[2009] 2 S.C.R. 213

MCORP GLOBAL PVT. LTD.

A v.

COMMISSIONER OF INCOME-TAX, GHAZIABAD

Civil Appeal No. 955 of 2009

FEBRUARY 12, 2009

[S.H. KAPADIA AND H.L.DATTU, JJ.]

Income Tax Act, 1961 :

.... J Depreciation - claim for - In respect of two lease transactions by the assessee- In respect of first transaction initially c partly denied by AO but on remission of the matter assessee held to be 100% entitled- Order of AO on remission not cha/- Jenged - The order of AO denying depreciation confirmed by Tribunal and High Court - In respect of second transactions, depreciation denied by AO and the appellate court~ holding D + the same to be a sham- On appeal, held: Denial of depreciation in respect of first transaction not correct - Tribunal has no power to enhance the assessment- The order of AO after remand granting depreciation also attained finality - Second transaction since not proved and since held to be a sham, E denial of depreciation, correct.

Assessing Officer disallowed claim of the assessee a lessor of soft drink bottles, for depreciation, in respect of two transactions i.e. regarding lease dated 15.2.1991 and regarding lease dated 15.3.1991.

F In respect of first transaction, as regards lease of 5,46,000 bottles, depreciation was allowed by AO only in respect of 42,000 bottles having been received prior to 31.3.1999 i.e. ttie relevant period. The depreciation claim of assessee was also disallowed by Income Tax Appel- G

~ ..,,( late Tribunal and by High Court. During pendency of the appeal before Tribunal, the case having been remanded by CIT(A), the AO held that the assessee was entitled to

213 H

214 SUPREf\/1E COUR-r ft:F'()R1·~


A 100% depreciation. That findir; g of AO has not been challenged so far. ·~

In respect of the second transaction, AO denied depreciation, holding that the lease deed was not proved

B and in fact it was a sham. The said finding was accepted by the Tribunal and the High Court. Hence, the present appeal in respect of both the transactions.

Partly allowing the appeal, the Court

..... " ..

HELD : 1.1 The Tribunal is not authorized to take back c the benefit granted to the assessee by the AO. The Tribunal has no power to enhance .the assessment. In the present case, the AO had granted depreciation in respect of 42,000 bottles out of the total number of bottles (5A6,000), by reason of the impugned judgment. That D benefit is sought to be taken away by the Department, which is not permissible in law. [Para 6) [218-8, CJ

_._

1.2 According to the impugned judgments of the High Court and the Tribunal, the transaction dated 15.2.1991

E was a financial transaction and not a lease. If depreciation is to be granted for 42,000 bottles under transaction dated 15.2.1991 then it cannot be said that 42,000 bottles came within the lease dated 15.2.1991 and the balance came within the so-called financial arrangement. In the .,_. circumstances, the benefit of depreciation given to the

F assessee by the AO in respect of 42,000 bottles out of

5,46,000 bottles cannot be withdrawn by the Department and to that extent alone the assessee succeeds in this civil appeal.[Para 7) [ 218-D, E, F]

G 1.3 CIT(A) had remitted the matter to the AO who on remand came to the conclusion that all 5,46,000 bottles stood sold before 31.3.1991. This finding of fact has be- \- >- come final. It has not been challenged. Hence, the Department has erred in disallowing depreciation of Rs.

H 18,04,572/-. [Para 7] [218-F, G]

MCORP GL08AL PVT. L TO. V. 21 ~

COMMISSIONER OF INCOME-TAX, GHAZIABAD

Hµkumchand Mills 4td. vs. CIT (1997) 63 ITR 232 ..,.. re- A lied on.

2. 1 The a$se~!rne has ngt proved the transaction dated 16.3. 1991. Th~ qµe&tion (lf ' 1appropriation" of the bottles to a particular c; ontrnc.t is different from the con,. cept relating to the nature Qf the transaction, !n the present B case, ub .. lease is dated 8.3.1l!1 between lesee nd syb,, lessee precede$ the l~se ~tact 1~-3,1991 between the, assessee (let1$or) and lese~, As rjfltly q~~~1ionq l?Y the AO as to lessee could tiave entered into a sub-lease on 8.3.1991 when it had not acquired leasehold rights till c 16,3.1991 from the assessee as the lessor. Moreover, there Is nothing in the alleged lease deed dated 15.3.1991 indicating commencement of the !es@ from a prior date.

There Is nothing In the $O-called lease dated 15.3.1991 as to the arrangement between the parties prior to 15.3.1991.

