Income Tax Appellate Tribunal - Delhi
Inspecting Assistant Commissioner vs S. Charanjit Singh on 29 September, 1988
Equivalent citations: [1989]29ITD7(DELHI)
ORDER
Anand Prakash, Accountant Member
1. This is a departmental appeal on the following' ground :
On the facts and in the circumstances of the case, the learned CIT (Appeals) erred in deleting the addition of Rs. 6,66,776 made as income of the assessee Under Section 28(iv) of the IT Act, 1961.
2. The relevant facts may be noted. The assessee is an individual, having his accounting period as financial year. During the financial year 1981-82, he derived income from numerous sources, including salary, profession, other sources, agriculture, etc. Apart from being an employee of Pure Drinks New Delhi Ltd. which paid him at the rate of Rs. 5,000 p.m., he also derived some income from a nonresident firm known as "R. & E. Collections, West Germany". On 28-3-1980, the said R & E Collections wrote two letters to Mr. Charanjit Singh which between them contained the terms of his employment and services. The first letter read as below :
We take pleasure in confirming your appointment as our sole resident representative in India, as per the discussions you had with our Managing Director. Your services will be available for this company and other associate organizations.
Your appointment shall be initially for a period of five years and the nature of duties shall be to look after our interests in this part of the world which would necessitate extensive travelling for business contacts.
For the services rendered by you, you would be compensated at the rate of DM 500 - per month.
On the same date, another letter was written to the assessee the contents of which were as below :
Dear Sir, A car will be sent to you for performing your official duties.
We confirm that the landed cost of the car including customs duty will be borne by us in foreign exchange.
In accordance with the terms contained in the second letter dated 28-3-1980, a Mercedes Benz car was sent to the assessee sometimes in September 1981 by M/s. R & E Collections, West Germany. The import licence for importing the said car was issued on 27th July, 1981 in favour of S. Oharanjit Singh who was described in the said licence as 'sole resident representative in India of M/s. R & B Collections of West Germany'. The car was paid for in Germany by the non-resident firm mentioned above. The import licence referred to above dated 27th July, 1981 was subject to certain conditions. Some of them are relevant and may, therefore, be noted :--
Condition No. 2 was as below :
2. On its arrival in India, the vehicle should be got registered in the name of the licensee only.
Sub-clause 3 provided as below :
3. Before clearance at port, the licence holder will execute a Bond in the form, prescribed for an amount equal to the customs assessed CIP value of the vehicle, in favour of the President of India, with the local licensing authority, undertaking to fulfil the conditions applicable to the import licence/OCP, supported by a guarantee of a Scheduled Bank. Alternatively, he may furnish a surety by a Scheduled Bank for the customs assessed CIF value of the vehicle against mortgage of the said vehicle for the currency of the 'No-Sale'period. The Bond/Surety should be valid for a period of six years initially, but the licence/OCP holder should be obliged to get extended or renewed for such further period as the licensing authority may require six months prior to the expiry of the 'No Sale' period set down hereunder.
Clauses 4 and 5 are also relevant and may be noted :
4. The licence holder shall not within the 'No Sale' period of five years from the date of importation of the Car, transfer, however, the ownership or possession of the vehicle without the written prior permission of the licensing authority. The transfer if permitted, shall be subject to such price and terms and other conditions as to the transferee/time allowed etc. may be specified by the licensing' authority.
5. The licence holder shall not leave the vehicle in India while going abroad on visits likely to exceed one year. In any case, the vehicle should be in the custody of another member of the family only and none else during such absences. If the licence holder has to go abroad for more than one year, he should report the matter by Registered Post A.D. to the licensing authority with whom the bond had been executed giving reasons for his extended stay and the proposed date of return.
3. In terms of the aforesaid, conditions, the assessee executed a Bond in the prescribed form for Rs. 2 lakhs. A fixed deposit receipt of the value of Rs. 50,000 belonging to the assessee was also given as security to the Bank which executed the Bond for and on behalf of the assessee.
4. The said car suffered from various problems and could not be of much use to the assessee and it appears that the assessee wrote to M/s. R & B Collections in this regard. The said R & E Collections wrote to the assessee on 5-9-1983 as follows :
From the various letters you wrote to us on the subject, it is evident that the aforesaid car is giving lot of problems, first with the fuel injection and presently with the ABS brake system being faulty. Since the car has not been functioning properly, resulting in inconvenience in the discharge of duties, we would request you to have the car shipped back to Germany.
The car was ultimately shipped back to M/s. R & B Collections in February/March 1984 after obtaining permission to re-export the Mercedes Benz car from the Chief Controller of Exports vide his letter dated 3-2-1984 placed on record.
