Income Tax Appellate Tribunal - Pune
Narayan Ganesh Prabhu Zantye (P.) Ltd. vs First Income-Tax Officer. on 4 May, 1995
Equivalent citations: [1995]55ITD74(PUNE)
ORDER
Per Shri G. K. Israni, Judicial Member - These two appeals by the assessee are directed against separate orders of the learned CIT(A) for the assessment years 1983-84 and 1985-86. The lead order has been passed in the appeal for the assessment year 1983-84 and the same has been followed in the other appeal.
2. The two appeals raise a common issue as to whether the assessee is entitled to deduction under section 80HH of the Income-tax Act. The assessee company carried on the business of processing of cashew nuts, cashew kernel and shell oil during the two years under appeal. The industrial undertaking in which the assessee carried on business earlier belonged to the registered partnership firm M/s Narayan Ganesh Prabhu Zantye & Co. The said firm by the lease deed dated 26-2-1982 gave on lease the said undertaking comprising of the plant, machinery, tools, equipment and all other things as described in Schedule I to the newly registered private limited company M/s Narayan G. P. Zantye (P.) Ltd. The lessor and the lessee are admittedly sister-concerns. It is the company which is the appellant before us. The assessee claimed deduction under section 80HH in the assessment proceedings. The claim was rejected by the Assessing Officer on the ground that the machinery given on lease to the assessee by the partnership firm was already in use in the firms cashew factory. As such, the conditions laid down in section 80HH(2)(iii) were not fulfilled. The assessee carried the matter in appeal and raised a number of pleas in support of its claim. One such plea was that the document purporting to be a lease deed was not in fact a lease deed, but only an agreement for hire. The other plea was that the industrial undertaking in respect of which deduction was sought was not formed by transfer of plant and machinery previously used and, therefore, the deduction sought could not be declined. The third plea was that since the lease deed was not duly registered under the Registration Act, it could not take effect and there was thus failure of the contract of lease. These pleas, however, did not find favour with the learned CIT (Appeals) who, relying upon the decisions of the Bombay High Court in the case of Capsulation Services (P.) Ltd. v. CIT [1973] 91 ITR 566, held that there was transfer of the building, plant and machinery and other things by ways of lease to the assessee. Since the building, plant and machinery etc. had earlier been used and the industrial undertaking worked by the assessee was the result of a transfer, no deduction under section 80HH could be allowed. It is that order of the learned CIT (Appeals) which has brought the assessee before us.
3. The main plank of the argument of the learned counsel for the assessee before us was that the document dated 26-2-1982 although purports to be a deed of lease, yet it is not so and the transaction embodied in it is only a transaction of leave and licence and there was thus no transfer within the meaning of clause (iii) of sub-section (2) of section 80HH so as to disentitle the assessee to the deduction. In this connection, the learned counsel also claimed that the factory was not in the exclusive possession of the assessee-company. Rather the partnership was also carrying on the same business in the factory. The partnership had also accounted for income from this factory in its return of income. The assessee had added plant, machinery etc. during its working of the factory in the two years under appeal. These additions also led to the formation of the new undertaking. Since it was a case only of leave and licence and not of lease, there was no transfer of any interest in property. In support of his contentions, the learned counsel placed reliance upon the following decisions :
(1) CIT v. Plastics Packaging (P.) Ltd. [1982] 134 ITR 236 (Bom.) (2) CIT v. Bayer Agrochem Ltd. [1982] 134 ITR 240 (Bom.) (App.) (3) CIT v. Merck Sharp & Dohme of India Ltd. [1983] 140 ITR 332 (Bom.) (4) Bajaj Tempo Ltd. v. CIT [1992] 196 ITR 188 (SC)
4. As against the above, it was urged by the learned departmental representative that whole of the running undertaking was the subject matter of transfer by way of lease to the assessee. This was thus a clear cut case of transfer within the meaning of clause (iii) of sub-section (2) of section 80HH so as to disentitle the assessee from any deduction under section 80HH. In support of his argument, he placed reliance upon the decisions of the Bombay High Court in the case of CIT v. Super Tool Co. (P.) Ltd. [1993] 202 ITR 50 and Capsulation Services (P.) Ltd.s case (supra).
