IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 955 /2009 (arising out of SLP(C) No. 4286/2007)

MCorp Global Pvt. Ltd. … Appellant(s)

   versus

Commissioner of Income-tax, Ghaziabad … Respondent(s)

J U D G M E N T

S.H. KAPADIA, J.

Leave granted.

2. This  civil  appeal  filed  by  the  assessee  is  directed  against

judgment and order dated 22.9.2006 in ITA No. 164/04 by the Delhi

High Court. By the impugned judgment, confirming the decision of

the Tribunal, the High Court has held that the appellant (assessee) is

not  entitled  to  claim  depreciation  under  Section  32(1)(ii)  of  the

Income-tax  Act,  1961  (“1961  Act”  for  short)  in  respect  of  two

separate transactions dated 15.2.1991 and 15.3.1991. The impugned

judgment has been rendered in respect of Assessment Year 1991-92

(corresponding to the previous year ending 31.3.1991).

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

3. Before coming to  the  facts,  the  following is  the relationship

between the parties:

- M/s Glass & Ceramic Decorators was the manufacturer              of soft drink bottles.

- Assessee was the ‘lessor’.

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

4. During the relevant assessment year, the assessee carried on the

business of trading in lamination machines & binding and punching

machines. In addition,  it  was also engaged in the leasing business.

During the year in question, the assessee had bought  5,46,000 soft

drink  bottles  from  M/s  Glass  &  Ceramic  Decorators  worth

Rs. 19,54,953/-. The bottles  were directly supplied to M/s Coolade

Beverages Pvt. Ltd. (“M/s Coolade” for short) in terms of Lease dated

15.2.1991.  Vide  Assessment  Order  dated 28.3.1994,  the AO found

that M/s Coolade had received only 42,000 bottles out of the total of

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5,46,000 bottles receivable by them from the assessee and that  the

remaining  bottles  stood  received  after  31.3.1991,  i.e.,  between  the

period 3.4.1991 and 18.4.1991 and consequently, the AO restricted

the depreciation only to 42,000 bottles and consequently dis-allowed

the  depreciation  of   Rs.  18,04,572/-.  It  may be  mentioned  that  in

Appeal the CIT(A) after formulating the “User Test” remanded the

matter to the AO who on remand held that all 5,46,000 bottles stood

paid for and dispatched before 31.3.1991 and, therefore, the assessee

was  entitled  to  100%  depreciation  on  all  5,46,000  bottles.  This

finding was given when the Appeal(s) was pending before the ITAT.

However, till date the findings of the AO (on remand) has not been

challenged. To complete the chronology of events, when the Appeal

(s) came before the Tribunal, it was held that since the lease was not

renewed  and  since  the  bottles  were  not  returned  on  expiry  the

transaction in question was only a financial  arrangement and not  a

Lease, hence, ITAT dis-allowed the depreciation claim of the assessee

which finding stood confirmed by the impugned judgment, hence this

Civil Appeal.

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5. At this  stage,  it  may be noted that out  of the total  claim for

depreciation of Rs. 1,80,30,489/- (in respect of both the transactions),

as  claimed  by  the  assessee,  the  AO  disallowed  depreciation  of

Rs. 18,04,572/- in respect of the First Transaction and depreciation of

Rs. 30,17,122 under the Second Transaction. In all,  she disallowed

depreciation of Rs. 48,21,694/- in the first round. In other words, the

AO  allowed  depreciation  in  respect  of  both  the  transactions

amounting  to  Rs.  1,32,08,795  as  against  the  claim  of

Rs. 1,80,30,489/-.  

Findings:

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

(1967) 63 ITR 232 this Court has held that under Section 33(4) of the

Income-tax Act, 1922 (equivalent to Section 254(1) of the 1961 Act),

the Tribunal was not authorized to take back the benefit granted to the

assessee  by  the  AO.  The  Tribunal  has  no  power  to  enhance  the

assessment. Applying the ratio  of  the said judgment to the present

case,  we  are  of  the  view  that,  in  this  case,  the  AO  had  granted

depreciation in respect of 42,000 bottles out of the total number of

bottles (5,46,000), by reason of the impugned judgment. That benefit

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is  sought  to  be  taken  away  by  the  Department,  which  is  not

permissible in law. This is the infirmity in the impugned judgment of

the High Court and the Tribunal.