5. The car thus remained in the possession of the assessee from September 1981 to February/March 1984. Whether during this period the car was used by the assessee for the purpose for which it was supplied to him by R & E Collections is not very clear from the material on the record. The IAC (Asst.) did put questions to the assessee in this regard and the reply of the assessee as contained in his letter dated 19-3-1985 was, inter alia, as below :
For the services rendered by S. Charanjit Singh, the Principals remitted DM 500 per month in the account of S. Charanjit Singh with Bank of America against which S. Charanjit Singh has not made any withdrawal to meet with the expenditure on the maintenance of the car. Since he is Managing Director/Director of so many companies and particularly this car was lying idle because of some technical defects, he had made use of other companies' cars in the performance of his duties as sole resident representative in India of R & E Collections.
On the basis of the above details, the IAC (Asst.) came to the conclusion that the car in question was supplied by R & E Collections to the assessee free of cost for his individual use and ownership. As the car had been registered in the name of S. Charanjit Singh with the Motor Vehicles Registration Department of the Directorate of Transport, Delhi and as the assessee had executed the Bond and had also given security of FDR of Rs. 50,000 belonging to him, the IAC (Asst.) came to the conclusion that the car belonged to him and inasmuch as the total landing cost of the said car in India was Rs. 6,66,776, he included the, said amount as the assessee's income Under Section 28(iv) of the Income-tax Act, 1961. He failed to take note of the fact that the car was ultimately re-exported to the original principals who had supplied it to the assessee in February/ March 1984 mainly on the ground that that event had taken place after the accounting period was over.
6. The assessee appealed against the aforesaid order of the IAC (Asst.) to the CIT (Appeals) and objected, inter alia, to the inclusion of the aforesaid amount as his income in terms of Section 28(w) of the Income-tax Act, 1961.
7. The learned CIT (Appeals) after considering the facts stated as above, came to the conclusion that there was no justification to hold that the car had been provided for the personal use to the assessee and that the assessee had become the owner of the car and that, therefore, it was a benefit which had accrued and arisen to him in terms of Section 28(iv) of the IT Act, 1961. He was considerably influenced by the re-export of the car by the assessee to M/s R & E Collections, West Germany on being found as non-operable on account of built-in manufacturing defects. He felt that if the car had in fact been given over to the assessee without any charge to him as part of the terms and conditions of the service, the said employer would have sent another Mercedes Benz car for his use. Inasmuch as, it had not been done, it could not be accepted as a fact that the car was given to him for his personal benefit and ownership. The following observations were, inter alia, made by him while holding as above :
The appellant is not the proprietor or the owner of the car merely because the car was registered in his name when landed in the country, specifically in view of the condition of services between the principals and the appellant as the agent as well as the condition laid down in the Import Control Order as well as the fact that the car was re-exported without getting any substitute for the same. The addition of Rs. 6,66,776 therefore, stands deleted. The appellant gets relief of Rs. 6,66,776.
8. It is against the aforesaid finding of the learned CIT (Appeals) that the present appeal has been filed by the revenue. The learned DR put forward before us the same reasoning as was adopted by the IAC at the time of bringing to tax the aforesaid sum of Rs. 6,66,776. The point that he laid special emphasis on was that the salary of 500 DM p.m. to a person of the eminence of S. Charanjit Singh was too paltry a sum to get his services. The foreign company which wanted to avail of his services had, therefore, to offer to him the free use of the Mercedes Benz car as his personal car and it is only when the two namely the salary paid and the benefit of the exclusive use of the car as proprietor of the said car is taken into account that one can understand the adequacy of the consideration to S. Charanjit Singh for the services rendered by him. For mere 500 DM per month S. Oharanjit Singh could not be available to the said company. The IAO (Asst.) was, therefore, said to be right in coming to the conclusion that in addition to 500 DM per month, the benefit of the car was also the recompense given to him by the German concern and as such, it should be brought to tax in his hands.
9. On behalf of the assessee, the aforesaid submissions are stoutly opposed and strong reliance is placed on the order of the learned CIT (Appeals). It is stressed by the learned counsel that the car was not given by the foreign German concern to the assessee as a personal gift to him to be his property for ever. The car was given to him for his official functioning and the licence to import the said car was given to him in his capacity as the sole resident representative of the foreign concern. It was, therefore, entirely wrong to hold that the car was the personal property of the assessee. That the car was registered in the name of the assessee proved nothing for it was one of the conditions of the licence granted to him that the car will have to be registered in the name of the licensee. The licensee did not own the car in his own right; the car all along belonged to the foreign concern but was given to the assessee for use in India for the work of the said firm. The assessee could not make use of the car because of its in-built manufacturing defects and so ultimately the car had to be sent back to the original owner. The act of re-export to the original owner without any quid pro quo would prove conclusively that the car belonged to the foreign company and not to the assessee and when it could not perform the functions which it was supposed to perform, it was returned by the assessee to the original owner. To hold in the aforesaid circumstances that the assessee was the owner would be to ignore the other relevant facts. It was, therefore, prayed on behalf of the assessee that we should uphold the order of the learned CIT (Appeals).
