| SooperKanoon Citation | sooperkanoon.com/71964 |
| Court | Income Tax Appellate Tribunal ITAT Jaipur |
| Decided On | Jan-31-2002 |
| Reported in | (2004)87TTJ(JP.)340 |
| Appellant | Baid Leasing and Finance Ltd. |
| Respondent | ito |
The assessee's counsel Shri Sanjay Jhanwar contends that the assessee-company is engaged in the business of leasing the vehicles as well as business of providing the vehicles on hire-purchase basis. The assessing officer made a disallowance of claim of depreciation of Rs. 1,67,76,602 in respect of leased assets. The said disallowance has been confirmed by the Commissioner (Appeals). The Commissioner (Appeals) however, gave a relief of Rs. 3,25,553 in respect of profit on sale of vehicle credited in the P&L a/c but not excluded by the assessee- company while filing the return. The revenue has challenged this relief given to the assessee. The grounds taken by the assessee- company for the aforesaid dispute against the order of the Commissioner (Appeals) are as under : "1. Confirming that assessee is only engaged in the financing activity and not in leasing of vehicles and thereby confirming the disallowance of claim of depreciation on leased vehicles at Rs. 1,67,76,602.
2. Holding that assessee has tried to give colour of lease to the transactions whereas in fact it is a financial arrangement by drawing following wrong inferences/conclusions, which is contrary to the facts on records : (a) Lessee is full and legal owner under the Income Tax Act simply because he is owner under Motor Vehicles Act.
(b) On payment of instalment in time by lessee, lessor has no right whatsoever to repossess the vehicle.
(c) The initial security along with monthly security equals the cost of vehicle.
3. Treating the transaction of lease of vehicles as finance activity and thereby taxing the lease rent as return on the finance on the one hand but not allowing the shortfall in the amount of alleged finance and the recovery of principal (by way of security deposit) as revenue expenditure.
4. Observing that depreciation-on leased vehicle is allowable.@ 30 per cent as against 40 per cent claimed by the assessee. " Grounds Nos. 1 to 4 being on the same controversy are consolidated and directed to be disposed of under a common ground.
The learned counsel for the assessee submits that the assessing officer while disallowing claim of depreciation pertaining to leased assets made following allegations : (a) The vehicles were purchased in the name of the vehicle owners and the assessee- company simply financed them and its name is appearing only as financier on the purchase bills.
(b) All the vehicles are registered in the names of parties concerned.
Hence, they are legal and beneficial owner under the Motor Vehicles Act. The assessee- company is only entitled to receive the amount of instalment and interest thereon as stipulated.
(c) These vehicles were never put to use by the assessee-company as they were neither plied by them nor given on rent.
(d) On enquiries for test check,- it has been found that one person Mr.
Vijay Kumar Verma who got the truck on lease from the company has also claimed depreciation on this truck as he is the owner of the truck and using the same for the purpose of business.
(e) One Mr. Ashif Khan has submitted that he has purchased the vehicle on instalments and claimed the depreciation thereon.
(f) The execution of lease agreement is nothing but a device to avoid proper payment of tax and thus a colourable transaction in view of Supreme Court decision in case of McDowell & Co. Ltd. v. CTO (1985) 154 ITR 148 (SC).
(g) The nature of business of assessee- company is similar to the Banks who are financing the vehicles and eallning interest thereon.
Thus, in brief the allegation of the assessing officer is that the assessee is neither owner of leased vehicles, nor it is using them for its business and thus the conditions for allowance of depreciation under section 32 of the Act are not fulfilled. 'Accordingly, he disallowed whole of the depreciation on leased vehicles claimed by the assessee.
He further submits that the Commissioner (Appeals) confirmed the disallowance of depreciation by observing the following : "In addition to the initial security deposit the appellant recovered the substantial amount in the monthly instalment by way of monthly securities and invariably the monthly security deposit equals the amount which the appellant has initially provided as finance for the purpose of vehicle. Further, lease agreement does not make any provisions as to how the financial security and monthly security is to be adjusted. In fact the security goes on increasing every month while the asset is depreciating. It in fact along with the initial security equals the cost of the vehicle at the end of the agreement period.
Once the payment of instalment is made in time, the appellant has no right whatsoever to repossess the vehicle.
All the vehicles are registered in the name of the parties concerned and they are in possession of vehicles, and also using them for their own purposes, They are full and legal owners under the Motor Vehicles Act and consequently rightful and beneficial owner for the purpose of depreciation. The applicant has no locus standi insofar as ownership is concerned so long as there is no default in payment of the instalment as per the agreement of finance, Applicant's case is fully covered by the decision of Hon'ble Rajasthan High Court in case of Golecha Properties (P) Ltd. v. CIT (1987) 166 ITR 259 (Raj).
Learned Commissioner (Appeals) has further observed that though no depreciation is allowable to appellant on leased vehicles as per his specific findings, for academic discussion, the rate of depreciation in respect of vehicles given on lease by assessee- company would be @ 30 per cent instead of 40 per cent as claimed by the assessee- company as held in Soma Financing Leasing Ltd. v. CIT (2000) 244 NR 440 (Cal).
He argues that accounting standard 19, issued by the Institute of Chartered. Accountants of India defines 'lease' as under : 'Lease is an agreement whereby the lessor conveys to the lessee, in return for a payment or series of payments, the right to use an asset for an agreed period of time.' 'Lease means any agreement or arrangement whereby the right to use any goods for any purpose is transferred by one person to another whether or not for a specified period for cash, deferred payment or other valuable consideration without the transfer of ownership, and includes a sub-lease but does not include any transfer on hire-purchase or any system of payment by instalments'.
Accordingly, in a lease, the ownership of asset rests with the lessor and what is being transferred is merely the right to use for the agreed period. At the end of the lease period, the lessee, if he thinks fit, may get the lease renewed, or take over the assets for negotiated price or, assets revert back to the lessor depending upon the facts of each case. On account of these reasons, the lessor alone remains the owner of leased assets during the lease period and is, thus, entitled for depreciation." The allowability of depreciation under section 32 has two essential prerequisites (ii) That the depreciable asset is used for the purpose of business or profession of the assessee.
It had been contended that the Hon'ble Allahabad High Court in the case of Addl. CIT v. U.P. State Agro Industrial Corpn. Ltd. (1981) 127 ITR 97 (All) has held as under "Owner of "an asset is the person who can exercise the right of ownership on that asset in his own right and not on behalf of the person with whom the title vests.
The Hon'ble apex court in the case of Mysore Mineral Ltd. v. C1T (1999) 239 NR 775 (SC) held as under : "Any one in possession of property as would enable other to be excluded and having right to use and occupy the property in his own title exercising such domain over the property as would enable others to be excluded and having right to use and occupy the property in his own right would be owner." In the case of R.B. Joharmal Kuthiala v. CIT (1971) 82 ITR 570 (SC), it was held as under : "Real test to determine the ownership of an asset is to ascertain whether the assessee was entitled to the income from that asset in his own right or not. " On the concept of user for the business, the assessee's counsel has made reference to various decisions and contends that in case of a person carrying on leasing business, any asset leased in such business by leasing it out shall fulfil the user test and, therefore, depreciation should be allowed thereon. For this purpose, reliance has been placed on the following decisions "The lessor is entitled to depreciation on the leased vehicles as soon as the lease agreement was concluded and physical possession of the vehicles was handed over irrespective of what the lessee did of the vehicle.
