Income Tax Appellate Tribunal - Delhi
Atma Ram Trust vs Income-Tax Officer on 26 February, 1993
Equivalent citations: [1993]45ITD556(DELHI)
ORDER
J.P. Bengra, Judicial Member
1. There are two appeals by the assessee pertaining to the assessment years 1983-84 and 1984-85. Since issues involved in both these appeals are common and based basically on the identical reasoning, therefore, for the sake of convenience, these appeals are being disposed of by this consolidated order.
2. The grievance of the assessee is that the CIT (Appeals) erred in not allowing depreciation on truck Nos. DEG-1352 and DEG-1353 owned and used by the assessee for its business purposes. Facts of the case are that the assessee trust derives income from car parking, rent and income from truck hiring. The assessee trust by way of amendment made to Clause 4 of the Trust Deed executed on 19-12-1981 by virtue of resolution passed at the meeting of the trustees resolved to include owning, operating and hiring vehicles, trucks also as one of the purpose for generating income from the trust and for such purpose to carry on such incidental activities as were necessary to carry on the business of hirers, transporters and owners of trucks and vehicles. The trustees of the assessee trust are partners in M/s. Atma Ram Chadha & Co. They are S/Shri C.M. Chadha & A.R. Chadha. M/s. Atma Ram Chadha & Co., a partnership concern owed more/than Rs. 5 lakhs from the assessee trust, which according to the assessee was finding difficult to pay back and the assessee was also in difficulty to realise the same. M/s. Atma Ram Chadha & Co. purchased 5 trucks on 18-5-1982. Since the trust was interested in carrying on incidental activities mentioned above, purchased two trucks from the said firm in order to defray the substantial part of the debt owed from the firm and also to have possession and use of a productive business assets which could generate income for the trust. Therefore, the assessee trust took possession of the two trucks from M/s. Atma Ram Chadha & Co. and simultaneously entered into agreement with the firm by which the firm had taken on hire these two trucks on a monthly charges of Rs. 6,000 per month vide agreement dated 20-5-1982. The case of the assessee was that the trucks being movable property, the trust became their legal owner as soon as it took the possession and paid the price to the seller. Trucks as per agreement were given on hire to the said firm as the business of the trust was truck hiring. The income from hiring was included in the accounts and return of the income submitted by the trust. Therefore, the assessee was entitled of getting depreciation allowance under the Act on the capital assets owned by it. It was also pointed out that compulsion for acquiring these trucks arose from the fact that the firm M/s. A.R. Chadha & Co. were indebted to the Trust to a substantial degree. Instead of collecting the money in cash from the firm, the trust got two trucks in lieu of the debt. The income on hire charges earned from these trucks is regularly included in the total income of the trust. However, the ITO was not satisfied with the explanation of the assessee and disallowed the claim of depreciation observing that in the case of a firm, it had declared a loss even after claiming depreciation on the three trucks. It was, therefore, thought by the firm that if two trucks are transferred to the assessee-trust and depreciation on these two trucks is claimed from the income of the Trust, there will be no liability to pay the taxes. Since the trustees are partners in the firm M/s. Atma Ram Chadha & Co. the agreement to sell is all made-up affair and the colourable device to avoid tax liability of the trust. There is no transfer of real ownership apart from legal ownership which continues with the firm. Therefore, applying the principles of law laid down by the Hon'ble Supreme Court in the case of McDowell & Co. Ltd. v. CIT [1985] 154 ITR 148 where the Supreme Court also analysed the judicial decisions in England in the case of W. T. Ramsay Ltd. v. IRC [1982] AC 300 and IRC v. Duke of West-Minster [1936] AC 1, the ITO treated the whole planning as a scheme for avoidance of tax and disallowed the depreciation to the assessee.
3. When the matter came before the CIT (Appeals), he confirmed this finding on the identical reasoning and support was taken from the following decisions:-
(1) Addl. CIT v. Hindustan Cold Storage & Refrigerations [1983] 15 Taxman 448 (Delhi); (2) Sushil Ansal v. CIT [1986] 160 ITR 308 (Delhi);
(3) Chettinad Corporation (P.) Ltd. v. Tamil Nadu Agricultural ITAT [1987] 168 ITR 552 (Mad.); (4) CIT v. O.P. Monga [1986] 162 ITR 224 (Bom.);
(5) CWT v. H.H. Maharaja F.P. Gaekwad [1983] 144 ITR 304 (Guj.); (6) CIT v. Bhurangya Coal Co. [1958] 34 ITR 802 (SC); and (7) Alapati Venkataramiah v. CIT [1965] 57 ITR 185 (SC).