There Is nothing. indicating any prior practice. On the D contrary, the ao"Called lea1~ dated 1 !$.S.1991 recites tllat It shall commence cmly from 1 fi,3.19$1. Me.rover, "'"~@r the sub .. Jeaa~ It Is stated thctt the lessee i$ the ab$olute owner of the bottles. l.il$tly, the so-called !ease dated 16,3.1991 &tipuh1ted that the lessee, shall have no right, f: title or Interest to creat@ a 1u~-lea$e without the permission of tho le11or. No fHHh permi$:sion has been produced. For the aforeatated reson$, there is no infirmity In the concurrent findings of faat reoorded by the authori .. ties below.[Pera 11] [ 220, p, G. H: 2~1"A, la, C, D, l F 2.2 The matter cannot be remitted for recalculation.

The concurrent finding shows that transaction dated 1S.3.1991 Is a aham. The fincUng shows that the transaction had not been proved by the assessee .. [Para 12]

[221G. H; 222A] G Ca1e Law Refernece

(1967) 63 ITR 232 Relied on Para 6

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 955 of 2009 H

A .

From the Judgement and Order dated 22.9.2006 of the High Court of Delhi at New Delhi in I.TA. No. 164 of 2004.

Ajay Vohra, Kavita Jha and Sandeep Karhail (for Bhargava V. Desai) for the Appellant.

B V. Shekhar, 11. Raghavendra Rao, Shweta Garg, Ashish

Gopal Garg and B.V. Balaram Das, with him for the Respondent.

The Judgement of the Court was delivered by

S.H. KAPADIA, J.

1. Leave granted.

2. This civil appeal filed by the assessee is directed against judgment and order dated 22.9.2006 in ITA No. 164/04 by the Delhi High Court. By the impugned judgment, confirming the decision of the Tribunal, the High Court has held that the appellant (assessee) is not entitled to claim depreciation under Section 32(1)(ii) of the Income-tax Act, 1961 ("1961 Act" for short) in respect of two separate transactions dated 15.2.1991 and 15.3.1991. The impugned judgment has been rendered in respect of Assessment Year 1991-92 (corresponding to the previous year ending 31.3.1991).

(A) Facts Regarding Lease dated 15.2.1991 (Transaction No. I):

3. Before coming to the facts, the following is the relationship between the parties:

- Mis Glass & Ceramic Decorators was the manufacturer

of soft drink bottles.

- Assessee was the 'lessor'.

- M/s Coolade Beverages Pvt. Ltd. was the 'lessee'.

4. During the relevant assessment year, the assessee carried on the business of trading in lamination machines & bind-

-·-.

,_ I

ing and punching machines. In addition, it was also engaged in A the leasing business. During the year in question, the assessee had bought 5,46,000 soft drink bottles from Mis Glass & Ceramic Decorators worth Rs. 19,54,9531-. The bottles were directly supplied to Mis Coolade Beverages Pvt. Ltd. ("Mis Coolade" for short) in terms .of Lease dated 15.2.1991. Vide B Assessment Order dated 28.3.1994, the AO found that Mis Coolade had received only 42,000 bottles out of the total of 5,46,000 bottles receivable by them from the assessee and that ... the remaining bottles stood received after 31.3.1991, i.e., between the period 3.4.1991 and 18.4.1991 and consequently, c the AO restricted the depreciation only to 42,000 bottles and consequently dis-allowed the depreciation of Rs. 18,04,5721-.

It may be mentioned that in Appeal the CIT(A) after formulating the "User Test" remanded the matter to the AO who on remand held that all 5,46,000 bottles stood paid for and dispatched D ._ before 31.3.1991 and, therefore, the assessee was entitled to 100% depreciation on all 5,46,000 bottles. This finding was given when the Appeal(s) was pending before the !TAT. However, till date the findings of the AO (on remand) has not been challenged. To complete the chronology of events, when the E Appeal (s) came before the Tribunal, it was held that since the lease was not renewed and since the bottles were not returned on expiry the transaction in question was only a financial ar- -, rangement and not a Lease, hence, ITAT dis-allowed the depreciation claim of the assessee which finding stood confirmed by the impugned judgment, hence this Civil Appeal.