"In a leasing business, what is required before depreciation could be allowed is that the asset must have been formally introduced in the business of lease, it would be immaterial if the lessee had not plut to use the leased out assets." " Their Lordships of the Supreme Court have by an order dated 28-8-1997, dismissed the special leave petition filed by the department to appeal against the judgment dated 24-10-1996 of the Bombay High Court in ITA No. 63 of 1996, whereby the High Court rejected the reference application on the question whether the Tribunal was right in law in directing the allowance of depreciation on gas cylinders in the hands of the lessor." The learned counsel describes the procedure followed by the assessee in his lease business to be that lessee of vehicle is identified who selects the vehicle as per his requirements and who agrees to take vehicle on lease. The lease agreement is being executed between the assessee-lessor and the lessee generally for a period of 12 months to 36 months. Assessee- company purchases the requisite vehicle from the dealer and makes payment thereof directly to the dealer. The assessee from the dealer receives the invoice. The dealer in the name of lessee generally prepares the invoice as per assessee's instruction for facilitating the registration under the Motor Vehicle Act in the name of lessee. The application for registration of vehicle in Form No. 20 is being filed to ITO office showing the name of the lessee as the registered owner for the purpose of Motor Vehicle Act and declaring itself as the owner and also declaring the fact of existence of lease agreement. It is being separately explained that under the provisions of Motor Vehicle Act, the lessor or financier or seller in'hirepurchase terms are being treated at par and termed as financier. To comply with the legal requirements and to safeguard the vehicle against the contingencies, the vehicle is insured. In the insurance policy the name of assessee appears as lessor and name of the lessee appears as registered owner. Vehicle is delivered to lessee for his use for which lease rent is charged by the assessee- company. Apart from lease rentals, the assessee- company also takes monthly security deposit from the lessee as per the agreement. At the end of the lease period, the possession of vehicle is being handed over to the assessee. At this point, either the lessee decides to buy the vehicle at the price negotiated between the lessor and lessee at the time of termination of lease agreement, or if it cannot be negotiated, the assessee-lessor sells or otherwise disposes it off. In case of default in payment of lease payments, the assessee repossesses the vehicle as per the terms of lease agreement and then disposes it off by way of release or sale.
It was further stated that important terms of lease agreement are narrated as under : 2. Lessee to affix the plate on vehicle identifying the same as sole and exclusively property of,assessee.
3. Lessee to act as bailee and not to have any proprietary. right, title or interest in the vehicle.
4. In the event of failure on the part of lessee to get the vehicle repaired entitled to take back the possession of vehicle and to get the same repaired at lessee's cost.
6. Assessee entitled to inspect and examine the condition of vehicle at any time.
7. No alteration and addition to the vehicle without prior and written consent of assessee.
10. Lessee not to sell, assign, transfer, hire, hypothecate, pledge, etc. the vehicle.
11. At the end of lease period, terms of lease renewable for the further period on mutually agreed terms, failmig which the vehicle to be delivered back to the assessee.
12. Assessee entitled to repossess the vehicle in the event of-specified failure on part of the lessee.
13. Assessee at liberty to terminate the agreement by giving a 90 days' notice to the lessee.
14. Assessee entitled to claim depreciation under the Income Tax Act and under the Companies Act.
15. Sales-tax on lease rental payable, if any, to be charged by the assessee and, payable by the lessee." The learned counsel further contends that lease agreements are distinguishable from the hire-purchase agreement.
It is pertinent to mention that the, assessee is in the business of hirepurchase as well as lease and its customers have the choice of opting for any one of them. Most of the customers opt for hire-purchase arrangements, yet there are certain customers who opt for taking the vehicle on lease basis. The major distinction between the two kinds of agreements is that in case of lease, the right to use the asset is being given to user for the contracted period, the ownership of asset remains with the assessee and at the expiry of the contract period both the parties are at liberty to enter into a transaction of sale, at the price negotiated at the time of termination of contracied period. This price is being negotiated having regard to the market price of similar vehicle prevailing at that point of time. On the other hand, in case of hire-purchase agreements, from the inception itself, there is an agreement of sale of vehicle at the time of termination of hire-purchase agreement at the contracted rate of Rs. 1.
Further, in case of lease agreement, the lessee is not entitled to terminate the lease agreement in between the contracted period and become the owner of the asset, whereas in case of hire-purchase, the hirer is entitled to terminate the agreement at any time and become the owner by making payments as per the agreement. In substance, the purchase/sale of vehicle in case of hirepurchase agreement is solely at option of the buyer and the assessee cannot deny the sale at the contracted price. However, in case of lease the purchase/sale depends upon a de novo agreement, between the two parties, independent of the lease agreement, where not only the transaction price is to be determined de hors of the lease agreement, but both the parties have equal right to accept or deny the transaction. It is for this reason that in case of sale of similar model in the same period, the negotiated rate differs on case to case basis.
On account of the reason that in case of a lease, the risks and rewards of ownership absolutely vests with the lessor, the rate of return on investment of assessee is much higher than in the case of hire-purchase. This is being indicated in the statements placed at paper book pp. 181A-183 and 184 to 191. Further, in case of lease transactions, the sale consideration at the time of termination of agreement, invariably in all cases, is less than the cost of the vehicle. This deficit is on account of assessee, -as it is he who is the owner and, therefore, obliged to bear the same. The charge of higher rate of return is only for the reason that the said deficit is on his account.
It has also been stated that the assessing officer has alleged that the lease agreements are colourable devices but this allegation is without any basis. Lease agreements of the assessee are not colourable devices but represent real transactions. It has further been contended that the lease agreements executed by the assessee with respective lessees represent a real transaction entered into between the two parties, which has not only been properly executed but also has been observed and enforced by the parties concerned. A document could be considered as sham or colourable when it does not reflect the true agreement between the parties and when the dealings between the parties show the real arrangement. In the present case, both the parties to the lease agreement have acted upon, the respective agreements in more than one way.
The transactions of sale/purchase at the time of termination of lease agreements at independent price and desire of parties also support this claim. This itself makes it clear that until such transactions of sale/purchase are being executed, the assessee-lessor remains the owner of the vehicles under lease agreements. The fact that assessee remains the owner of leased vehicle and exercise right and control over the vehicle is proved from the following instances (a) Repossession of the vehicle on default and subsequently given to another person on hire-purchase basis.
(b) Transfer of vehicle by the assessee- company to insurance company on theft and receipt of claim.
(d) Repossession of vehicle on default of payment of lease rental and release thereof'on payment of dues.
(e) Sale, of vehicle by lessee refused to be transferred by registering authorities.
It has also been stated that the lessor's rate of returh is more in case of lease transactions on account of the reason that shortfall/deficit in the value of asset is -on his account and any buyer would pay the depreciated amount only, when the vehicle is sold after termination of lease period. The transaction details of leases show that they are not in the nature of hire-purchase transactions and the lessor remains absolute owner till the termination of agreements.
The Commissioner (Appeals) has referred to at great length the provisions of Motor Vehicle Act and drawn the inference therefrom that the registered owner is the actual owner, resulting into the doubts about the lease agreement. It may be mentioned that firstly, it is not necessary for claim of depreciation that a person should be registered owner. Secondly, the application for registration itself shows that the vehicle under registration is subject to the lease agreement. Not only this, the provisions of the Motor Vehicle Act recognise the practice of registration in the name of lessee and for that reason only they require a mention about the lease agreement aifd, the lessor (owner).