4. The learned counsel for the assessee submitted that in order to claim depreciation allowance under Section 32 of the Income-tax Act, 1961, two conditions have to be fulfilled. No. 1 that the assessee is owner of the property and No. 2 that the property was used for the purpose of business. Whether movable property was registered in the name of the assessee or not, is not relevant factor in view of the provisions of Sales of Goods Act. The trucks are movable property. The registration of the trucks in the name of the trust with the Transport Authority is not a decisive of the date on which the ownership vest in the trust. In most of the cases of purchase and sale of vehicles including motor cars, the transfer of ownership takes place just at the moment of the delivery of possession and transfer of registration in the name of the purchaser takes place generally later than the date of delivery of possession. In the present case there is nothing unusual about it. It was pointed out that as per Clause 2 of the Agreement of purchase and sale of the trucks the trust was to get registration in due course of time. Therefore, even if registration is not there since the property has passed to the assessee and possession has been taken which is reflected in the accounts of the assessee, the ownership vests in the trust and the trucks were used for the purpose of carrying on business of the trust, the depreciation is allowable. It is admitted that the trucks were given on hire by the Trust to the firm. Hiring became the business of the Trust in view of the amended resolution dated 19-12-1981 which had taken place much before the trucks were purchased. Therefore, it cannot be a made-up affair or a colourable device to reduce the taxable income of the assessee. It would be too much to say that the assessee created a capital asset and became owner of it only for getting depreciation allowance. The compulsion for acquiring these trucks arose from the fact that the firm M/s. A.R. Chadha & Co. were indebted to the trust to a substantial degree and it was not able to realise this amount. The very exemption of this was in danger and even the exemption under Section 56 could have denied. The assessee was paying 50 per cent of tax. Therefore, in order to realise this amount, instead of collecting the money in cash from the firm, the trust got two trucks from them in lieu of the debt. On becoming the owner of the trucks, the Trust had to put them to some productive use and the easiest and the quickest form of producing income to the trust was to hire them out to the firm. In law the trust as well as the firm are two different entities and different provisions of law are applicable. Therefore, mere transfer of trucks from firm to the assessee trust cannot be treated as a colourable device. The principle of law laid down by the Hon'ble Supreme Court in the case of McDowell & Co. Ltd. (supra) is not at all applicable to the facts of the present case. Our attention was invited to the copy of account of the firm in the books of the Trust where adjustment was made and income had been shown from these trucks. It was pointed out that the ITO has. included the income from hiring of the trucks as income of the trust and at the same time it is treated the income from other sources which is not permissible in law. Reliance was placed on the following decisions:-
(1) R.B. Jodha Mal Kuthiala v. CIT [1971] 82 ITR 570 (SC); (2) Smt. KalaRanlv. CIT [1981] 130 ITR 321 (Punj. & Har.); (3) CIT v. Shahney Steel & Press Works (P.) Ltd. [1987] 165 ITR 399(AP); (4) CIT v. Sahney Steel & Press Works (P.) Ltd. [1987] 168 ITR 811 (AP); (5) Parthas Trust v. CIT [1988] 169 ITR 334 (Ker.)(FB); and (6) CIT v. Nldish Transport Corporation [1989] 44 Taxman 351 (Ker.).
It was also pointed out that the decisions of the Hon'ble Supreme Court in the cases of Bhurangya Coal Co. (supra) and Alapati Venkataramlah (supra) are favourable to the assessee. It was also submitted that the decisions relied upon by the learned CIT (Appeals) in the case of Hindustan Cold Storage & Refrigerations (supra) relates to a case of immovable property whereas the case before the Tribunal relates to a movable property where no compulsory registration is necessary. The property passes simply by delivery of possession. As against this, the learned Departmental Representative Shri H.N. Nautiyal supported the action of the revenue authorities and relied on the order of the ITO as well as of the CIT (Appeals). In substance it was submitted that it was a colourable device by which the assessee wanted to reduce the tax liability.
