Judgment:
1. These cross appeals, one by the assessee and another by the Revenue are preferred against the order of the CIT(A) pertaining to the AY-91-92.
2. Since common issues are involved in these appeals, these were heard simultaneously and are being disposed of by this single consolidated order.
3. We have heard the rival submissions and carefully perused the orders of the authorities below and documents placed on record 4. Ground no. 1 in assesses' appeal and sole ground of the Revenue appeal relate the direction of the CIT(A) for allowing depreciation on soft drink bottles given on use to M/s. Coolade Beverages Pvt. Ltd. (hereinafter called M/s. Coolade).
5. The facts in nutshell on this issue borne out from the record are that in the year under consideration, assessee had purchased soft drink bottles from M/s. Glass and ceramics Decorators, Bombay worth Rs. 19,54,953 by means of 30 invoices during the period w.e.f. 28.3.1991 to 30.3.1991. The bottles were to be directly supplied to Ms. Coolade as per agreement dated 15.2.1991. The AO noted that these bottles were reported from Bombay to Sahibabad by goods train and also Transport Corporation of India. Summons u/s 131 were also issued to M/s. Coolade for filling the copy of the franchise from M/s. Parle (Exports) Pvt.
Ltd., the date of receipt of the bottled along with substantiating evidence.
6. M/s. Coolade filed the statement of bottles received from M/s. Glass & Ceramics decorators, copy of register of empty bottles, photocopy of franchise with Parle (Exports) India Ltd. From these details it was noticed by the AO that out of total of 5,46,000 bottles receivable from the assessee. M/s. Coolade had received only 42,000 bottles and remaining were received between 3.4.91 to 18.4.91. The assessee was asked to explain by claim of depreciation should not be disallowed in respect of bottles which were not put to use in the relevant previous year. The assessee contended that for claiming precaution u.s 32, it was not necessary for the lessor that the goods should be put to use the lessee in its business. The requirement of law is only that the goods should be for the assessee's business i.e. the lessor's business and not for the lessee's business. Was further pointed out the lessor could not be at the mercy of the lessee, waiting for the letter to use the assets in its business in order to claim depreciation. It was further contended that soft drink bottles were in existence before the end of the previous year and only because part of these bottles were transported after the end of the previous year, depreciation could not be disallowed in respect of the bottles which were transported later.
The AO was not satisfied with the explanation of the assessee and she accordingly restricted the depreciation in respect of 42,000 bottles which were received and put to use before 31.3.91 and disallowed the depreciation of Rs. 1804572/-. The assessee preferred an appeal before the CIT(A) which the submission that the assessee has entered into an agreement on 15.2.91 with M/s. Coolade for lease of empty glass bottles of the aggregate value of Rs. 25.87.200 and in terms of lease agreement assessee had purchase 5,88,000 bottles of the value of Rs. 19,54,953 from M/s. Glass Ceramics Decorators of Bombay. The above manufacturer had dispatched the said bottles directly to M/s. Coolade in different lots and the transportation charges were to be borne by the lessee. It was further contended that he lease agreement commenced w.e.f. 28.2.91 and monthly rental amounting to Rs. 65,708 was received in advance on 15.3.1991. Sine the bottled were put to use in the assessee's business of leasing and the assessee had received lease rental thereon, the assessee was entitled to claim depreciation in respect of the cost of the bottles under the provisions of Section 32(1)(ii) of the IT Act.
The CIT(A) re-examined the issue and he opined that in order to use the bottles for the business of the lessor, it has to become the first owner of the assets in question. The crucial question is that at what point of time the assessee in the case of assets involved i.e. bottles which were directly dispatched by the manufacturer to the lessee, can be said to have become the owner of the assets. In this case, the assessee purchased the bottles from M/s. Glass & Ceramics Decorators of Bombay and the assessee cannot be said to have become the owner of these bottles till these bottles have parted the ownership of M/s.
Glass & Ceramics Decorators of Bombay the previous owner. Therefore, the assessee can only be said to have become the owner if these bottles in the relevant year were dispatched by M/s. Glass & Ceramics Decorators of Bombay before 31.3.91. He accordingly, directed the AO to call for evidence and make necessary inquiry in order to ascertain how many bottles excluding 42,000 bottles which were admittedly received by the lessee before 31.3.93 were dispatched before 31.3.91 and the assessee would be entitled to depreciation in respect of those bottles which were dispatched by the previous owner upto 31.3.91.