Thus, the registration of vehicle in the name of lessee does not imply that there is no lease agreement or lessor is not the owner or the lease agreement does not reflect real transaction. Rather it suports the case of the assessee that the lease transactions are real because the fact of lease transaction is apparent from the application for registration itself, which has been- made the basis for allegation against the assessee.
In any case when it is being alleged that the apparent is not real, the burden is on the person so alleging-in the present case on the revenue-who is alleging that the lease agreements do not reflect the real transaction. Merely on the basis of suspicion a document cannot be disbelieved and the apparent has to be considered as real. The revenue in the present case has failed to. establish that the lease agreements do not reflect the real transactions and its allegations are based merely on suspicion. Therefore, also the lease transactions should not be disbelieved and should be considered as real. The reliance is placed on the following decisions : Bedi & Co. (P) Ltd. v. CIT (1983) 144 ITR 352 (Kar) (1983) 142 ITR (St) 6 Where the assessing officer does not have any material to discard the documentary evidence tendered by the assessee in the form of the lease agreements, the disallowance cannot be made by setting aside such documentary evidences. Reliance is placed on Udhavdas Kewalram v. CIT (1983) 140 ITR 392 (Bom) and Kasturchand Baid v. Asstt. CIT (1997) 94 Taxman 226 (Nag)(Mag).
In respect of reliance of 'McDowell's case, it is submitted that it was held that the depreciation on leased assets was allowed to the lessor even though the department alleged that the transactions of sale-cum-lease are sham transactions, there is no movements of leased assets, the transactions are only on papers and ownership of assets with lesser is not proved on the ground that sale-cum-lease transactions are genuine transactions and every assessee had legal right to arrange his affairs so as to reduce the burden of taxation to minimurn amount. Avoidance of tax is not tax evasion and it carries no ignominy with it, for it is legal and, certainly not bad morality for anybody to so arrange his affairs to pay minimum possible tax.
Further, had these transactions been colourable the assessee would not have taken the repossession of vehicle or lodged FIR with police station in case of theft of vehicle and insurance claim on loss of vehicle.
Therefore, reliance of assessing officer and Commissioner (Appeals) on McDowell's case (supra) is incorrect/misconceived and should be ignored and depreciation be allowed to the appellant.
The assessing officer as well as Commissioner (Appeals) has relied upon the decision of Hon'ble Rajasthan High Court in case of Golecha Properties (P) Ltd. v. CIT (1987) 166 ITR 259 (Raj) which lays down the ratio that the term 'owner' used in section 32(1) with reference to allowance of depreciation means , the absolute owner of the assets and not a limited owner. The decision also refers to the omitted sub-section (IA) of section 32 whereby the benefit of depreciation was extended JP a lessee. Hon'ble court has held that (when the limited owner (herethe-Iessee has been regarded as limited owner) had been covered within the ambit of the term 'owner' under section 32(1) , there was no need to enact a separate sub-section for allowing depreciation to the limited owner. It is respectfully submitted that the said case rather helps and supports the case of the appellant where appellant is not the limited owner but is the absolute owner, being entitled to depreciation. In the present case lessee can, at best, be regarded as a limit owner, i.e., for the purposes of the Motor Vehicles Act who is obliged to hand over the vehicle after a stipulated period on expiry of the lease term. Further, the terms of the lease agreement, the transactions between the parties, subsequent termination of agreements and independent sale transactions are evidencing these facts. In view of the above and according to the aforementioned Rajasthan High Court judgment, the appellate would be entitled to depreciation under section 32.
The Commissioner (Appeals) and the assessing officer have also raised certain other matters and the clarifications thereon have been furnished by the assessee's counsel on various other matters.
At the time of applying for registration the assessee- company in Form No. 20 declares the existence of lease agreement and declares itself as owner of the vehicle and also signs this form in capacity of owner. The lessee signs it as the person to be registered as registered owner.
This also indicates that under the provisions of Motor Vehicle Act, the person to be registered as registered owner need not be the real owner of the vehicle. However, we may mention that under the provisions of Motor Vehicle Act no distinction is being made in the persons who are lessors or hire-vendors or even financiers to whom the vehicles have been hypothecated and all of them are considered to be financiers. That does not mean that lessors are not owners. This in fact implies that the nomenclatures 'registered owner' and 'financiers' used with reference to the Motor Vehicle Act are not decisive of the issue as to who is the owner and it has to be determined independently. A person who is registered owner under Motor Vehicle Act may be owner and may not be. It would be the agreement between the parties which would be decisive factor for ownership.
Finding of assessing officer that in purchase bills of vehicles name of lessee is shown as purchaser and the assessee as financier needs to be clarified. The invoice is required for registration of vehicle and unless name of the lessee is available thereon, the registration in his name is not possible. Thus, though the appellant instructs to specify both the names on the invoices but the vendors go by their own practice and it also depends upon the salesman preparing the invoice. There are invoices where the name of lessee is mentioned as purchaser and name of assessee is indicated as the lessor. In some cases name of assessee is indicated as financier using the terminology of the Motor Vehicles Act, with which the sellers are more acquainted/accustomed. However, it is.
submitted that the mention of name of a particular person on the invoice or mention of particular caption with such name is simply a form and would not affect the substance of the transaction. The ownership would go by the substance and not the form, as explained by the Supreme Court.
The clause 38 of lease agreement specifically provides the lessor will be eligible for claiming depreciation as per Income Tax Act and Companies Act. Notwithstanding this, if any depreciation is claimed by any of the lessee, it should be disallowed for the reasons that he is not the absolute owner. In any case, the claim of assessee cannot be denied on account of such reason of wrong claims made by lessees.
The assessee's counsel contends that the findings of the learned Commissioner (Appeals) are factually incorrect that lessee is paying full cost of vehicle by way of initial security deposit and monthly security deposits. In fact, the aggregate of initial security deposit and monthly security deposits is much less than the initial cost of vehicle and the same is either refunded at the end of lease period or adjusted against the sale price of vehicle where at the end of lease period, the agreement is arrived at between lessor and lessee to sale/purchase the vehicle at the agreed rate. This position may be examined from the chart submitted separately.
Further, he contends that clause 31 of the lease agreement fully empowers the assessee to repossess the vehicle even if there has been no default in payment in instalments. The said clause is reproduced as under : "31. Notwithstanding anything to the contrary herein contained the lessor shall be at liberty to terminate this agreement at any time giving to the lessee 90 days prior notice in writing without assigning any reason. Upon such termination the lessee shall return the vehicle to the lessor, on t1le expiration of the notice period, if the vehicle is not already in. the possession of lessor. However, the obligation of lessee to pay all dues and outstanding payable by it to the lessor shall survive the termination of this agreement." The Commissioner (Appeals) has omitted to observe the above clause in the lease agreement which led him to the conclusion that the assessee has no locus standi insofar as ownership of vehicle is concerned. It, is, therefore, wrong to say that the assessuee does not have any right to repossess. Furthermore, the statements of Shn Ashif Khan and Fakaruddin and test chedk in case of Vijay Kumar taken at the back of the assessee do not have any significance.
Further, when lease agreement is duly signed by him, acted upon by him, payments made by him in terms of lease agreement no credence should be given to such statements particularly when he was not confronted in respect of the lease agreement duly signed by him. Moreover, wrong claim of depreciation by him should not result in disallowance of appellant's claim. In respect of wrong claim of depreciation by Shri Vijay Kumar Verma also, our submissions are same that his wrong claim cannot be the impediment for appellant's correct claim.