5. We have considered the rival submissions. In this case the assessee trust has claimed depreciation on the two trucks which were purchased by the firm M/s. A.R. Chadha & Co. In realisation of part of debt of Rs. 7 lakhs owed by the firm to the trust, the trust has taken over possession of these two trucks and given them on hire to the firm. According to the assessee this method was adopted when the trust was finding it difficult to realise the amount from M/s. A.R. Chadha & Co. The trust further thought that taking possession of these two trucks and the use of them will be productive to the business which could be put into action for generation of income for the trust. Accordingly the agreement was executed between the assessee trust and M/s. A.R. Chadha & Co. on 20-5-1982 by which these trucks were given on hire to the firm. To own, operate and hire vehicles, trucks for the purpose of generating income of the trust and for said purpose carried out incidental activities were adopted as a business by the Trust vide resolution passed at a meeting of the trustees held on 19-12-1981, much before the purchase of trucks by the firm M/s. A.R. Chadha & Co. on 18-5-1982. Therefore, hiring of trucks became the business of the trust. The question arises whether the assessee trust in the given facts and circumstances becomes the owner of the trucks or not. In the case of Bhurangya Coal Co. (supra) the Hon'ble Supreme Court has held that the title to a movable property passes to the company on the day they were handed over possession in pursuance of agreement unlike in the case of immovable property where the title to immovable property passes to the transferee only on the date of execution of sale deed and registration of sale deed in respect of property mentioned in it. Similar view was expressed by the Hon'ble Supreme Court in the case of Alapatl Venkataramiah (supra). Therefore, the transfer of ownership of the vehicle takes place when the properly is transferred to the purchaser in consideration and the purchaser is put into possession of the same. The registration of vehicle in the name of the purchaser with the transport authority is not decisive of the date on which the ownership vests in the purchaser. In most of the cases of sale and purchase of vehicles including motor cars, the transfer of ownership takes place just at the moment of the delivery of possession. The transfer of ownership of vehicle is not a matter governed by the provisions of the Motor Vehicles Act, 1939. Motor vehicle is a movable property. The transfer of ownership is governed by the sale of Goods Act. Transfer takes effect from the date of sale. As between the transferor and the transferee, the sale is complete even before the transfer is effected in the registration certificate. The failure to report the same to the registering authority may entail levy of penalty prescribed under Section 31 of the Motor Vehicles Act or Section 112 of the Act. Beyond that, it does not affect the passing of title. In the case of Panna Lal v. Chand Mai AIR 1980 SC 871, question regarding transfer of ownership of motor vehicle arose before the Hon'ble Supreme Court. The Hon'ble Supreme Court held that for the transfer of ownership of motor vehicle, mention of the name in the certificate of registration is not necessary and the vehicle can be sold and purchased without following the procedure prescribed under Section 31. In view of decision of the Hon'ble Supreme Court cited above, it is clear that the legal ownership of truck is vested in the trust as soon as an agreement stipulating transfer of these two trucks was executed on 20-5-1982 and the trust was put into possession of the said trucks. However, from the evidence filed before the revenue authorities it is found that the assessee not only executed agreement to sell but made adjustment of consideration in the books of account. Not only this, the income generating from the hire-charges received from the firm is also shown as income of the assessee. The Income-tax department has also taxed that income. In view of the evidences in the books of account, it is amply clear that this transaction was in fact effected between the trust and the firm. The revenue authorities have pointed out that two of the partners in the firm are also trustees in the trust. Therefore, this is all a got-up affair and in fact the trust has deviced a mean to avoid tax liability. In this connection, authorities below have pointed out that agreement was executed on a plain paper and the resolution was also passed on earlier date. So far as this inference is concerned, we find that this is not based on any evidence. Firstly these two documents (amendment made to Clause 4 of the Trust Deed dated 19-12-1981 and the agreement to sell these trucks) were executed on Stamp Paper. No enquiry was made so as to infer that these two documents are bogus vis-a-vis when Stamp Papers were purchased and when these were in fact executed. This inference is belied by the fact that on 11-5-1982 these trucks were found transferred from M/s. Atma Ram Chadha & Co. to M/s. Atma Ram Trust vide certificate of registration dated 11-5-1982 given at pages 16 to 19 of the Paper Book. Apart from this, there are entries in the books of account of the assessee as well as in the books of account of the firm. Therefore, in the face of these evidences, it cannot be said that this was a device adopted by the trust to reduce tax