IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE C.N.RAMACHANDRAN NAIR & THE HONOURABLE MR. JUSTICE P.S.GOPINATHAN FRIDAY, THE 11TH JUNE 2010 / 21ST JYAISTHA 1932 ITA.No. 1304 of 2009() ---------------------- ITA.784/COCH/2007 of I.T.A.TRIBUNAL,COCHIN BENCH .................... APPELLANT ----------------------------- THE COMMISSIONER OF INCOME TAX, COCHIN. BY ADV. SRI.P.K.R.MENON,SR.COUNSEL, GOI(TAXES) SRI.JOSE JOSEPH, SC, FOR INCOME TAX RESPONDENT: --------------- M/S.NORTRANS MARINE SERVICES (P) LTD., SEA PORT AIR PORT ROAD, KAKKANAD. ADV. SRI.R.VIJAYARAGHAVAN ADV. SRI.SAJI VARGHESE THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 11/06/2010, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: C.N.RAMACHANDRAN NAIR & P.S.GOPINATHAN, JJ. .................................................................... I.T. Appeal No.1304 of 2009 .................................................................... Dated this the 11th day of June, 2010. JUDGMENT Ramachandran Nair, J. Heard Standing Counsel for the appellant and counsel appearing for the respondent-assessee. The sole question raised is whether the Tribunal was justified in confirming respondent's eligibility for depreciation for 250 containers purchased and said to be used in business. Initially we felt that the question involved is only on finding of fact about the actual purchase and the use of the containers by the assessee before the end of the previous year to entitle them for the depreciation claimed. However, on going through the facts in the Annexure-D agreement between the respondent-assessee and the manufacturer located in Shanghai, China, we find that the findings entered into by the two lower authorities are perverse and unacceptable. Respondent has no case that Annexure-D agreement produced is not the one under which the containers were purchased. The purchase agreement was signed by the buyer on 17.3.2004 and the manufacturer- ITA NO.1304/2009 2 seller has signed it on 18.3.2004. It is to be noted that under clause 1 (a) the agreement is to design, manufacture, sell and deliver to buyer 200 units of 20-foot Dry Cargo Containers and 50 units of 40-foot High Cube Dry Cargo Containers. It is seen that only 13 days were left out in the previous year from the date of agreement for manufacture and supply of 250 containers. Admittedly the assessee retained the containers at Shanghai Port and delivered to the lessee in the assessment year and the use is rightly taken as lease by the assessee. It is stated in clause 1(d) of the agreement that the manufacturer was supposed to complete the manufacture by the end of March 2004. Under clause 2(b) the scheme of payment is 20% to be paid in advance and balance 80% to be paid before taking delivery of the containers. Admittedly 80% payment was made by the respondent-assessee in instalments on 3.5.2004 and on 13.5.2004. It is further stated in clause 2(e) that the title to the containers will be transferred from the seller to the buyer only after full payment is made by the buyer. Further clause 3(a) provides for inspection of the containers after it's making and after seller issues 14 days' notice. It is also to be noted that the agreement in ITA NO.1304/2009 3 clause 3(f) provides for free storage of the containers after manufacture at the premises of the seller for a period of 90 days. So long as the respondent has no case that the terms of the agreement were not followed, we have to necessarily conclude that the findings of the two lower appellate authorities that the containers were inspected by the agents appointed by the respondent-assessee before the end of the previous year and even the lease agreement was entered into on 1.3.2004, are perverse and unsustainable. In our view, the agreement stated to be entered into by the assessee with the lessee company on 1.3.2004 cannot be said to be a lease agreement, but can be only an agreement for lease because as on the date of agreement the containers namely, the commodity leased, were not in existence. In fact, after entering into an agreement for lease, the respondent-assessee entered into agreement for fabrication and supply of containers and going by the payments made and the terms of the agreement, it is clear that containers were fabricated and supplied to the respondent only after May, 2004 i.e. more than two months after the end of the previous year. Assessee's claim of purchase, taking delivery and use of the containers ITA NO.1304/2009 4 within twelve days from date of entering into agreement with the manufacturer at Shanghai is a bogus claim because it was not only not conceived under the terms of agreement the assessee had with the lessee, but was intrinsically impossible. We, therefore, allow the appeal filed by the department by reversing the orders of the C.I.T. (Appeals) and that of the Tribunal and restore the assessment order. C.N.RAMACHANDRAN NAIR Judge P.S.GOPINATHAN Judge pms