7. This direction of the CIT(A) was not accepted by the assessee as well as by the Revenue. Both of them preferred an appeal before the Tribunal. The Id. Counsel for the assessee has emphatically argued that lease agreement was executed between the assessee and M/s. Coolade on 15th Feb. 1991 to lease out the empty glass bottles against a fixed monthly rent. The lease value was stipulated to be Rs. 25,87,200 but as per Schedule 1B, the empty glass bottles worth Rs. 19,54,953/- were to be supplied. The assessee, accordingly, placed on order to the manufacturer M/s. Glass & Ceramics Decorators of Bombay to supply the empty bottles directly to the lessee i.e. M/s. coolade. Accordingly, the bottles were dispatched before 31.3.91 through Transport Corporation of India. In support of his contention., he invited our attention to the photocopy of the invoices, Railway Receipts (RRs), and transporters challans. The Id. Counsel for the assessee further submitted that since the assessee has purchased the bottles from the manufacturer and put the transportation for its delivery to the lessee for its use, the equipments were used for the assessee's leasing business and as such, the assessee is entitled for depreciation on these equipments irrespective of the fact whether/when they were put to use by the lessee. In support of this propositions, the Id. Counsel for the assessee has relied upon the following judgments : - Indian Management Advisers & Leasing (P) Ltd. Vs. DCIT ( 2003-Taxindiaonline-36-ITAT-DEL ) 8. In oppurgnation, the Id. DR emphatically argued that for claiming depreciation, the equipments, plants or machinery must be used for the business purpose, before the end of the financial year. In the instant case, the impugned bottles were not even delivered upon the lessee for its use before the end of financial year. As such, the assessee, the lessor is not entitled for the depreciation. The Id. DR has also invited our attention to the lease agreement and its schedule 1 and 1B according to which bottles costing Rs. 19,54,953 were leased out for 3 years at monthly rent of RS. 65,708.15 resulting into a total payment of rent in 3 years al Rs. 23,65,493.10. It means that the bottles were leased out a monthly rent which is more than the interest @ 36% per annum on the total investment of Rs. 19,54,953/- made in the purchase of bottles which was returned back by a sum of Rs. 23,65,49. within a period of three years. It was also intended on behalf of the Id. DR that a the end of the lease period, the lease of the bottles were neither renewed nor bottles were returned back to the lessor. it means the bottles were, in fact, not leased out to the lessee but it was rather a case of making finance by the aforesaid lessor to the lessee in purchase of bottles. In a case of lease, the lessor always retained the ownership right on he equipment and the equipment is either returned back to the lessor or the lease agreement is renewed at the end of the lease period. But in the instant case, lease of the bottles were neither renewed nor bottles were returned to the lessor although a specific clause in this lease agreement is stipulated. It means that the assessee his simply made the finance available to the lessor in purchasing the bottles under the garb of this lease agreement and received back its entire capital along with interest. Once it is established that the assessee was not the owner of the equipments/bottles, it is not entitled for depreciation at all. The Id.
DR further contended that through this aspect was not examined by the lower authorities but is is a very material point which requires a proper consideration.
9. Having considered the rival submissions and from a careful perusal of record, we find that the assessee has entered into an equipment lease agreement with M/s. Coolade and M/s. Parle (Exports) Pvt. Ltd. for supply of bottles which would be delivered by the supplier directly at the place of the lessor. It was also agreed that although M/s.