It is also submitted that assessee filed evidences where lessee did not claim depreciation but only claimed lease rent as is evident from the papers and documents placed at paper book pp. 138-164 relating to Shri Madan Lal Maloo and M/s Jaipur Lamp Component (P) Ltd. It was, therefore, contended that the claim of the assessee for depreciation at 40 per cent is legitimate claim which needs to be allowed.
On the other hand, the learned departmental Representative ("DR for short") submits that the main issue in the appellant's case is relating to disallowance of depreciation claim of Rs. 1,67,76,602 on the ground that the assessee being financier does not fulfil essential conditions of ownership and use of assets (vehicles) for the purpose of its business and profession laid down under the provisions of section 32 of the Income Tax Act. The authorities below (assessing officer and the learned Commissioner (Appeals) have categorically established that the assessee- company is a financier which simply makes arrangements of finances for providing the vehicles to the interested parties. The meaning of leasing and financing has also been dealt with in the learned CIT(A) order as per the arguments of the assessee. Further, meaning of financing and leasing is given as per Oxford English Dictionary is as under : .
Finance : Pay or put to rensom; engage in or manage financial operations; provide onerself with capital; provide money.
Lease : The contract between parties by which one conveys property to the other for a prescribed term or at will usually in consideration of periodic payment. This will also help in understanding the assessee's business with reference to the findings given in the assessment order and the learned Commissioner (Appeals). The learned departmental Representative further stated that the main factors of treating the assessee simply a financier, are discussed as mentioned in the assessment order and in the appellate order. The assessing officer has clearly brought out the facts on pp. 2 and 3 of his order that the assessee is simply a financier on the basis of purchase invoices/bills produced before him and he has simply arranged the affairs of providing the vehicles to the purchasers who approached the assessee on sample basis. The dealer issues an invoice/bill in the name of the purchaser and also mentions the name of the assessee as hire-purchaser, financier, hypothecated, under-hypothecation, etc. The assessee also gets initial payments from the purchasers including the insurance premium in the beginning in almost all the cases and there is also no bar on the purchaser to make more payment initially than required.
Accordingly, the further instalments are determined of the balance amounts only. The insurance papers are filled up in the name of purchaser who can only make the claim in any eventuality. The vehicle remains with the purchaser as and when the full payments are made. The assessee only takes any action of possessing the vehicles in very limited cases where the purchaser becomes defaulter. Such cases are very few. The registration of vehicle is also made in the name of purchaser under the Motor Vehicles Act. The assessee- company is only entitled to receive the amount of instalments and interest thereon as stipulated. The purchaser only uses the vehicle and it is also known by making the enquiries that some purchasers are also claiming depreciation. The learned departmental Representative further submits that the financial position is mentioned by the assessing officer on pp. 2, 3, 7 and 8 of the assessment order and on pp. 15 to 20 of the learned Commissioner (Appeals)'s order. It is, however, seen that the assessee has further made an arrangement of a lease agreement with the purchaser which is actually for the safeguard of assessee's interest, but before the authorities below and before the Tribunal the assessee has tried to prove that the assessee is a lessor/owner in view of the lease agreement. By doing so, the assessee is claiming as owner of the vehicles provided to various purchasers, which are used by them and claiming depreciation on such vehicles. Apart from this factual position, the assessee has also relied upon on various judicial pronouncements during the assessment proceedings and also in the appellate proceedings before the learned Commissioner (Appeals).
However, the authorities below have considered the assessee's plea thoroughly and carefully and established that the assessee is simply a financier and not lessor.
It was further contended by the learned departmental Representative that the assessee's authorised representative has putforth the arguments for establishing the ownership and use for the purpose of business or profession of the assessee with the help of some decisions.
The learned authorised representative has relied on the decision in the case of Addl. CIT v. UP. State Agro Industrial Corpn. Ltd. (supra). In this decision delay in transfer of title by the U.P. State Agro, Industrial Corpn. Ltd. for claiming the depreciation under section 32 when the asset was already in use. This favours the revenue as the user is the purchaser irrespective of the title.
The assessee has also relied upon the Supreme Court decision in the case of Mysore Minerals Ltd. v. CIT (supra). The facts decided by the Hon'ble Supreme Court in the said case are altogether different with the present case as Mysore Minerals Ltd. purchased the property for its employees which was in use by the employees though the part payment was made. In this case also the facts are different with the assessee's case that the purchaser is using the vehicle on making part payment.
The assessee has also relied upon the decision in the case of R.B.Joharmal Kuthiala (supra). This case has already been considered by the assessing officer and otherwise also this strengthens the case of the department instead of the assessee, as the purchaser is using vehicle.
Similarly, the assessee has also relied upon decisions of Bombay High Court and Kerala High Court in CIT v. Dilip Singh Sardar Singh Bagga (1993) 201 ITR 995 (Bom) and CIT v. Nidish Transport Corporation (1990) 185 ITR 669 (Ker) which have already been considered by the assessing officer on p. 6 and clearly distinguished these decisions on facts. In the case (1993) 201 ITR 995 (Bom) (supra), the Hon'ble Bombay High Court has held,that the user will get the benefit of depreciation even in absence of transfer of title. In the present case, the user is a purchaser.
The assessee has also relied upon the decision of the CIT v. Avon Capital Services (P) Ltd. (supra), where the SLP has been dismissed against Bombay High Court's decision where the issue was allowance of depreciation on gas cylinders. In the present case,- the facts are different. Similarly, the facts decided by K & Co. (supra.) and Mulraj Dwarkadas Gokuldas (supra) are also different.
The learned departmental Representative further contends that the learned counsel for the assessee has also mentioned in the written submissions filed on 16-10-2001, that the registration under the Motor Vehicles Act indicating the purchaser as registered owner and name of the assessee as financier in the bills does not have any merit. The counter argument can also be putforth that the so-called lease agreement executed by the assessee is also not having any sanctity. On the contrary, the purchasers are mentioned as owners of the vehicle in the registrations issued by the transport authorities and the assessee simply shown as purchaser. Some copies of such registrations are enclosed for perusal. The learned Commissioner (Appeals) has elaborately discussed the sanctity of the socalled lease agreements, on that basis, the assessee has claimed as owner on pp. 17 and 18 of his order.
In view of the above, the assessee has simply acted as a facilitator between purchaser and the dealer for running its financing business.
The real owner and the dominion over the rights of ownership are with the actual user. The assessee cannot take back the vehicles, if the prescribed instalments are received in time and the vehicles remain permanently with the purchasers as and when the payments are made. In the case of leasing business, the property so leased comes back to the actual owner on expiry of lease period but in the assessee's case the situation is not so.
In the conclusion, there are three players, viz., purchaser, financier (assessee) and supplier (dealer). The assessee is providing finances to the persons (purchasers) and they approach the financier for purchasing the vehicles. In this process, the financier (assessee) takes the purchaser to the dealer for facilitating the purchase of vehicle. The dealer also does his business in the earlier scheme and the vehicle is sold for a lump sum consideration including interest component. The purchaser pays the entire insurance premium and initial payment of instalment and uses the vehicle. He also earns income by plying the vehicle and it is not necessary that the instalment payment is made by the purchaser from the income so earned. Therefore, the assessee does not get the instalment from that particular vehicle and the decision of Hon'ble Supreme Court in the case of R.B. Jodhamal Kuthiala (supra) does not apply in the assessee's case at all. Considering all the facts, the decision of the Hon'ble Supreme Court in the case of Sumab Dayal v. CIT (1995) 214 ITR 801 (SC) is squarely applicable in the surrounding circumstances and human probabilities.