10. We have given careful consideration to the facts of the case and the rival submissions. Prima facie, the car was supplied by R & B Collections, West Germany to the assessee as per the terms of his employment. It is quite understandable that payment of 500 DM per month would not be adequate consideration for availing the services of such, an eminent industrialist as S. Charanjit Singh, that something more would have had to be offered to him byway of recompense and as such there is merit in the argument of the learned DR when he points out that the other recompense was the free use of the Mercedes Benz car by S. Charanjit Singh in India. Primarily the car was to be used for the purposes of the business of the said firm but apparently there was no means to check the use of the said car by S. Charanjit Singh in India and there was no way to bar its use by him for any purpose he liked. The remuneration paid to S. Charanjit Singh was thus two-fold--one being the salary of 500 DM per month and the other being the free use of Mercedes Benz car by him. There is, however, no basis in the facts for the finding of the learned IAC (Asst.) that S. Charanjit Singh was the owner of the said car. The said car was admittedly financed by R & E Collections, West Germany and was given to the assessee as the sole resident representative of the said company in India for attending to the official duties as such sole representative and when the car could not function properly, the same was returned by S. Charanjit Singh to its original owner namely R & E Collections, West Germany. If the car had belonged to the assessee, there could be no question of its re-export to the original supplier. The very fact that the car was sent back to West Germany, when it proved to be useless goes to show that the car belonged to R & E Collections, West Germany who had originally shipped it to the assessee for his official use. There would, therefore, be no justification to add the entire amount of Rs. 6,66,776 in the hands of the assessee being the value of the said car given by the West German concern to the assessee.
11. The benefit derived by the assessee from the use of the car would no doubt be assessable in the hands of the assessee provided that it could be shown that the said car was made use of by the assessee while it was in India. The assertion of the assessee in this regard is that the car though new could not function because it had some built-in manufacturing defects. This assertion of the assessee has not been controverted by the IAC. In his letter dated 19-3-1985, the assessee had made a specific claim that "this car was lying idle because of some technical defects" and that "he i.e., the assessee had made use of other company's cars in the performance of his duties as sole resident representative in India of R & E Collections".
12. This assertion remaining unrebutted and there being no evidence to show that the car was in fact used in India by the assessee, it may not be possible to say that the intended benefit which the car was to give to the assessee was in fact derived by him from the use of the said car. The foreign concern did ship the car all the way from Germany to India to enable the assessee to use it but in point of fact it appears that the said car could not be used at all on account of manufacturing defects and was, therefore, ultimately shipped back to Germany. When this is the state of facts, we are unable to hold that the assessee could or in fact did derive any benefit from the use of the said car. It was originally intended that he should have benefit of it but in fact he could not have the benefit of it. When no benefit is derived apparently, there could be no perquisite in terms of Section 28(iv) of the Income-tax Act, 1961. The learned CIT (Appeals) was, in the circumstances, in our opinion, justified in deleting the addition in question.
13. The learned DR had laid great stress on the fact that the assessee had got the car registered in his name and that the assessee had to execute a Bond as desired by the Chief Controller of Exports & Imports and that in that connection, he had pledged as security his FDR of Rs. 50,000 and that he would not act as above unless he was the owner of the car. The above factors are no doubt relevant to judge the reality of the situation but are not, in our opinion, decisive by themselves and on their basis alone, without anything more it would not be correct to come to the conclusion that the assessee owned the car. The car was registered in his name because that was the condition of the import licence. The import licence itself declared that the assessee was importing the car as sole resident representative of the West German concern. One of the terms of the licence also was that the West German concern will pay for the car. These facts have to be kept in close focus to ascertain the truth. The car was registered in the name of the assessee but he possessed the car in his representative capacity as the sole resident representative of M/s R & E Collections, West Germany. The car belonged to them and that is why ultimately the car was sent back to them without any recompense. At least there is no evidence on record to show that the said concern paid compensation for gifting of the defective car to assessee. That the assessee executed a Bond and also gave his fixed deposit receipt of Rs. 50,000 by way of pledge only goes to show that the assessee had an interest in having a Mercedes Benz car with him for the sake of not only convenience, but also the prestige that such car lends to the possessor thereof. The aforesaid act of the assessee is as much reconcilable with this situation as it would be with the finding that the assessee was the owner of the car and so he executed the Bond and pledged the fixed deposit receipt. By themselves these acts do not determine the ownership. By determining the ownership, one has to look at the totality of the facts and the circumstances in which the car came to be shipped to the assessee and back to the original supplier without any recompense by him. Taking an overall view of the facts, we are convinced that the car did not belong to the assessee; it belonged to the foreign concern and that is why it was shipped back to it. In view of what we have stated above, we reject the departmental appeal.