Coolade and M/s. Parle (Exports) Pvt. Ltd. are for the purpose of this agreement joint hirer, all the liabilities and obligations at the first instance are of M/s. Coolade who would be deemed to be the principal hirer and in case of default or non-performance, all terms and conditional could mutatis matandi be applied to M/s. parle (Exports) Pvt. Ltd. According to its Schedule 1 and Schedule 1B , the bottles costing at Rs. 19,54,953 were to be leased out w.e.f. 1st March 1991 at a monthly rent of Rs. 65,708,15 which is ore than the interest @40% per year on the investment made in the purchase of bottles i.e. Rs. 19,54,953. It is also evident from schedule 1B that the assessee has agreed to receive a sum of Rs. 23,65,493.10 within a period of three years against in investment made in purchase of bottles i.e. Rs. 19,54,953. From a careful perusal of these date, we find force in the contention of the DR that it is not a simple case of leasing of equipment i.e. the bottles, to the lesser but is is rather a case of finance made available by the lessor to the lessee for purchasing these bottles. During the course of hearing, a specific query was raised from the Id. Counsel for the assessee that according to this specified clause no. 16 and 27 o this lease agreement, the lease agreement, the lessee was required either to surrender the equipment to the lesser at such place as the lessor may specify, in goods repair, condition and working order or get the lease renewed for another period agreed between the parties, what happened with the equipments/bottles after the end of the lease period? Whether the lease was renewed or bottles were returned back to the lessor? Ld. Counsel for the assessee candidly accepted that after the lease period, the bottles were neither returned to the lessor not the lease was renewed. These bottles were retained by the lessee, as per the practice prevailing in the market. With this reply, it has become amply clear that after the end of the lease period, the lessee became the absolute owner of the bottles and whatever alleged rent on account of hiring o bottles was paid, it was not, in fact, a rent but was in installment towards the advanced/finance made available in purchase of the bottles, paid to the lessor. This proposition also gets support from the fact that the assessee has made the investment in purchase of bottles at Rs. 19,54,953 and received a total sum of Rs. 23,65,493.10 within a period of three years from the so-called lessee. All these facts suggest that it is not a case of simple leasing of bottles by the assessee to the lessee but it is rather a case of finance made available by the assessee to the lessee for purchasing the bottles against certain rate of interest and thereafter in equal monthly instalments, it was repaid by the lessee to the lessor and after the end of the stipulated period, the lessee becomes and absolute owner of the equipments as it was not required to return back the equipments or to get the lease renewed although a specific clause to this effect was envisaged in the lease agreement to entitle the assessee to claim 100% depreciation on the bottles besides earning interest on its investment in bottles.
10. On a careful perusal of record, we find that this aspect was neither examined by the AO nor the CIT(A) but this aspect goes to the vary root of the case to decide whether the assessee has, in fact, leased out these bottles and and is entitled for depreciation on it.
We, therefore, examined the facts of the case in the light of surrounding circumstances, keeping in mind the above aspect and find that although specific claused were stipulated mentioned in the lease deed for return of equipment/bottles at the end of the lese period or further renewal of lease but it was never done by the so-called lessee nor was it intended to do so as it has been candidly accepted by the Id. Counsel for the assessee that equipments were retained by the lessee permanently without getting the lease renewed and nothing further was paid to the lessor. From these facts, it becomes amply clear that on the final payment of the instalment, the lessee became the absolute owner of the bottles. It means that the assessee never intended to lease out the bottles to lessee on a lease rent inasmuch as he did not claim its ownership over the equipment at the end of the lease period nor did he enforce the recovery of the bottles. The assessee, in fact, made the finance available to the lessee or purchased the bottles and collected monthly instalment of the advance amount incurred in purchasing of bottles with interest in three years.
It is also not a case of hire purchase agreement because in the hire purchase agreement, at the end of the agreement, the lessee may purchase the equipment against certain payment. In the instance case, nothing was admittedly paid to the lessor for retaining these equipments/bottles by the lessee. This view also finds support from the details of cost of bottles and the monthly installment according to which cost of bottles was Rs. 19,54,953 and the assessee has received a total amount of Rs. 23,65,483 in 36 equal monthly installments which means the assessee has received the entire advance amount with interest.
11. On careful perusal of these established facts, we are of the considered opining that the assessee, in fact, has made finance available to the so-called lessee in purchasing the bottles but he tried to give a shape to this transaction as a lease transaction to claim 100% depreciation on bottles besides earning a considerable rate of interest. We, therefore, do not have nay hesitation in holding that the assessee was not the absolute owner of the bottles which was allegedly put to use before the end of the financial year to claim depreciation thereon. the issue is accordingly decided against the assessee and the order of the CIT(A) on this court is set aside and the disallowance made by the AO is hereby confirmed.