5. At this stage, it may be noted that out of the total claim for depreciation of Rs. 1,80,30,489/- (in respect of both the transactions), as claimed by the assessee, the AO disallowed depreciation of Rs. 18,04,5721in respect of the First Transaction G and depreciation of Rs. 30,17,122 under the Second Transac- -J tion. In all, she disallowed depreciation of Rs. 48,21 ,694/~ in the first round. In other words, the AO allowed depreciation in respect of both the transactions amounting to Rs. 1,32,08, 795 as against the claim of Rs. ,80,30,489/-.

A 1'1!ndlngs:

6. In the case of Hukumchand Mills Ltd. v. CIT reported in

(1967) 63 ITR 232 this Court has held that under Section 33(4) of the Income-tax Act. 1922 (equivalent to Section 254(1) of the 1961 AeO, the Tribunal was not authorized to take back the ben-

~ efit Qfntead tQ t!w asessae by the AO. The Tribunal has no

powr to enhance the assessment. Applying the ratio of the said

jµdgmnt tq the present case, we are of the view that, in this case, the AO hai;:J granted depreciation in respect of 42,000 bottles out of the total number of bottles (5,46,000), by reason C of the impugned judgment. That benefit is sought to be taken away by the Department, which is not permissible in law. This is the infirmity in the impugned judgment of the High Court and the Tribunal.

7. There is one more aspect which needs to be mentioned.

According to the impugned judgments of the High Court and the Tribunal, the transaction dated 15.2.1991 was a financial transaction and not a lease. rfdepreciation is to be granted for 42,000 bottles under transaction dated 15.2.1991 then it cannot be aid that 42,000 bottles came within the lease dated E 15.2.1 ~91 and the balance came within the so-called financial

arrangment. In the circumstances, we hold that the benefit of depreciation given to the assessee by the AO in respect of 42.000 bottle$ out of 5,46,000 bottles cannot be withdrawn by the Department and to that extent alone the assessee succeeds r in this civil appeal. La§tly, ills stated above, In this case the CIT(A)

had remitted the matter to the AO who on remand came to the conclusion that all 5,46,000 bottles stood sold before 31.3.1991.

This find in~ of fact has become final. It has not been challenged.

Hence, the Department has erred in disallowing deprecia~ G tion of Ra. 18,04,572./-.

t_BJ Fa._!lt§ B_egarsting b_~_a, se, dated_ 15~3, 1991 (Transaction Ne=- fl):

8. Before coming to the facts, the relationship of the par- H ties, namely, stated:

.\,

... ;

... ....i; ·-·

..,

- Assessee was the 'lessor'

- Mis Aravali Leasing Ltd. was the 'lessee'

- Mis Unikel Bottlers Ltd. was the 'sub-lessee'

- Mis Arizona Printers & Packers was the 'manufacturer' of the bottles

9. On 15.3.1991, lease was executed between the assessee as lessor and Mis Aravali Leasing as lessee whereas there was a sub-lease between Mis Aravali Leasing and Mis Unikol Bottlers dated 8.3.1991. The AO came to the conclusion that transaction dated 15.3.1991 was not proved. It was a sham.

The reasons given by the AO were as follows. Firstly, none of the parties owed up the liability to pay transport charges though in terms of the lease the liability to pay transport charges was undertaken by MlsAravali Leasing. Secondly, no evidence was brought on record as to who transported the bottles from the manufacturer, Mis Arizona Printers and Packers, to Mis Unikol Bottlers (sub-lessee). Lastly, the AO had doubted transaction dated 15.3.1991 on the ground that the sub-lease between Mis Aravali Leasing and Mis Unikol Bottlers stood dated 8.3.1991, i.e., before acquiring the rights to the said bottles (which right stood acquired by Mis Aravali Leasing only on 15.3.1991 ).

Therefore, the AO came to the conclusion that the transaction was not proved by the assessee and, therefore, the assessee was not entitled to depreciation. Accordingly, the AO disallowed the depreciation amounting to Rs. 30, 17, 1221-. This finding has been accepted by the Tribunal and the High Court. It is a concurrent finding.

