MCORP GLOBAL PVT. LTD. v. COMMISSIONER OF INCOME-TAX, GHAZIABAD

The Judgement of the Court was delivered by -·- . c S.H. KAPADIA, J.

1Copy pinpoint1. Leave granted.

2Copy pinpoint2. 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 pre- vious year ending 31.3.1991). (A) Facts Regarding Lease dated 15.2.1991 (Transaction ,_ I No. I):

3Copy pinpoint3. Before coming to the facts, the following is the relation- ship between the parties: - Mis Glass & Ceramic Decorators was the manufacturer of soft drink bottles. G - Assessee was the 'lessor'. - M/s Coolade Beverages Pvt. Ltd. was the 'lessee'.

4Copy pinpoint4. During the relevant assessment year, the assessee car- ried on the business of trading in lamination machines & bind- H

MCORP GLOBAL PVT. LTD. V. COMMISSIONER OF 217 INCOME-TAX, GHAZIABAD [S.H. KAPADIA, J.] ing and punching machines. In addition, it was also engaged in A the leasing business. During the year in question, the asses- see had bought 5,46,000 soft drink bottles from Mis Glass & Ceramic Decorators worth Rs. 19,54,9531-. The bottles were directly supplied to Mis Coolade Beverages Pvt. Ltd. ("Mis Coolade" for short) in terms .of Lease dated 15.2.1991. Vide B Assessment Order dated 28.3.1994, the AO found that Mis Coolade had received only 42,000 bottles out of the total of 5,46,000 bottles receivable by them from the assessee and that ... ~ the remaining bottles stood received after 31.3.1991, i.e., be- tween the period 3.4.1991 and 18.4.1991 and consequently, c the AO restricted the depreciation only to 42,000 bottles and consequently dis-allowed the depreciation of Rs. 18,04,5721-. It may be mentioned that in Appeal the CIT(A) after formulating the "User Test" remanded the matter to the AO who on remand held that all 5,46,000 bottles stood paid for and dispatched ._ D before 31.3.1991 and, therefore, the assessee was entitled to 100% depreciation on all 5,46,000 bottles. This finding was given when the Appeal(s) was pending before the !TAT. How- ever, 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 E lease was not renewed and since the bottles were not returned on expiry the transaction in question was only a financial ar- -, rangement and not a Lease, hence, ITAT dis-allowed the de- preciation claim of the assessee which finding stood confirmed by the impugned judgment, hence this Civil Appeal. F

5Copy pinpoint5. 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 trans- actions), as claimed by the assessee, the AO disallowed de- preciation of Rs. 18,04,5721- in respect of the First Transaction and depreciation of Rs. 30,17,122 under the Second Transac- G -J tion. In all, she disallowed depreciation of Rs. 48,21 ,694/~ in the first round. In other words, the AO allowed depreciation in re- spect of both the transactions amounting to Rs. 1,32,08, 795 as against the claim of Rs. ,80,30,489/-. H

p. 218 Copy page pinpoint

A 1'1!ndlngs:

6Copy pinpoint6. In the case of Hukumchand Mills Ltd. v. CIT reported in (1967) 63 ITR 232 this Court has held that under Section 33(4) of the Income-tax Act. 1922 (equivalent to Section 254(1) of the 1961 AeO, the Tribunal was not authorized to take back the ben- ~ efit Qf~ntead tQ t!w ~asessae by the AO. The Tribunal has no pow~r to enhance the assessment. Applying the ratio of the said jµdgm~nt tq the present case, we are of the view that, in this case, the AO hai;:J granted depreciation in respect of 42,000 bottles out of the total number of bottles (5,46,000), by reason of the impugned judgment. That benefit is sought to be taken away by the Department, which is not permissible in law. This is the infirmity in the impugned judgment of the High Court and the Tribunal.