5. We have given our careful thought to the issue involved in the appeals and have also studied the various court decision cited before us and find no hesitation in coming to the conclusion that there is no merit in these appeals of the assessee. The marginal heading of section 80HH clearly indicates that the deduction under this section is available only in respect of newly established undertakings. At the very outset, on being questioned by the Bench, the learned counsel for the assessee admitted that the same factory had earlier been worked by firm of M/s Narayan Ganesh Prabhu Zantye & Co. for good number of years and it was the same factory which was given on rent to the assessee company. On being further enquired by the Bench as to whether the partnership firm had claimed any deduction under section 80HH in respect of the undertaking and if so for what number of years, the learned counsel expressed his ignorance. It is an admitted position that the two parties are sister concerns. Now so far as the nature of the transaction embodied in the lease deed dated 26-2-1982 is concerned, we do not agree with the learned counsel that the transaction recorded in this document is one of leave and licence and not of a lease. The words lease, lessor and lessee and rent have been used repeatedly in this document. There is no use at all of the words licence, licensor, licensee and licence fee. We are cognizant of the legal position that mere use of words(s) in a document is not conclusive for the purpose of determining the nature of the transaction recorded therein. The nature of the transaction will have to be ascertained from the cumulative effect of the various terms and condition of the transaction recorded therein. But then, the use of the words cannot be held to be totally irrelevant or insignificant. For the purpose of our discussion, it would be useful to reproduce some of the clauses of this deed :
"Clause (d) : The lessee will take over all the liabilities under various labour laws of all the presently employed workman.
2. The lessors agree that the lessees paying the rent herein reserve shall quietly and peacefully enjoy the said properties along with the said cashew factory etc. without hindrance of any person claiming under or on behalf of the lessors or any of the lessors themselves."
6. It would be seen from clause 1(d) that not only the cashew factory comprising plant, machinery, tools, equipment and all other things has been transferred to the assessee, but also workmen employed in the factory have also been transferred. It is for this reason that the liability under labour laws in respect of the employed workmen has been taken over by the assessee-company; clause (2) ensure quiet and peaceful enjoyment of the property by the assessee-company. There is no stipulation in this agreement and no material has otherwise been made available to substantiate the claim of the learned counsel for the assessee that the partnership had also been doing its business in this factory. The lease deed does not entitle the partnership firm to do so. There is no other material to show that the partnership firm had actually done any business in this factory and had earned and accounted for any income from such business. So far as the addition of the plant and machinery subsequent to the lease is concerned no such plea appears to have been made either in the assessment proceedings or in the first appellate proceedings. This is a question of fact which has not been pleaded in the two level of the proceedings below. It would, therefore, not to open to us to entertain such plea at this stage of proceedings. As regards the question of licence, neither the assessment order not the impugned order of the learned CIT (Appeals) shows that any plea of licence was taken before the two revenue authorities below. The document dated 26-2-1982 does not show that the transaction embodied therein is one of leave and licence and not of lease. It has been held in the two decisions of the Bombay High Court reported in Capsulation Services (P.) Ltd.s case (supra) and Super Tools Co. (P.) Ltd.s case (supra) that a lease constitutes transfer for the purposes of clause (iii) of sub-section (2) of section 80HH and, therefore, any business formed by transfer of machinery or plant previously used for any purposes in any technical area would not entitle an assessee to a deduction under section 80HH. In this connection, it would also be necessary to refer to Explanation to sub-section (2) of section 80HH. Even though, on behalf of the assessee it was claimed for the first time before us that additions of plant and machinery had been made to the undertaking subsequent to its take-over by the assessee company, yet no evidence in support thereof has been made available. Moreover, when an assessee claims that an industrial undertaking is a new undertaking on account of addition/introduction of new plant and machinery, he has further to show and establish that the total value of the plant or machinery transferred does not exceed 20 per cent of the total value of the machinery or plant used in the business. The assessee has neither made any contention under the Explanation nor adduced any evidence in support thereof. So far as the fact of allowing of depreciation to the partnership firm is concerned, that fact is not of material consequence, inasmuch as depreciation is to be allowed on the basis of ownership. Unquestionably, the ownership of the assets in the present case vested in the partnership firm and, therefore, the allowance of depreciation to that firm was legally in order.
7. In view of the above discussion, we hold that the assessees claim of deduction under section 80HH was not tenable and has been rightly rejected by the two revenue authorities. There is thus no merit in these appeals and the same shall, therefore, stand dismissed.