12. Ground no. 2 in assessee's appeal relates to the confirmation of disallowance of depreciation in respect of soft during bottles of Rs. 30,17,122 given on lease to M/s. Aravali Leasing Ltd. who later on sub-leased it to Unikol Bottlers Ltd. 13. The facts borne out from the record on this issue are that the assessee has shown purchase of soft drink bottles from M/s. Arizona Printers & Packers Ltd. worth Rs. 30,17,122 which were leased upto to M/s. Aravali Leasing Ltd. who, in turn sub-leased these bottles to M/s.
Unikol Bottlers Limited. It was noted by the AO that the assessee has entered into a lease agreement with Aravali Leasing Ltd. on 15.3.91 for the purpose of leading of soft drink bottles. M/s. Leasing Ltd. has in turn, entered into an agreement with M/s. Unikol Bottlers Ltd. on 8.3.91 for a sub-lease of the same bottles. The AO issued summons u/s 131 to M/s. Arizona Printers & Packers to produce the the use of the bottles because of lock out in the factory. On this evidence, the AO observed that none of the parties it ready to own the liability of making payment of transport charges of the bottles although as per the lease agreement, the lease was required to pay the transportation charges. The AO further issued summons to M/s. Khanna Goods Transport who were stated to be the transporters of the bottles but the representative of the Khanna Goods Transport could not place any evidence as to who has transported the bottels from manufacturer to the sub-lessee M/s. Unikol Bottlers Ltd. and who has paid the transportation charges. The AO examined the acts of the case in the light of this evidence and observed that the assessee entered into an agreement for supply of soft drink bottles with M/s. Arizona Printers & Packers which vide agreement dated 15.3.91 were leased out to M/s.
Aravali Leasing Ltd. it was not clear that how M/s. Aravali leasing Ltd. entered into a sub-lease agreement in respect of these bottles with M/s. Unikol on 8.3.91 before acquiring any right in the leased bottles. The assessee could not even explain how the transportation of bottles was effected and who has paid the transportation charges. On the basis of these facts, the AO opined that the bottles were not physically transported to Sahibabad and the entire circuit o transactions from the assessee to M/s. Unikol Bottlers Ltd. was in fact sham transaction. He, accordingly, disallowed the claim of depreciation raised by the assessee.
14. The assessee has preferred an appeal before the CIT(A) with the submission that after verbal negotiation, a letter of offer dated 27.11.90 was sent to M/s. Aravali Leasing Ltd. which were accepted by the latter vide letter dated 27.11.90 although the formal lease agreement was singed on 15.3.91. In was further contended that although the assessee wanted to lease the bottles to M/s. Unikol, but is wanted an involvement of another party since it has no prior dealing with M/s.
Unikol. M/s. Aravali had agreed to step in as the lessee in order to sub-lease bottled to M/s. Unikol. M/s. Arinona Printers & Packers Ltd. the manufacturer of bottles had sent written offer through a Performa invoice which was accepted by the assessee and the supplier commenced the supply of bottles on behalf of assessee to M/s. Unikol the sub-lessee from 10.12.90. Since the parties had already reached understanding and delivery of bottles had commenced, M/s. Aravali and executed a lease deed with M/s. Unikol Bottlers Ltd. on 8.3.91 for sub-leasing the bottles which were taken on lease by it from the assessee under the formal lease agreement executed on 15.3.91. Before the CIT(A), it was again contended that transportation charges were borne by M/s. Unikol but no evidence to this effect was filed. The CIT(A) re-examined the issue but did not find any force in the contention of the assessee and confirmed the disallowance.
15. Aggrieved, the assessee has preferred an appeal before the Tribunal and contended before us that on account of lock out in the Unikol Ltd. no evidence could be filed with regard to the payment of transporation charges. He however, reiterated his contentions earlier raised before the lower authorities. The Id. DR, on the other hand, has placed heavy reliance upon the order of the lower authorities.
16. Having considered the rival submissions a careful perusal of record, we find that this equipment lease agreement was executed between the assessee and Aravali Leasing Ltd. with an understanding that the lessor, the assessee would lease out the bottles costing Rs. 30,17,122.15 at a monthly rent of Rs. 3.04.226.50 for a period of three years starting from 25th March 1991. From Schedule 1A annexed with the lease agreement, it is noticed that the lessor would receive a sum of Rs. 36,50,718 during the period of 3 years against the total investment in these bottles at Rs. 30,17,122. From a careful perusal of this agreement, we do not find any inkling whereby one can draw an inference that the lessor has, in fact, intended to lease out the bottles to Unikol Brother Ltd. through Aravali Leasing Ltd. Moreover, a specific clause with regard to non-assignable interest in included in this leas agreement whereby this agreement is called to be a personal one between the lessor and the lessee as no interest assignable in enquiry or al law in this agreement or in the equipment and will not during the lease agree, attempt, offer or purport to sell, assign, pledge, mortgage, lend or let on lease, or otherwise part with or attempt to part with, the possession of the Equipment of his interest therein or in this Agreement except sub-lease of the equipment as permitted by the lessor.