Further, the learned departmental Representative submitted vide letter dated 10-12-2001, as under : 1. The learned Commissioner (Appeals) while confirming the order of the assessing officer of disallowing the depreciation claim of Rs. 1,67,76,602 of the appellant had discussed the relevant provisions of Motor Vehicles Act, 1988, on pp. 13 to 16 of his order and found the purchasers of vehicles as the real owners for all practical purposes, Sec. 41 of the said Act deals with the registration how to be made and subcl. (3) of section 41 reads as under : "The registering authority shall issue to the owner of a motor vehicle registered by it a certificate of registration in such form and containing such particulars and information and in such manner as may be prescribed by the Central Government." 2. The registration was issued to the purchaser of vehicle in Form No.23 mentioning as registered owner. However, the appellant has shown itself as hire-purchaser in this certificate issued by the District Transport Officer, though, there were other alternatives of claiming as lessor or hypothecated. The assessee preferred to choose to execute a hire-purchase agreement in this transaction.
3. As per the Motor Vehicles Act, 1988, this is also a requirement that any agreement executed between the' lessor and lessee, the same should be mentioned in the application made under the provisions of Motor Vehicles Act, 1988. Where any application for registration of a motor vehicle under a hire-purchase, lease or hypothecated agreement is made, the registering authority shall make an entry in the certificate of registration regarding the existence of such agreement. The application under section 51(1) of the Motor Vehicles Act for making an entry of hire-purchase, lease or hypothecated shall be made in the Form No. 34 duly signed by the registered owner of the vehicle and the financier and shall be accompanied by a certificate of registration and the appropriate fee as specified in rule 81 of the Central Motor Vehicles Rules, 1989. However, such documents are not available on records in the assessee's case and only the registration certificate issued in Form No. 23 shows the appellant as hire-purchase agreement.
4. As per sub-clause (9) of section 41 of the Motor Vehicles Act, 1988, the fee is also paid along with the application which is paid by the purchaser (registered owner) for all practical purposes. The relevant documents furnished by the appellant in respect of the registration certificates have already been enclosed along with my written submissions filed on 18-10-2001, which may kindly be perused and considered.
5. There are various forms to be filled up by the financier/lessor/purchaser for getting the registration of vehicles under such schemes. These are mentioned as below: (i) Form No. 27 : Application for assignment of new transport mark to motor vehicle (r. 54) to be made in triplicate if the vehicle is held under an agreement of hire-purchase/lease/hypothecated.
(ii) Form No. 28 : Application for grant of no objection certificate ((rules 54, 58(1) , (3) & (4). This is to be made in quadruplicate if the vehicle is held under an agreement of (iii) Form No. 30 : Application for intimation and transfer of ownership of motor vehicle ((rules 55(2) & (3)). This is to be made in triplicate if the vehicle is held under an agreement of hire-purchase/lease/hypothecated.
(iv) Form No. 31 : Application for transfer of ownership in the name of person succeeding to the possession of vehicle ((rule 56(2)). This is to be made in duplicate if the vehicle is held under an agreement of hirepurchase/lease/hypothecated.
(v) Form No. 33 : Intimation of change of address recorded in certificate of registration and office record (rule 59). This is to he made in triplicate if the vehicle is held under an agreement of hire-purchase/lease/hypothecated.
(vi) Form No. 34 : Application for making entry of an agreement of hirepurchase/lease/hypothecated subsequent to registration (rule 60).
This is to be made in duplicate and in triplicate where the original authority is different, the duplicate copy and triplicate copy with the endorsement of the registered authority to be returned to be financier and the registering authority simultaneously on making the entry in the certificate of registration and Form No. 24.
(vii) Form No. 35 : Notice of termination of agreement of hirepurchase/lease/hypothecated ((rule 61(1) ).
(viii) Form No. 37 : Notice to registered owner of motor vehicle to surrender the certificate of registration for cancellation and issue of fresh certificate in the name of financier (rule 61(3)). This is to be made in duplicate and triplicate copy to be sent to the financier simulaneously on issue of notice.
6. In the present case, the documents which have been filed before the authorities below are mainly in Form No. 23-certificate of registration (rule 48) which is a registration certificate in the name of registered owner showing the assessee under hire-purchase agreement (Some xerox copies have been furnished along with written submissions dated 18-10-2001).
7. As has already been submitted and argued that the purchasers of vehicle are using the vehicles and they are also the owners of the vehicles, though the final title of vehicle is transferred at the time of making full payments in instalments. This gets strength from the judicial pronouncements in the following cases : 8. The aforesaid decisions have been discussed in the earlier submissions furnished on 18-10-2001 and also in the arguments took place on 1-11-2001. However, the Hon'ble Supreme Court's decision in the case of Mysore Minerals Ltd. v. CIT (supra) is squarely applicable in the present case, which supports the revenue's case that the purchasers are the real owners and using the vehicles. They are eligible for depreciation. The last but one para of this decision is mentioned hereunder : 'It is well-settled that there cannot be two owners of the property simultaneously and in the same sense of the term. The intention of the legislature in enacting section 32 of the Act would be best fulfilled by allowing deduction in respect of depreciation to the person in whom for the time being vests the dominion over the building and who is entitled to use it in his own right and is using the same for the purposes of his business or profession. Assigning any different meaning would not subserve the legislative intent. To take the case at hand it is the appellant- assessee who having paid part of the price, has been placed in possession of the houses as an owner and is using the buildings for the purpose of its business in its own right. Still the assessee has been denied the benefit of section 32. On the other hand, the housing board would be denied the benefit of section 32 because inspite of its being the legal owner it was not using the building for its business or profession. We do not think such a benefit-to-none situation could have been intended by the legislature. The finding of fact arrived at in the case at hand is that though a document of title was not executed by housing board in favour of the assessee, but the houses were allotted to the assessee by the housing board, part payment received and possession delivered so as to confer dominion over the property on the assessee whereafter the assessee had in its own right allotted the quarters to the staff and they were actually used by the staff of the assessee. It is common knowledge, under the various schemes floated by bodies like housing boards, houses are constructed on large scale and allotted on part payment to those who have booked.
Possession is also delivered to the allottee so as to enable enjoyment of the property. Execution of documents transferring title necessarily follows if the schedule of payment is observed by allottee. If only the allottee may default the property may revert back to the board. That is a matter only between the housing board and the allottee. No third person intervenes. The part payments made by allottee are with the intention of acquiring title. The delivery of possession by housing board to allottee is also a step towards conferring ownership.
Documentation is delayed only with the idea of compelling the allottee to observe the schedule of payment.' 9. In the present case, the assessee has executed a lease agreement to compel the purchaser to observe the schedule of payment and the title is delayed in this process but the purchaser is making the payments in instalment with the intention of acquiring the title and this becomes true on making the final payment. Initially, the registration certificate is issued as registered owner to the purchaser and the final title (certificate of registration) is given on making the payment which is correct in all the cases except in few cases where payment of instalments is defaulted. In view of the Supreme Court decision in the case of Mysore Minerals Ltd. (supra), the real owner is the purchaser who uses the vehicle and the depreciation claimed by the assessee was rightly disallowed by the assessing officer and confirmed by the learned Commissioner (Appeals) which requires to be upheld by the Hon'ble Bench as the assessee is simply a financier.
