Jaiprakash Associates had only agreed in the agreement deed for minor rep airs and not for major repairs. Hence the natural conclusion is that it has to be borne by the assessee-firm and it was rightly borne by it. We, therefore, direct the Assessing Officer to allow the entire expenditure meted out by the assessee-firm on repairs and spares and its machinery. The issue is decided accordingly." 8 Regarding the disallowance of depreciation and repair expenses on 14 tippers and one recovery van on the ground that they were not used during the year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, stood confirmed from the account books maintained by the hirer as also that of the assessee and no discrepancy regarding any major payment or payment not being recorded in the books of account, has been pointed out. If that is the situation, the provisions of section 145(2) of the Act was not attracted and the income has to be assessed on the basis of the actual receipt as disclosed by the assessee. 14 So far as question No. 4 is concerned, we find that under the terms of the agreement entered into between the assessee and the hirer, the responsibility of the hirer was only to effect minor repairs. It is not in dispute that the vehicles, namely, tippers and other vehicles, which were given on hire, had to be maintained by the assessee in case of major break down and failure. The expenditure incurred in respect of carrying out major repairs, was clearly to be met by the assessee and it was an allowable deduction. 15 So far as question No. 5 is concerned, under the agreement, the assessee was required to provide 14 tippers and one tipper recovery van as standby so that in the event of any major breakdown or otherwise if the vehicles on hire were not capable of being used, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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