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

According  to  the  impugned  judgments  of  the  High  Court  and  the

Tribunal, the transaction dated 15.2.1991 was a financial transaction

and not  a lease.  If  depreciation is  to be granted for  42,000 bottles

under transaction dated 15.2.1991 then it cannot be said that 42,000

bottles came within the lease dated 15.2.1991 and the balance came

within the so-called financial arrangement. In the circumstances, we

hold that the benefit of depreciation given to the assessee by the AO

in  respect  of  42,000  bottles  out  of  5,46,000  bottles  cannot  be

withdrawn by the Department and to that extent alone the assessee

succeeds in this civil appeal. Lastly, as stated above, in this case the

CIT(A) had remitted the matter to the AO who on remand came to the

conclusion that all 5,46,000 bottles stood sold before 31.3.1991. This

finding of fact has become final. It has not been challenged. Hence,

the  Department  has  erred  in  disallowing  depreciation  of

Rs. 18,04,572/-.

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(B) Facts Regarding Lease dated 15.3.1991 (Transaction No. II):

8. Before  coming  to  the  facts,  the  relationship  of  the  parties,

namely, stated:

- Assessee was the ‘lessor’

- M/s Aravali Leasing Ltd. was the ‘lessee’

- M/s Unikol Bottlers Ltd. was the ‘sub-lessee’

- M/s Arizona Printers & Packers was the ‘manufacturer’             of the bottles

9. On  15.3.1991,  lease  was  executed  between  the  assessee  as

lessor and M/s Aravali  Leasing as lessee whereas there was a sub-

lease  between M/s  Aravali  Leasing  and M/s  Unikol  Bottlers  dated

8.3.1991.  The  AO  came  to  the  conclusion  that  transaction  dated

15.3.1991 was not proved. It was a sham. The reasons given by the

AO were as follows. Firstly, none of the parties owed up the liability

to pay transport charges though in terms of the lease the liability to

pay  transport  charges  was  undertaken  by  M/s  Aravali  Leasing.

Secondly, no evidence was brought on record as to who transported

the bottles from the manufacturer, M/s Arizona Printers and Packers,

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to  M/s  Unikol  Bottlers  (sub-lessee).  Lastly,  the  AO  had  doubted

transaction dated 15.3.1991 on the ground that the sub-lease between

M/s Aravali Leasing and M/s Unikol Bottlers stood dated 8.3.1991,

i.e., before acquiring the rights to the said bottles (which right stood

acquired by M/s Aravali Leasing only on 15.3.1991). Therefore, the

AO came to the conclusion that the transaction was not proved by the

assessee and, therefore, the assessee was not entitled to depreciation.

Accordingly,  the  AO  disallowed  the  depreciation  amounting  to

Rs. 30,17,122/-. This finding has been accepted by the Tribunal and

the High Court. It is a concurrent finding.

Findings:

10. It  was  argued vehemently on behalf  of  the  assessee that  the

findings  given  by  the  AO  were  perverse.  It  was  urged  that  the

transport  charges  were,  in  fact,  paid  by  M/s  Unikol  Bottlers,  who

could  not  produce  evidence  as  there  was  a  lock-out/closure  in  its

factory at the relevant time. According to the assessee, the evidence

of the manufacturer, M/s Arizona Printers, clearly shows that bottles

were manufactured before 31.3.1991 and they were delivered to M/s

Unikol Bottlers directly by them. According to the said evidence of

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the manufacturer,  the transport  bills  were supposed to be with M/s

Unikol Bottlers, who were responsible for payment thereof. Learned

counsel appearing for the assessee relied upon the evidence of M/s

Arizona Printers at pp. 105-106 of the SLP paper book to show that,

according to M/s Arizona Printers, the bottles were delivered directly

to the sub-lessee, M/s Unikol Bottlers. Reliance was also placed on

the “use certificate” furnished by M/s Unikol Bottlers to M/s Arizona

Printers to show that the bottles stood dispatched prior to 31.3.1991.