Without prejudice to the above, even if the so-called lease agreements are considered proper and the assessee is treated as lessor, the assessee is not using the vehicle and the purchasers are owning the vehicles in view of the decision of the apex court in the case of Mysore Minerals Ltd. (supra) 10. The decision of the Hon'ble Karnataka High Court in,the case of Gowri Shanker Finance Ltd. v. CIT (2001) 248 ITR 713 (Kar), it has been held,that even in the lease agreement cases in consumer durables namely, TV/VCR/refrigerators and scooters, the consumers are the real owners of the goods purchased. In this case, Their Lordships have decided that the assessee provided finance for the purchase of goods and all the books of accounts, the customers became indebted to the entire cost of goods along with interest or lease rent payable thereon.
The agreements were drawn up in such a manner that the assessee would remain the owner of goods tin the'full payment was made. Thereafter the ownership of the goods would pass on from the assessee to the customers and they would not be required to return the goods to the assessee. On these findings, the Tribunal held that the assessee was not entitled to the depreciation and this view of the Tribunal has been upheld by Their Lordships in this case. The facts of the case decided by the Hon'ble Karnataka High Court (supra) are identical to the facts of the present case and all the facts have been with by the Hon'ble High Court in detail which may be considered by the Tribunal for deciding the issue in the appellant's case.
11. In view of the above, it is very clear that the assessee is simply a financier and not the owner of the vehicles purchased by various purchasers. Therefore, the action taken by the authorities below is absolutely correct which may kindly be upheld by the Tribunal." In rejoinder the learned authorised representative stated that section 41 of the Motor Vehicles Act is the relevant provision explaining the situation in this case, An owner has been defined in section 2(30) of that Act. Even a person in possession is also considered as owner. The concept of ownership in Mysore Minerals' case (supra) only requires domain over the property to the exclusion of others for the purpose of ownership. Rights of the assessee are exhaustive and, therefore, assessee is the real owner alone. The registered owner need not get depreciation. If the assets have been given for some time, that shall not be material. A reference has been made to the decision of Rajasthan High Court in the case. of Golecha Properties (P) Ltd. v. CIT (1987) 166 ITR 259 (Raj) for distinguishing the position of the assessee's case.
Even if the block forms have been signed by the lessees, the revenue has relied on the agreement, on the one hand, and doubts the same, on the other hand. Purpose and use of the blank forms is borne out from assessee's paper book p. 53, where it is clearly stated that the assessee is the owner and name of the lessee has been shown as the owner only in terms of Form 20 under the Motor Vehicles Act and the blank transfer forms stated to have been given by the lessee so as to enable the assesgee to transfer the registration in its name as owner to any other purchaser or to any other purchaser from them. It is, therefore, evident that the assessee has taken blank forms only to protect the interest at the time of transfer, if need be-and not otherwise, as contended by the learned departmental Representative.
The endorsement in insurance as is borne out also from the APB 54, 228 to 231 the first payment is made by the lessor where the account is debited. Subsequent payments are made by the lessee. Reference was drawn for the payment to the APB 213 to 227. The assessee has also placed a note at its paper book p. 260 on lease vis-a-vis finance. This reads as under : "1. A contract of lease may be in the nature of 'Finance lease' still is a lease. If a lease is a finance lease, it does not mean that lessee become owner, although the objective of finance leases is financing the asset. The lessor can exercise all the rights of ownership, he is entitled to earn income on account of his ownership of the asset and the lessee is entitled to use the asset only because lessor has granted such right for limited period of him. Thus, he is the absolute owner to the exclusion of all others and accordingly entitled to depreciation : 2. A 'lease' and 'financing arrangement' (the terms as being referred to by departmental Representative in his arguments) are not mutually exclusive; in many cases the contract of lease is also a financing arrangement as the lessee may go for lease for the reason that he does not have funds to finance the asset. However, such reasons would not make the lessee as the owner of the assets. Thus, if there may be financing arrangements in the form of lease but that would not mean that there is no lease at all. The rights and obligations and if under a financing arrangement, one party is the owner/lessor and other party is lessee, who is entitled to use the asset only by virtue of right bestowed upon him through the contract of lease, the ownership rights of the lessor cannot be affected.
3. To illustrate, if a person has funds and instead of financing the people for purchasing the house, it purchases the house and lets them on rental basis to the tenants, the tenant might take the house on rent because he might not be having the funds to finance the house. This is also a financing arrangement, but it does not mean that the landlord is not the owner.
4. The ownership has to be decided on the basis of rights of ownership exercised by a person, by virtue of the agreement between the parties and thus in the facts of present case, where the assessee is a lessor and exercises the rights of ownership, he is to be considered to be the absolute owner." From paper book p. 261, it is borne out that the sale consideration received by the assessee is less than the purchase price and there is a cash loss. This factor has not been considered by the authorities below. Assessee's paper book p, 262 reveals that initial security deposit and subsequently security deposit recoverable along with instalment is equal to cost of vehicle. Therefore, the allegation of the Commissioner (Appeals) is factually incorrect. The decision of Karnataka High Court in Gowri Shankar Finance Ltd. v. CIT (supra) is distinguishable. The aforesaid decision does not apply in the present case. There are many- factual distinctions including the following : "1. In the case (2001) 248 ITR 713 (Kar) (supra), the facts were that the assessee was not showing the leased assets as its assets in the balance sheet. Instead the amount was being debited to the customer by showing him as debtor. The amount received from him was credited to his account and at the expiry of the leased period the ownership of goods, passed on to the customer. Thus, neither any entries are being made in the books to show the value or even written down value of the assets any time nor any profit or loss arisen or booked in the accounts in respect of any of the assets. That assessee, for the purpose of claiming depreciation, treated the assets as his own. Although generally the entries of the books are not decisive for taxability but in the said case the manner of entries shows not only the conduct of the parties but also the nature of transaction/agreement between the parties whereby no profit or loss could have arisen to the assessee. In the present case, however, not only the leased assets have been shown in balance-sheet but there arises either profit or loss in all transactions of disposal of vehicle whether to lessee or otherwise, because transfer of ownership is not automatic and is by way of a separate independent transaction." In the case reported at (2001) 248 ITR 713 (Kar) (supra), the facts were that the assessee never came to possess the assets leased. In the present case, not only there is a legal right to repossess as stipulated in clause 31 of the lease agreement, but there are instances of repossession also. This also shows that in the present case the transfer of ownership was not automatic and was independent of the transaction of lease.
In the case reported at (2001) 248 ITR 713 (Kar) (supra), the facts were that the assessee would remain the owner till the full payments are made and after making full payment the ownership of the goods would pass on to the customer. In the present case, there is no stipulation in the lease agreement that after making full payment the ownership would pass on to the lessee. On the contrary, there is a right to the lessor to repossess the vehicle by giving notice as stipulated in clause 31.
In the case reported at (2001) 248 ITR 713 (supra), since according to the book entries, the assessee was not owner of the assets and it was merely sale by way of instalments since the amount was debited to customer accounts, though the book entries were not decisive but there was very heavy burden on the assessee to prove that contrary to book entries the assessee was owner of the vehicle and was entitled to depreciation. On the contrary in the present case, not only as per documents but also as per the books the assessee is the owner-lessor entitled to depreciation according to law (including CBDT circular) there is very heavy burden on the revenue to show that all the documents as well as book entries do not reflect the correct transaction.
