Document Fragment View

Matching Fragments

5. The facts in nutshell on this issue borne out from the record are that in the year under consideration, assessee had purchased soft drink bottles from M/s Glass and Ceramics Decorators, Bombay, worth Rs. 19,54,953 by means of 30 invoices during the period w.e.f. 28th March, 1991 to 30th March, 1991. The bottles were to be directly supplied to M/s Coolade as per agreement dt. 15th Feb., 1991. The AO noted that these bottles were transported from Bombay to Sahibabad by goods train and also Transport Corporation of India. Summons under s, 131 were also issued to M/s Coolade for filing the copy of the franchise from M/s Parle (Exports). (P) Ltd., the date of receipt of the bottles along with substantiating evidence.

6. M/s Coolade filed the statement of bottles received from M/s Glass & Ceramics Decorators, copy of register of empty bottles, photocopy of franchise with Parle (Exports) India Ltd, From these details, it was noticed by the AO that out of total of 5,46,000 bottles receivable from the assessee, M/s Coolade had received only 42,000 bottles and remaining were received between 3rd April, 1991 and 18th April, 1991. The assessee was asked to explain why claim of depreciation should not be disallowed in respect of bottles which were not brought to use in the relevant previous year. The assessee contended that for claiming depreciation under Section 32, it was not necessary for the lessor that the goods should be put to use by the lessee in its business. The requirement of law is only that the goods should be used for the assessee's business, i.e., the lessor's business and not for the lessee's business, It was further pointed out that lessor could not be at the mercy of the lessee, waiting for the latter to use the assets in its business in order to claim depreciation. It was further contended that soft drink bottles were in existence before the end of the previous year and only because part of these bottles was transported after the end of the previous year, depreciation could not be disallowed in respect of the bottles which were transported later. The AO was not satisfied with the explanation of the assessee and she accordingly restricted the depreciation in respect of 42,000 bottles which were received and put to use before 31st March, 1991, and disallowed the depreciation of Rs. 18,04,572. The assessee preferred an appeal before the CIT(A) with the submission that the assessee has entered into an agreement on 15th Feb., 1991, with M/s Coolade for lease of empty glass bottles of the aggregate value of Rs. 25,87,200 and in terms of lease agreement, assessee had purchased 5,88,000 bottles of the value of Rs. 19,54,953 from M/s Glass Ceramics Decorators of Bombay. The above manufacturer had dispatched the said bottles directly to M/s Coolade in different lots and the transportation charges were to be borne by the lessee. It was further contended that the lease agreement commenced w.e.f. 28th Feb., 1991, and monthly rental amounting to Rs. 65,708 was received in advance on 15th March, 1991. Since the bottles were put to use in the assessee's business of leasing and the assessee had received lease rental thereon, the assessee was entitled to claim depreciation in respect of the cost of the bottles under the provisions of Section 32(1)(ii) of the IT Act. The CIT(A) reexamined the issue and he opined that in order to use the bottles for the business of the lessor, it has to become the first owner of the assets in question. The crucial question is that at what point of time the assessee in the case of assets involved, i.e., bottles which were directly dispatched by the manufacturer to the lessee, can be said to have become the owner of the assets. In this case, the assessee purchased the bottles from M/s Glass & Ceramics Decorators of Bombay and the assessee cannot be said to have become the owner of these bottles till these bottles have parted with the ownership of M/s Glass & Ceramics Decorators of Bombay, the previous owner. Therefore, the assessee can only be said to have become the owner if these bottles in the relevant year were dispatched by M/s Glass & Ceramics Decorators of Bombay before 31st March, 1991. He, accordingly, directed the AO to call for evidence and make necessary inquiry in order to ascertain how many bottles excluding 42,000 bottles which were admittedly received by the lessee before 31st March, 1993, were dispatched before 31st March, 1991, and the assessee would be entitled to depreciation in respect of those bottles which were dispatched by the previous owner upto 31st March, 1991.

9. Having considered the rival submissions and from a careful perusal of record, we find that the assessee has entered into an equipment lease agreement with M/s Coolade and M/s Parle (Exports) (P) Ltd., for supply of bottles which would be delivered by the supplier directly at the place of the lessee. It was also agreed that although M/s Coolade and M/s Parle (Export) (P) Ltd. are for the purpose of this agreement joint hirer, all the liabilities and obligations at the first instance are of M/s Coolade who would be deemed to be the principal hirer and in case of default or non-performance, all terms and conditions would mutatis mutandis be applied to M/s Parle (Export) (P) Ltd. According to its Schedule 1 and Schedule 1B, the bottles costing at Rs. 19,54,953 were to be leased out w.e.f. 1st March, 1991, at a monthly rent of Rs. 65,708.15 which is more than the interest @ 40 per cent per year on the investment made in the purchase of bottles, i.e., Rs. 19,54,953. It is also evident from Schedule 1B that the assessee has agreed to receive a sum of Rs. 23,65,493.10 within a period of three years against an investment made in purchase of bottles, i.e., Rs. 19,54,953. From a careful perusal' of these data, we find force in the contention of the Departmental Representative that it is not a simple case of leasing of equipment, i.e., the bottles, to the lessee but it is rather a case of finance made available by the lessor to the lessee for purchasing these bottles. During the course of hearing, a specific query was raised from the learned counsel for the assessee that according to this specific clause Nos. 16 and 27 of this lease agreement, the lessee was required either to surrender the equipment to the lesser at such place as the lessor may specify, in good repair, condition and working order or get the lease renewed for another period agreed between the parties, what happened with the equipments/bottles after the end of the lease period? Whether the lease was renewed or bottles were returned back to the lessor? Learned counsel for the assessee candidly accepted that after the lease period, the bottles were neither returned to the lessor nor the lease was renewed. These bottles were retained by the lessee, as per the practice prevailing in the market. With this reply, it has become amply clear that after the end of the lease period, the lessee became the absolute owner of the bottles and whatever alleged rent on account of hiring of bottles was paid, it was not in fact, a rent but was an instalment towards the advance/finance made available in purchase of the bottles, paid to the lessor. This proposition also gets support from the fact that the assessee has made the investment in purchase of bottles at Rs. 19,54,953 and received a total sum of Rs. 23,65,493.10 within a period of three years from the so-called lessee. All these facts suggest that it is not a case of simple leasing of bottles by the assessee to the lessee but it is rather a case of finance made available by the assessee to the lessee for purchasing the bottles against certain rate of interest and thereafter in equal monthly instalments, it was repaid by the lessee to the lessor and after the end of the stipulated period, the lessee becomes an absolute owner of the equipment as it was not required to return back the equipment or to get the lease renewed although a specific clause to this effect was envisaged in the lease agreement to entitle the assessee to claim 100 per cent depreciation on the bottles besides earning interest on its investment in bottles.