TMI Blog2008 (5) TMI 276X X X X Extracts X X X X X X X X Extracts X X X X ..... nt. JUDGMENT The judgment of the court was delivered by N. P. GUPTA J. - These four appeals arise in identical circumstances, basically involving a common question, though one question as involved in three appeals is not incorporated in Appeal No.13, however, in view of the controversy involved in all the four matters, we think it appropriate to decide all these four appeals by this common judgment. 2. Appeals Nos. 70, 50 and 23 have been admitted on different dates, by framing the following two substantial questions of law, which are common in all the three matters, being as under: "(i) Whether, on the facts and circumstances of the case, the Income-tax Appellate Tribunal was justified in holding that the assumption of jurisdiction under section 147/148 of the Income-tax Act, 1961, is bad in law and accordingly in quashing the reassessment proceedings? (ii) Whether, on the facts and circumstances of the case, the Income-tax Appellate Tribunal was justified in holding that the assessee is entitled to get depreciation under section 32 on the assets claimed to be taken on lease, as owner of the assets?" 3. Appeal No.13 has been admitted on March 13, 2007, by fra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessment years 1996-97 and 1997-98, however, on further appeals before Tribunal, the Tribunal allowed the appeals and held that the assessee was entitled for depreciation on these assets and the addition made was ordered to be deleted. 9. For the assessment years 1996-97 and 1997-98, the Tribunal passed a detailed common order on December 22, 2003, which is the subject-matter of appeal in Appeals No. 23 of 2005 and 50 of 2007. It so happened, that by that time, i.e., by the time of passing order of the Tribunal dated December 22, 2003, the appeals of the assessee against the assessment orders made for the years 1998-99 and 2001-02 remained pending before the learned Commissioner (Appeals), as they have been decided, vide order dated October 18, 2005, and the learned Commissioner (Appeals) following the judgment of the learned Tribunal dated December 22, 2003, deleted the addition made by the Assessing Officer regarding depreciation. Aggrieved of these orders of the learned Commissioner (Appeals) dated October 18, 2005, the Revenue filed appeals before the Tribunal and the learned Tribunal by common order dated July 13, 2006, while following its earlier order, upheld the o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only on the ground of change of opinion rather it was on account of material fact that subsequently came to the notice of the Assessing Officer that with respect to the same assets the purported lessor as well as the lessee both had been allowed the benefit of depreciation and, therefore, it did constitute sufficient ground for the Assessing Officer to initiate proceedings for reassessment on the ground of income having escaped assessment. Then, on the second question, it was contended that the circumstances of the case are writ large, viz., that the lessor and the lessee, though they are two companies but they are sister concerns inasmuch as the son of the key person of the lessor is the key person in the lessee-company and in substance the lessee-company had only availed of financial assistance from the lessor-company and the activity has been given a cover by articulate drafting of the lease agreements to show as if the assets were acquired by the lessor and were leased out to lessee. The veil was rightly required to be pierced and has rightly been pierced by the Assessing Officer and was rightly confirmed by the learned Commissioner in appeals relating to the assessment years ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 02] 258 ITR 533 (Cal); (3) Garden Silk Mills Ltd. v. Deputy CIT (No. 2) [1996] 222 ITR 68 (Guj); (4) Jindal Photo Films Ltd. v. Deputy CIT [1998] 234 ITR 170 (Delhi); (5) CIT v. Hickson and Dadajee Ltd. [1980] 121 ITR 368 (Bom); (6) Garden Silk Mills P. Ltd. v. Deputy CIT [1999] 237 ITR 668 (Guj); (7) CIT v. Corporation Bank Ltd. [2002] 254 ITR 791 (SC); (8) Sheth Brothers v. Joint CIT [2001] 251 ITR 270 (Guj); (9) CIT v. Sambhar Salt Ltd. [2003] 262 ITR 675 (Raj) ; and (10) CIT v. Kelvinator of India Ltd. [2002] 256 ITR 1 (Delhi). 18. In the case of Garden Silk Mills P. Ltd. [1999] 237 ITR 668 (Guj), wherein original assessment was done after considering the explanation of the assessee and no new information had come to the effect that the income had escaped assessment, it was held that the reassessment initiated merely on change of opinion could not sustain. Likewise, in the case of Jindal Photo Films Ltd. [1998] 234 ITR 170 (Delhi) the Income-tax Officer attempted to reopen an assessment because the opinion formed earlier by him, in his opinion, was found to be incorrect. It was held that reopening could not be done. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated here. This obviously makes it clear that reassessment proceedings had been initiated only on account of the opinion arrived at by the Assessing Officer at Mumbai. 21. Thus, question No.1, as framed in three appeals is answered in the affirmative, i.e., against the Revenue and in favour of the assessee. 22. Then, we take up question No. 2 regarding entitlement of the assessee to claim depreciation allowance on the leased plant and machinery. The learned Commissioner (Appeals), though has purportedly recapitulated various clauses of the agreements like clauses 8, 12, 13, 16, 17, 27 and 29 and pressed them into service but then, in paragraph 18, the learned Commissioner (Appeals) has also considered the assessment order passed by the Assessing Officer at Mumbai and the conclusions drawn by him in this regard to the effect that the lessor never intended to be the real owner of the assets in question and had never intended to possess and exploit them for the purpose of profit so also the loan transactions were put in the form of lease transaction only to avail of tax benefits. Then, the learned Commissioner (Appeals) purportedly proceeded to consider various clauses of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es and outgoings of every description. Clause 15 stipulates about expenses to be borne by the lessee for major or minor repairs and upkeeping and maintenance of machinery. Then, clause 18 is about the lessee being responsible to bear entire risk of loss or damage to the machinery and to pay continuously the lease rental without any disturbance. Then, clause 30 provides obligation of the lessee to assume all the liabilities and risk for the use, operation and storage of the machinery. 24. We have recapitulated these clauses only for the purpose of seeing as to how from these clauses the learned Commissioner (Appeals) could possibly arrive at a conclusion about the agreement being only a finance lease and not operating lease. The learned Tribunal has considered these stipulations of the lease in detail and again threadbare and also considered the other attending circumstances including as found in paragraph 42 of the judgment that under the memorandum of association it is carrying on the business of leasing and hire purchase and that the assessee-company, during the relevant year carried out the business of leasing to more than one person. It was also found as a fact available on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (Mad); (4) CIT v. Madan and Co. [2002] 254 ITR 445 (Mad); (5) Joint CIT v. Anatronics General Co. P. Ltd. [2001] 247 ITR 25 (Delhi); (6) CIT v. Rensult Investment and Finance P. Ltd. [1998] 233 ITR 172 (Bom); (7) Mulraj Dwarkadas Goculdas v. Deputy CIT [1994] 48 TTJ 531 (Bom); and (8) Peacock Chemicals P. Ltd. v. Deputy CIT [1995] 51 TTJ 264 (Delhi). 25. We need not multiply all the cases as the best and the nearest case we find is that of the hon'ble Supreme Court in CIT v. Shaan Finance P. Ltd. [1998] 231 ITR 308 in paragraph 17 whereof it has been held by the hon'ble Supreme Court as under (page 316): "17. Neither of these cases deals with an agreement of hire of machinery in contradistinction to an agreement of hire purchase. When the machinery is given on hire by the owner to the hirer on payment of hire charges, the income derived by the owner is business income. The owner is also entitled to depreciation on the machinery so hired out. The hirer, on the other hand, who pays hire charges, is entitled to claim these as revenue expenditure. The hirer has not acquired any new asset. A transaction of hire is, therefore, of bailment of the m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts during tenure of lease, and inclusive of any renewal that the lessor may concur, indisputably rest with the lessor. The lessee shall not claim any relief by way of any deduction, allowance, or grant available to the lessor as owner of the equipment under the Income-tax Act, 1961, or any other statute, rule of regulation issued by the Government or any statutory authority. The lessee shall keep machinery at all times for the full term of lease in the lessee's possession and control and have right to use the said machinery at plant of lessee. On expiry of the lease period, the lessee shall deliver back the said machinery to the lessor in as good condition as at commencement of this agreement, reasonable wear and tear excepted and shall pay all arrears of rent that may be outstanding. Such delivery is to be made to the lessor at destination indicated by the lessor at the lessee's cost unless otherwise decided by the lessor. The lessee is a trustee of the machinery leased to it and without prejudice to other obligation for the agreement will render himself liable for breach of trust in case of misapplication or misappropriation of the machinery leased." 27. The controver ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