In the case reported at (2001) 248 ITR 213 (Kar) (supra), a finding was recorded that it was not lease transaction but sale of goods on instalment basis, whereas in the present case, it has been explained before the Tribunal through various terms and conditions of the lease agreement that it is lease and not instalment sale. The customer is riot entitled to even make the full payment in between the lease period and terminate the lease. He has to observe that the complete lease period even if he wants to purchase the vehicle and has the funds for the same.
In the facts of the present case, if the sale value is compared to the original cost there always remains a cash deficit on account of the fact that the sale value is determined based on the fact that the vehicle is a used one. In case of sale by way of instalments there cannot be a situation of cash deficit in recovery of cost of the vehicle because reduction is on account of assessee. Therefore, the assessee's case cannot be considered as sale on instalment basis.
It is incorrect to allege that since so many documents are being signed by the customer he does not apply his mind as to whether he is entering into a lease agreement or any other type of agreement. Firstly, this allegation of learned departmental Representative is based on mere suspicion, conjecture, and surmises and such serious allegation should not be made on suspicion or even apprehension. When any agreement/document is existing which is being signed by the parties apparently entitled to enter into a contract then such agreement contract is legally enforceable and the same cannot be doubted without bringing any evidence to the contrary. The volume of documentation cannot negate the authenticity thereof. For example, in case of an income-tax search, a number of documents, inventory seized, Panchanama, annexures, etc. are got signed from the assessee and it cannot be said that the signatures do not have any significance because he was required to sign on so many pages, if any assessee wants to claim that he has to show that either coercion was used or the signatures were made in ignorance. In the present case, department should not doubt the agreement in absence of any material to the effect that the same was signed under ignorance or coercion.
(i) the burden to prove that apparent is not real is on the party alleging the same (1983) 144 ITR 352 (Kar) (supra) and (1983) 142 ITR 6 (SC) (supra).
(ii) Where the assessing officer has not rebutted evidence produced by the allegation, there was no justification for making additions as undisclosed income (1997) 94 Taxman 226 (Mag) (Nagpur Bench) (supra).
(iii) Where the assessing officer does not have any material to discard documentary evidence tendered by assessee, amount cannot be included in income of assessee (1983) 140 ITR 392 (Bom) (supra).
The first insurance premium is being paid by the assessee in case of all lease transactions and the same is debited to insurance premium lease account. This amount being the expenditure of the assessee is charged to the P&L a/c. The copy of said account is enclosed herewith as required by the Tribunal.
The renewal of insurance is being done by the lessee as per the stipulation in lease agreement. It is also pertinent to mention that in case of hire-purchase transaction of the assessee, unlike the lease transactions, the first insurance premium is being paid by the customer or is being recovered from the customer.
It is also pertinent to mention that the registration expenses' of the leased vehicles are also being paid and borne by the asses8'ee and debited to vehicle registration-lease account. This account is also charged to P&L a/c of the relevant period since the same is expenditure of the assessee being the owner of the leased-vehicle. The copy of aforesaid account is enclosed herewith for ready reference. On the contrary in case of hire-purchase transaction the registration expenses are borne by the customer.
The statement showing cash deficit in the lease transaction for the assessment year 1997-98 is enclosed herewith as desired by the Tribunal. The statement shows that total security deposit collected by assessee is always less than the cost of the leased assets. Therefore, the finding of the Commissioner (Appeals) that the monthly security deposit invariably equals the amount financed is factually incorrect.
The enclosed statement shows the cash deficit in recovery to the extent of Rs. 68.33 lacs. Further, another statement showing the profit/loss on sale of the vehicle is enclosed herewith.
The following circumstantial evidences also support the assessee's case that the impugned transactions are lease transactions and they cannot be termed to be colourable transactions : (i) The profit/loss in case of sale of the lease vehicles is not a fixed or computed amount, it is varying on case to case basis.
(iii) The rate of return in lease cases is more than hire-purchase cases on account of risks attached with the ownership PB No. 181A vis-a-vis 184.
(iv) The insurance claims are pursued by the assessee and the risk of loss relating to vehicle is on account of assessee PB pp. 238 to 259.
Rival submissions have been heard in the light of material brought on record and precedents relied upon. The appellant's claim for depreciation on leased assets has not been accepted by the assessing officer alleging that the appellant has never put to use these vehicles. The assessee's counsel has stated that the appellant's business is comprised of two activities, one being of hire-purchase and the other being that of lease which is under consideration in the dispute before us. In the business activity of hire-purchase it has been claimed that the parties enter into agreement of sale of vehicle on the day one while in the activity of its leasing the vehicles, the agreement is made for use of the asset only for the contracted period.
Before the assessing officer the appellant in its letter dated 6-1-2000 submitted that : "At the first instance user of vehicle is identified, who further selects vehicle as per his requirements and need. The company then purchases the vehicle from the dealer and makes the payment thereof. In the purchase bill the status of the company as lessor is mentioned along with the name of the lessee. The company then applies for the registration of the vehicle in the name of the lessee, declaring itself as owner and the lessee as registered owner of the vehicle for the purpose of Motor Vehicle Act. It is important to clarify at this juncture that assessee- company continues to be owner of such assets.
Further, while applying in for registration in Form No. 20 (rule 47), the company declares itself as owner and is signing it as owner and the lessee is signing it as proposed registered owner. Further, to comply with the legal requirement and to safeguard the vehicle against contingencies, the vehicle is insured. Even in the policy the names of owner (BLFCL) and the registered owner (lessee) appears. It is further to mention the both the aforesaid costs (of registration and insurance) are borne by the owner of the vehicles (BLFCL).
Assessee is neither the dealer of vehicles nor a stockist. In fact, it is purchasing them to run them on rent by giving them on lease. Thus, the aforesaid purchased and registered vehicles are handed over to lessee in dealer's show room only.
From the above evidence it is clear that the assessee remains always the owner i.e., by investing money, purchase bill and declaration before the registration authority. The lessee is registered owner so that for the default under Motor Vehicles Act the lessee is posed as registered owner, whereas the assessee company remains de facto owner of the vehicle. " The learned departmental Representative before us in his pleadings has also stated that there are three persons, viz. purchaser, financier (assessee) and supplier (dealer). The assessee is providing finances to the persons (purchasers) and they approach the financier for purchasing the vehicle. In this process, the financier (assessee) takes the purchaser to the dealer for facilitating the purchase of vehicle. In the later part of his pleadings it is admitted and as was also argued that the purchasers of vehicles are using the vehicles and they are also the owners of the vehicles, though the final title of vehicle is transferred at the time of making full payments in instalments. From such pleadings as well as the orders of the authorities below, the appellant's involvement in the transaction of purchase has not been doubted. In fact, the assessing officer is not found to have made any enquiry from the supplier M/s K.S. Motors Ltd. and other such companies as to whom they have sold the vehicle and whether the instructions to fill in the name in the invoice is at the instance of the assessee before us as his agent or otherwise the transaction is undependent one by the supplier with the other person and not with the assessee-appellant. In any case, there is no dispute to the fact that the supplier of vehicle after giving the delivery of vehicle has no role to play and it is at this stage, the supplier is divested of the title in goods/property for a consideration admittedly paid by the appellant. Hereafter remain only two parties whose relations are governed by the lease agreement executed between them. These agreements have been acted upon by the parties in both letter and spirit. Assessee claims and revenue also admits that the title in vehicle is transferred only after the full payment thereto has been received by the appellant during the currency of this agreement. The person in whose name the vehicle stands in the records of transport authority as a registered owner, has no right to transfer or dispose of the vehicle at his discretion or direction while the appellant has a liberty to terminate the agreement with him by giving a notice of 90 days in writing without assigning any reasons and the vehicle is returned to the appellant.