Findings:

10. It was argued vehemently on behalf of the assessee that the findings given by the AO were pervArse. It was urged that the transport charges were, in fact, paid by Mis Unikol Bottiers, who could not produce evidence as there was a lock-out/ closure in its factory at the relevant time. According to the assessee, the evidence of the manufacturer, Mis Arizona Print-

A ers, clearly shows that bottles were manufactured before 31.3.1991 and they were delivered to Mis Unikel Bottlers directly by them. According to the said evidence of the manufacturer, the transport bills were supposed to be with Mis Unikel

Bottlers, who were responsible for payment thereof. Learned B counsel appearing for the assessee relied upon the evidence

. of Mis Arizona Printers at pp. 105-106 of the SLP paper book to show that, according to Mis Arizona Printers, the bottles were delivered directly to the sub-lessee, Mis Unikol Bottlers. Reliance was also placed on the "use certificate" furnished by Mis C Unikol Bottlers to Mis Arizona Printers to show that the bottles stood dispatched prior to 31.3.1991. Further, on behalf of assessee reliance was placed on the evidence of Mis Khanna Goods Transport Co. (booking agent), who claimed to have received commission in cash for supply of trucks. In short, it was argued on behalf of the assessee that, the manufacture and D dispatch of bottles from Mis Arizona Printers to Mis Unikol Bottlers, before 31.3.1991, stood proved by the evidence adduced by the assessee in the form of the statement of the manufacturer, the "Put to Use" Certificate given by Mis Unikol Bottlers, the statement of Mis Unikol Bottlers having accepted delivery E of the bottles from Mis Arizona Printers and the receipt of commission by Mis Khanna Goods Transport Co .. Therefore, according to the assessee, the manufacture and dispatch of bottles and the receipt of bottles stood proved by the aforestated cir-

F cumstances.

11. We do not find any merit in the above arguments. In this case, we are concerned with the nature of transaction dated 15.3.1991. The question to be asked is - whether the assessee has proved the transaction dated 15.3.1991? The question of G "appropriation" of the bottles to a particular contract is different from the concept relating to the nature of the transaction. In this

case, the tell-tale circumstance against the assessee was that \- sub-lease is dated 8.3.1991. It is between Mis Aravali Leasing

(lessee) and Mis Unikol Bottlers (sublessee). This sub-lease precedes the lease dated 15.3:1991 between the assessee

{lessor) and Mis Aravali Leasing (lessee). As rightly questioned A

.... by the AO as to how Mis Aravali Leasing (lessee) could have entered into a sub-lease in favour of Mis Unikol bottlers on 8.3.1991 when it had not acquired leasehold rihts till 15.3.1991 from the assessee as the lessor. Moreover, there is nothing in the alleged lease deed dated 15.3.1991 indicating commence- B ment of the lease from a prior date. There is nothing in the socalled lease dated 15.3.1991 as to the arrangement between the parties prior to 15.3.1991. There is nothing in the so-called ...... lease dated 15.3.1991 indicating any prior practice as submitted on behalf of assessee. On the contrary, the so-called lease c dated 15.3.1991 recites that it shall commence only from 15.3.1991. Moreover, under the sub-lease between Mis Aravali Leasing and Mis Unikol Bottlers it is stated that Mis Aravali Leasing is the absolute owner of the bottles. Lastly, the so-called lease dated 15.3.1991 stipulated that the lessee, Mis Aravali D Leasing, shall have no right, title or interest to create a sub- ._ lease without the permission of the lessor. No such permission • has been produced. For the aforestated reasons, we find no infirmity in the concurrent findings of fact recorded by the authorities below. We accordingly hold that transaction dated E 15.3.1991 is not proved. Therefore, the AO was right in disallowing depreciation amounting to Rs. 30, 17, 1221-.

12. Before concluding, we may mention that an alternative

-; submission was advanced on behalf of the assessee in the context of the second transaction that, if the said transaction F was a financial arrangement, as held by the Department, even then the assessee could be taxed only on Interest embedded in the amount of lease rentals received from the lessee, MlsAravali Leasing. In this connection, it was submitted that the assessee had earned total income of Rs. 6,33,5961over a period of 36 G months commencing from 15.3.1991 to 14.3.1994. Therefore,

>/ the matter should be remitted for recalculation. We do not find any merit in this argument for the simple reason that the concurrent finding shows that transaction dated 15.3.1991 is a sham.

The finding shows that the transaction had not been proved by H ,, ...

222 SUPREME COURr REPORTS


A the assessee. In the circumstances, there is no question of the matter being remitted, as prayed for. Consequently, the AO was ..- rig ht in coming to the conclusion that transaction dated 15.3.1991 was not proved and that the assessee was not entitled to claim depreciation of Rs. 30, 17, 122/- in respect of the B second transaction. f

13. In conclusion, we delete the disallowance of depreciation of Rs. 18,04,572/~ under the First Transaction but we disallow the depreciation of Rs. 30, 17, 122/- under the Second Trans- _.. __. t action.

14. Accordingly, the civil appeal filed by the assessee is partly allowed with no order as to costs.

K.K.T.

Appeal party allowed.

...