According to this lease agreement, the bottles are to be delivered at the place of lessor i.e. Aravali Leasing Ltd. or at his instance.
Through this agreement, the Aravali Leasing Ltd. was not authorized to sub-lease these bottles to some third, party. We have also carefully perused the lease agreement executed between the Aravali Leasing Ltd. and the Unikol Ltd. whereby the Aravali Leading Ltd. has agreed to lease out the said bottles to Unikol Ltd. but in this entire agreement nothing has been mentioned in this regard that these bottles were obtained on lease from the assessee against certain payment of rent.
Besides this agreement, nothing has been filed to establish how much monthly rent on these lease bottles was agreed between Aravali leading Ltd. and Unikol Bottlers Ltd. from these documents, we do not find and assistance in support of the contention of the assessee that the assessee, in fact, intended to lease out these bottles to Unikol Bottlers Ltd. but being a stranger to the assessee, it had involved Aravali Leasing ltd. in the transaction of leading the bottles to Unikol Bottlers Ltd, instead of leasing the bottles directly to Unikol.
It is also evident from these documents that Aravali Leasing Ltd. has entered into a lease agreement with Unikol Bottlers Ltd. on 8th march 1991 and agreed to lease out the bottles to Unikol before acquiring any right in these bottles by virtue of a lease agreement with the assessee inasmuch as the lease agreement was executed between the assessee and the Aravali Leasing Ltd. on 15th day of March 1991. A specific query was raised during the course of assessment proceedings and the appellate proceedings before the CIT(A) how it happens but no documentary evidence was placed in support of the contention that Aravali Leasing Ltd. was involved in the transaction of leading between the assessee and Unikol Bottlers Ltd. It was simply stated that before the execution of this lease agreement, everything was settled orally between the parties. had it been a fact there would have some mention on these tri party negotiations in any of the lease agreement but we do not find anything therein. Nothing has been placed before us to substantiate how much monthly rent was settled between the Aravali Leasing Ltd. and the Unikol Ltd. except the cost of the bottles given in Schedule A. Annexed to the lease agreement between M/s. Unikol Ltd. and M/s. Avavali. As per this agreement executed between the assessee and M/s. Aravali Leasing the leases was required to pay the charges of transportation in respect of delivery of bottles of bottles fro a supplier but during the course of assessment proceedings. Aravali Ltd. has denied any payment of transportation charges. In rather contended that it was the responsibility of Unikol ltd. But the Unikol Ltd. did not produce any evidence with regard to the payment of transporation charges. It also disowned the liability of transportation charges and took a stand that it was borne by the supplier. On the basis of these facts, the AO has concluded that the entire transaction is sham and the assessee is not entitled for depreciation at all as it was not owner of the bottles. From a careful perusal of this lease agreement, we find that this lease agreement was drafted in a casual manner as some of its clauses like clause no. cannot be applied in case of leasing of bottles. As such, we do not find any support from these documents in favour of the assessee that he had, in fact, leased out bottles to Unikol Bottlers Ltd. through Aravali Leasing ltd. because this document tells a story otherwise. The Id. Counsel for the assessee invited our attention to certain correspondence exchange between the assessee and Aravali leading ltd. but which these documents, it cannot be proved that the assessee had, in fact, leased out bottles to Unikol Ltd. in order to claim depreciation thereon. Even if the transaction is proved, the next question comes that whether it was a leased transaction or the finance made available to the consumer of the bottles because the amount of so-called rent payable suggests a story otherwise. In these circumstances we are constrained to hold that the CIT()A is justified in concluding that this transaction is sham and the assessee is not entitled for depreciation as claimed.
18. In the result, the appeal of the assessee stands dismissed and of the Revenue is allowed.