Such a right of the appellant is clearly spelt out within clause 31 of the agreement.
It is also admitted that in case the title in property of the vehicle is to be transferred to the lessee, the same is done by executing a separate agreement to that effect but the transfer of title is not automatic to the lessee. If this was to be said that the lessee is the real owner, and that there is no title in the property with the appellant, there would be no necessity for transfer of title to the lessee after the full payment is received by the appellant. It, therefore, stands to the reason that the appellant had in fact a tittle in the property during the entire period of lease which necessitates transfer of vehicle for a consideration and by way of execution of an independent agreement between the appellant and the transferee who thereafter becomes new owner of such vehicle. The expenditures incurred in the initial insurance as well as registration of such vehicles are claimed to have been borne by the appellant and charged to the P&L a/c.
The assessing officer himself has allowed the claim in the assessment framed by him. Under such circumstances, the appellant can be said to have incurred the whole cost of the vehicle by which it can be said to have acquired the title as owner therein. Had he no title therein, he would have not been called upon to transfer the same at the end when conditions of agreement were satisfied. The judgment of the Hon'ble Karnataka High Court in the case of Govt. Shankar Finance Ltd. v. CIT (supra) sought to be relied upon by the learned departmental Representative is found distinguishable inasmuch that in that case the assessee never came to possess the leased asset and ownership of goods would pass automatically to the customers upon making full payment, while in the case of the assessee before us the right to repossess the leased asset is clearly spelt out in clause 31 of the agreement and also that the ownership in asset under lease does not vest automatically to the lessee for which a separate agreement is made in case of transfer of ownership is decided having regard to the cash deficit suffered by the assessee. In any event the transaction of the assessee before us cannot be termed as sale on instalment also.
The revenue has alleged that execution of lease agreement, etc. is nothing but a device to avoid proper payment of tax. Merely because some of the persons under lease have claimed depreciation in defiance of the agreement shall not lead to the conclusion that the agreement is a device. The other vital facts are that the appellant was entitled to income from these vehicles which the lessee was regularly plying besides affixing the plate on the vehicle that the same was exclusive property of the appellant, its entitlement to take back the possession of the vehicle, vehicle to be insured with assessee as sole beneficiary, right to inspect the vehicle, restrictions on transfer, indemnity clause and certain other rights and control having been exercised by the appellant on the strength of such agreement do convey that the appellant had the prefect control in its own right of ownership. No material has been brought on record that the agreement and other documents were a device or a collusive arrangement. The allegation of colourful device, therefore, has not been proved. A reference to section 2(30) of Motor Vehicles Act for the registration of the vehicle in the name of the lessee reveals that even a person in possession is considered as owner and that is the reason that the invoice is also taken in the name of the lessee. The agreement of registration is claimed to have been made to circumvent various liabilities that may arise on the appellant under Motor Vehicle Act.
It, however, does not imply that there is no lease agreement or that the lessor is not the owner or that the lease agreement does not reflect the real transaction of the appellant with such person. The same also cannot be termed as a simple finance but the same is a transaction of lease finance, existence of which stands duly disclosed by the appellant by way of filing a declaration in Form No. 20 with the registering authority under Motor Vehicles Act. In any event the facturn of registration under the Motor Vehicles Act cannot be said to be decisive for the purpose of the ownership required under section 32 of the Income Tax Act. In the light of the aforesaid observations and the findings it can, therefore, be concluded that the lessees do not have dominion on the vehicles in their possession during the currency of lease agreement, due to various inabilities while the appellant could be said to be holding a perfect control at such point of time and, therefore, the assessee continues to be owner of vehicles during the entire period of lease for which there was no extinguishment of any right of ownership in the vehicle by the appellant during the currency of agreement. The appellant is found to have allowed the use of the vehicles for the productive purposes by the lessees wherein the appellant has merely given licence to use the vehicle for a temporary period for a consideration as lease rent. In view of this, the appellant can be considered to have used the vehicles for the purposes of his business. In this view of the matter and having regard to the decision of the apex court in the case of Mysore Minerals Ltd. (supra) which is favourable to the appellant, the assessee can be said to have met out the twin conditions of ownership as well as user of vehicles as laid down under section 32 of the Act for his entitlement for claim of depreciation thereon. The Special Bench of the Tribunal in the case of First Leasing Co. of India v. Assistant Commissioner (2001) 250 ITR 1 (Chennai)(0)(AT) has also come to the similar conclusion, after consideration of various judgments of High Courts and Supreme Court including the judgment in the case of CIT v. Shaan Finance (P) Ltd. (1998) 231 ITR 308 (SC)CIT v. B.C Srinivasa Setty (1981) 128 ITR 294 (SC) and South India Viscose Ltd. v. OT (1997) 227 ITR 286 (SC) by observing as under : "From the ratio of the above decision of the Supreme Court it is seen that where an assessee leased out its machinery to manufacturers, the assessee continues to be the owner of the machinery and the said machinery was used for the purpose of its business. It is, therefore, entitled to depreciation as well as investment allowance." The Commissioner (Appeals) has, therefore, erred in confirming the disallowance of claim of depreciation on vehicles to the appellant. As regards the rate of depreciation on the vehicles, the Commissioner (Appeals) made only an academic discussion. No substantive order was passed thereon. Accordingly, we do not consider it necessary to pass any order on the ground No. 4 of the assessee. With this the assessee's grounds Nos. 1 to 4 stand disposed of.
Ground No. 5 in assessee's appeal relates to the levy of interest under sections 234B and 234C. The assessee's counsel has contended that in this case the depreciation on leased assets has been allowed to the assessee in past years. It is the first year in which a different treatment is given and depreciation on leased vehicle disallowed. At the time of payment of advance tax instalment or at the time of filing of return this situation was never envisaged, foreseen or anticipated.
Hence, on disallowance of depreciation by the assessing officer, interest under section 234B cannot be levied. For this purpose he relied on the decision of Ahmedabad Bench of the Tribunal in S.K Patel Family Trust v. Assistant Commissioner (2001) 71 TTJ (Ahd) 121. It has further been contended that as per return filed by the assessee the interest under section 234 works out to Rs. 13,686. However, the assessing officer computed the interest on the basis of assessed income whereas such interest needs to be computed on the basis of returned income. He thus submits that the levy of interest under section 234C is incorrect.
On the other hand, the learned departmental Representative supports the orders of the authorities below.
After hearing the parties and careful consideration of the submissions and provisions being mandatory we do not find any error in charging of interest. However, the assessing officer shall give consequential effect and ascertain the interest afresh.
The revenue in its appeal has agitated the issue of the profit on sale of vehicles for Rs. 3,25,533 on the ground that the assessee did not make such claim before the assessing officer and the relief given by the learned Commissioner (Appeals) resulted into reduction of income below the returned income.
Parties have been heard. In the absence of any contrary material having been brought on record and since the powers of the Commissioner (Appeals) are co-terminus with those of assessing officer, no error is found in the relief given by the Commissioner (Appeals). Revenue's appeal, therefore, stands rejected.
In the result the appeal of the assessee is partly allowed, and that of revenue stands dismissed.