Further, on behalf of assessee reliance was placed on the evidence of

M/s Khanna Goods Transport Co. (booking agent),  who claimed to

have received commission in cash for supply of trucks. In short,  it

was  argued  on  behalf  of  the  assessee  that,  the  manufacture  and

dispatch of bottles from M/s Arizona Printers to M/s Unikol Bottlers,

before  31.3.1991,  stood  proved  by  the  evidence  adduced  by  the

assessee in the form of the statement of the manufacturer, the “Put to

Use” Certificate given by M/s Unikol Bottlers, the statement of M/s

Unikol  Bottlers  having  accepted  delivery  of  the  bottles  from M/s

Arizona  Printers  and  the  receipt  of  commission  by  M/s  Khanna

Goods  Transport  Co..  Therefore,  according  to  the  assessee,  the

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manufacture and dispatch of bottles and the receipt of bottles stood

proved by the aforestated circumstances.

11. We do not find any merit in the above arguments. In this case,

we are concerned with the nature of transaction dated 15.3.1991. The

question  to  be  asked  is  -  whether  the  assessee  has  proved  the

transaction dated 15.3.1991? The question of “appropriation” of the

bottles to a particular contract is different from the concept relating to

the nature of the transaction. In this case, the tell-tale circumstance

against  the  assessee  was  that  sub-lease  is  dated  8.3.1991.  It  is

between M/s Aravali Leasing (lessee) and M/s Unikol Bottlers (sub-

lessee).  This  sub-lease precedes the lease dated 15.3.1991 between

the  assessee  (lessor)  and  M/s  Aravali  Leasing  (lessee).  As  rightly

questioned by the AO as to how M/s Aravali Leasing (lessee) could

have  entered  into  a  sub-lease  in  favour  of  M/s  Unikol  bottlers  on

8.3.1991 when it had not acquired leasehold rights till 15.3.1991 from

the assessee as the lessor. Moreover, there is nothing in the alleged

lease  deed  dated  15.3.1991  indicating  commencement  of  the  lease

from a  prior  date.  There  is  nothing  in  the   so-called  lease  dated

15.3.1991  as  to  the  arrangement  between  the  parties  prior  to

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15.3.1991.  There  is  nothing  in  the so-called  lease  dated 15.3.1991

indicating any prior practice as submitted on behalf of assessee. On

the contrary, the so-called lease dated 15.3.1991 recites that it  shall

commence  only  from  15.3.1991.  Moreover,  under  the  sub-lease

between M/s Aravali Leasing and M/s Unikol Bottlers it is stated that

M/s Aravali Leasing is the absolute owner of the bottles. Lastly, the

so-called lease dated 15.3.1991 stipulated that the lessee, M/s Aravali

Leasing,  shall  have  no  right,  title  or  interest  to  create  a  sub-lease

without the permission of  the lessor.  No such permission has been

produced.  For  the  aforestated  reasons,  we find  no  infirmity  in  the

concurrent  findings  of  fact  recorded  by the  authorities  below.  We

accordingly  hold  that  transaction  dated  15.3.1991  is  not  proved.

Therefore, the AO was right in disallowing depreciation amounting to

Rs. 30,17,122/-.

12. Before  concluding,  we  may  mention  that  an  alternative

submission was advanced on behalf of the assessee in the context of

the  second  transaction  that,  if  the  said  transaction  was  a  financial

arrangement, as held by the Department, even then the assessee could

be taxed only on Interest  embedded in the  amount of lease rentals

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received from the lessee, M/s Aravali Leasing. In this connection, it

was  submitted  that  the  assessee  had  earned  total  income  of  Rs.

6,33,596/- over a period of 36 months commencing from 15.3.1991 to

14.3.1994. Therefore, the matter should be remitted for recalculation.

We do not find any merit in this argument for the simple reason that

the concurrent  finding shows that  transaction  dated  15.3.1991  is  a

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

the assessee. In the circumstances, there is no question of the matter

being  remitted,  as  prayed  for.  Consequently,  the  AO was  right  in

coming to  the conclusion  that  transaction  dated 15.3.1991 was  not

proved and that the assessee was not entitled to claim depreciation of

Rs. 30,17,122/- in respect of the second transaction.

13. In conclusion,  we delete  the  disallowance  of  depreciation  of

Rs.  18,04,572/-  under  the  First  Transaction  but  we  disallow  the

depreciation of Rs. 30,17,122/- under the Second Transaction.

14. Accordingly,  the  civil  appeal  filed  by  the  assessee  is  partly

allowed with no order as to costs.

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…………………….J.                                                                   (S. H. Kapadia)    

…………………….J.                                                                 (H. L. Dattu)    

New Delhi, February 12, 2009.

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