7Copy pinpoint7. There is one more aspect which needs to be mentioned. 0 According to the impugned judgments of the High Court and the Tribunal, the transaction dated 15.2.1991 was a financial transaction and not a lease. rfdepreciation is to be granted for 42,000 bottles under transaction dated 15.2.1991 then it can- not be ~aid that 42,000 bottles came within the lease dated E 15.2.1 ~91 and the balance came within the so-called financial arrang~ment. In the circumstances, we hold that the benefit of depreciation given to the assessee by the AO in respect of 42.000 bottle$ out of 5,46,000 bottles cannot be withdrawn by the Department and to that extent alone the assessee succeeds r in this civil appeal. La§tly, ills stated above, In this case the CIT(A) had remitted the matter to the AO who on remand came to the conclusion that all 5,46,000 bottles stood sold before 31.3.1991. This find in~ of fact has become final. It has not been challenged. Hence, the Department has erred in disallowing deprecia~ G tion of Ra. 18,04,572./-. .\, t_BJ Fa._!lt§ B_egarsting b_~_a,se, dated_ 15~3, 1991 (Transaction Ne=- fl):

8Copy pinpoint8. Before coming to the facts, the relationship of the par- H ties, namely, stated:

MCORP GLOBAL PVT. LTD. V. COMMISSIONER OF 219 INCOME-TAX, GHAZIABAD [S.H. KAPADIA, J.]

- Assessee was the 'lessor' A - Mis Aravali Leasing Ltd. was the 'lessee' - Mis Unikel Bottlers Ltd. was the 'sub-lessee' - Mis Arizona Printers & Packers was the 'manufacturer' of the bottles B _,

9Copy pinpoint9. On 15.3.1991, lease was executed between the asses- see as lessor and Mis Aravali Leasing as lessee whereas there ... ; was a sub-lease between Mis Aravali Leasing and Mis Unikol Bottlers dated 8.3.1991. The AO came to the conclusion that c transaction dated 15.3.1991 was not proved. It was a sham. The reasons given by the AO were as follows. Firstly, none of the parties owed up the liability to pay transport charges though in terms of the lease the liability to pay transport charges was undertaken by MlsAravali Leasing. Secondly, no evidence was brought on record as to who transported the bottles from the ... manufacturer, Mis Arizona Printers and Packers, to Mis Unikol ....i; ·-· Bottlers (sub-lessee). Lastly, the AO had doubted transaction dated 15.3.1991 on the ground that the sub-lease between Mis Aravali Leasing and Mis Unikol Bottlers stood dated 8.3.1991, i.e., before acquiring the rights to the said bottles (which right stood acquired by Mis Aravali Leasing only on 15.3.1991 ). Therefore, the AO came to the conclusion that the transaction was not proved by the assessee and, therefore, the assessee .., was not entitled to depreciation. Accordingly, the AO disallowed the depreciation amounting to Rs. 30, 17, 1221-. This finding has been accepted by the Tribunal and the High Court. It is a con- current finding. Findings:

10Copy pinpoint10. It was argued vehemently on behalf of the assessee that the findings given by the AO were pervArse. It was urged -I that the transport charges were, in fact, paid by Mis Unikol Bot- tiers, who could not produce evidence as there was a lock-out/ closure in its factory at the relevant time. According to the as- sessee, the evidence of the manufacturer, Mis Arizona Print- H