liability. The learned counsel for the assessee emphasised that the trust had given loan to M/s. A.R. Chadha & Co. to the extent of Rs. 7 lakhs and it was finding very difficult to realise the same. Therefore, exemption under Section 13 of the Income-tax Act was jeopardised and the assessee trust was required to pay tax at 50 per cent. Therefore, it was thought proper to purchase two trucks from the said concern, as a substantial part of debt owed from them and hire the same to the firm so as to generate income from hiring of the trucks for the trust. In law trust and firm are two different entities and separate provisions govern both. Merely trustees are also partners in the firm will not by itself make the whole affair as a colourable device. In the case of McDowell & Co. Ltd. (supra) the Hon'ble Supreme Court has not disapproved every legitimate tax planning but it disapproved in colourable device as a part of tax planning which is clear from the opening sentence "Tax planning may be legitimate provided it is within the framework of the law". Therefore, if the planning is within the framework of law, it is not treated as a colourable device. It will be pertinent to mention here that in the case of CWT v. Arvind Narottam [1988] 173 ITR 479 the Hon'ble Supreme Court has surveyed the decision of McDowell & Co. Ltd. (supra) and made certain observations at page 487. It was also pointed out by the learned counsel for the assessee that the decision in the case of McDowell & Co. Ltd. (supra) is under consideration of the Hon'ble Supreme Court. In view of totality of the facts and circumstances cited above, we are of the opinion that the decision in the case of McDowell & Co. Ltd. (supra) cannot advance the case of the revenue because language of the two documents clearly brings out that the property, i.e., trucks have passed as soon as the same were transferred to the assessee on execution of deed in consideration of realisation of debt and the same is evidenced by entries in the books of account. Therefore, the whole exercise cannot be treated as a colourable device. Now the question arises whether the trust is entitled to depreciation under the provisions of Section 32 of the Income-tax Act, 1961 or not. The depreciation can be claimed by an owner who uses the asset in question. From the perusal of this provision, it will be clear that there are only two conditions to claim depreciation: (1) A person should be owner of the property and (2) he uses that asset during the assessment year under consideration. Both the conditions of ownership and use have to be satisfied. The use of expression "owned by the assessee" and "uses for the purpose of business or profession" emphasise that it is not mere user in respect of ownership that contemplated by Section 32 as a necessary condition for claiming the allowance of depreciation but such ownership must necessarily name legal title to the asset in the assessee and the user thereof by the assessee by being such owner in the course of his business.
6. There are differences of opinion between various High Courts with regard to transfer of ownership in respect of immovable property. Whether the ownership transferred on execution of sale deed or. only when it is compulsorily registered. Some High Courts have taken a view that ownership passes only when the document is registered. The other set of High Courts have taken a view that the registration of sale deed is not necessary. Here we are not concerned with the case of immovable property. The case before us relates to a movable property and as per law laid down by the Hon'ble Supreme Court, the ownership passes as soon as the assessee trust put into possession in pursuance of agreement. Therefore, we have to see whether these two conditions are satisfied in the present case for the purpose of claiming depreciation or not. In the present case, we find that the assessee trust became absolute legal owner of the property as soon as it took possession of the trucks and pay price to the seller. The registration of the trucks in the name of trust with the Transport Authority is not decisive of the date on which the ownership vests with the trust. In view of this position, the assessee becomes owner of the property and he used the same for the purpose of his business. Therefore, in view of the decision of Hon'ble Kerala High Court in the case of Ntdlsh Transport Corporation (supra) and the decision of Hon'ble Calcutta High Court in the case of CIT v. Salkta Transport Associates [1983] 13 Taxman 191 (Cal.) and the decision of Kerala High Court in the case of Parthas Trust (supra), the assessee is entitled to depreciation. It is pertinent to mention here that the department in subsequent assessment year 1987-88 has itself allowed depreciation to the assessee trust which is clear from the order of the CIT (Appeals) dated 18-5-1990, where following the decision of Kerala High Court in the case of Ntdlsh Transport Corporation (supra) and decision of Allahabad High Court in the case of Addl. CIT v. U.P. State Agro Industrial Corporation Ltd. [1981] 127 ITR 97 the CIT (Appeals) has allowed depreciation to the assessee. In view of this, we are of the opinion that the assessee is entitled to depreciation as claimed. We, therefore, set aside the order of the CIT (Appeals) and direct the Income-tax Officer to allow depreciation in respect of these two trucks.
7. In the result, both the appeals are allowed.