p. 220 Copy page pinpoint

A ers, clearly shows that bottles were manufactured before 31.3.1991 and they were delivered to Mis Unikel Bottlers di- rectly by them. According to the said evidence of the manufac- turer, the transport bills were supposed to be with Mis Unikel Bottlers, who were responsible for payment thereof. Learned B counsel appearing for the assessee relied upon the evidence . of Mis Arizona Printers at pp. 105-106 of the SLP paper book to show that, according to Mis Arizona Printers, the bottles were delivered directly to the sub-lessee, Mis Unikol Bottlers. Reli- ance was also placed on the "use certificate" furnished by Mis C Unikol Bottlers to Mis Arizona Printers to show that the bottles stood dispatched prior to 31.3.1991. Further, on behalf of as- sessee reliance was placed on the evidence of Mis Khanna Goods Transport Co. (booking agent), who claimed to have re- ceived 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 Mis Arizona Printers to Mis Unikol Bot- tlers, before 31.3.1991, stood proved by the evidence adduced by the assessee in the form of the statement of the manufac- turer, the "Put to Use" Certificate given by Mis Unikol Bottlers, the statement of Mis Unikol Bottlers having accepted delivery of the bottles from Mis Arizona Printers and the receipt of com- mission by Mis Khanna Goods Transport Co .. Therefore, ac- cording to the assessee, the manufacture and dispatch of bottles and the receipt of bottles stood proved by the aforestated cir- cumstances. F

11Copy pinpoint11. We do not find any merit in the above arguments. In this case, we are concerned with the nature of transaction dated 15.3.1991. The question to be asked is - whether the assessee has proved the transaction dated 15.3.1991? The question of G "appropriation" of the bottles to a particular contract is different from the concept relating to the nature of the transaction. In this case, the tell-tale circumstance against the assessee was that \- sub-lease is dated 8.3.1991. It is between Mis Aravali Leasing (lessee) and Mis Unikol Bottlers (sub- lessee). This sub-lease precedes the lease dated 15.3:1991 between the assessee H

MCORP GLOBAL PVT. LTD. V. COMMISSIONER OF 221 INCOME-TAX, GHAZIABAD [S.H. KAPADIA, J.]

{lessor) and Mis Aravali Leasing (lessee). As rightly questioned A .... by the AO as to how Mis Aravali Leasing (lessee) could have entered into a sub-lease in favour of Mis Unikol bottlers on 8.3.1991 when it had not acquired leasehold ri~hts till 15.3.1991 from the assessee as the lessor. Moreover, there is nothing in the alleged lease deed dated 15.3.1991 indicating commence- B ment of the lease from a prior date. There is nothing in the so- called lease dated 15.3.1991 as to the arrangement between the parties prior to 15.3.1991. There is nothing in the so-called ...... lease dated 15.3.1991 indicating any prior practice as submit- ted on behalf of assessee. On the contrary, the so-called lease dated 15.3.1991 recites that it shall commence only from c 15.3.1991. Moreover, under the sub-lease between Mis Aravali Leasing and Mis Unikol Bottlers it is stated that Mis Aravali Leasing is the absolute owner of the bottles. Lastly, the so-called lease dated 15.3.1991 stipulated that the lessee, Mis Aravali D Leasing, shall have no right, title or interest to create a sub- ._

• lease without the permission of the lessor. No such permission has been produced. For the aforestated reasons, we find no infirmity in the concurrent findings of fact recorded by the au- thorities below. We accordingly hold that transaction dated 15.3.1991 is not proved. Therefore, the AO was right in disal- E lowing depreciation amounting to Rs. 30, 17, 1221-.

12Copy pinpoint12. 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 received from the lessee, MlsAravali Leasing. In this connection, it was submitted that the assessee had earned total income of Rs. 6,33,5961- over a period of 36 G months commencing from 15.3.1991 to 14.3.1994. Therefore, >/ the matter should be remitted for recalculation. We do not find any merit in this argument for the simple reason that the concur- rent finding shows that transaction dated 15.3.1991 is a sham. The finding shows that the transaction had not been proved by ,,... H

222 SUPREME COURr REPORTS [2009] 2 S.C.R.

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

13Copy pinpoint13. In conclusion, we delete the disallowance of deprecia- tion of Rs. 18,04,572/~ under the First Transaction but we disal- low the depreciation of Rs. 30, 17, 122/- under the Second Trans- _.. __. t action. c 14. Accordingly, the civil appeal filed by the assessee is partly allowed with no order as to costs.

K.K.T. Appeal party allowed.