2000 (11) TMI 1182 - AT - Income Tax

Summary

Issues:
- Entitlement to depreciation on plant and machinery acquired under hire purchase scheme.
- Jurisdiction under section 263 of the Income-tax Act, 1961.

Entitlement to Depreciation on Plant and Machinery:
The appeals were filed against the order passed by the Commissioner of Income-tax, challenging the denial of depreciation on plant and machinery acquired under a hire purchase scheme from the Tea Board. The Commissioner concluded that since the ownership of the machinery remained with the Tea Board, the assessee was not entitled to claim depreciation. The Central Board of Direct Taxes Circular No. 9 was cited by the assessee to support their claim that the transaction should be treated as hire purchase, entitling them to depreciation. The Tribunal noted that the circular differentiated between situations where ownership is transferred at once and where the equipment eventually becomes the property of the hirer. They emphasized that the conditions in the circular were mutually exclusive and found that the Commissioner erred in applying the conditions for one situation to the other. The Tribunal held that the depreciation on assets purchased under the hire purchase scheme with the Tea Board was covered by paragraph (iii) of the circular, and the orders granting depreciation were not erroneous.

Jurisdiction under Section 263 of the Income-tax Act:
The Commissioner assumed jurisdiction under section 263 based on the belief that the orders allowing depreciation were erroneous and prejudicial to the Revenue's interests. The Tribunal, after considering various authorities and the departmental circular, concluded that the Commissioner's order was unsustainable in law. They highlighted that ownership is not a mandatory precondition for allowing depreciation, and the Commissioner's reliance on specific conditions in the circular was misplaced. The Tribunal set aside the order passed by the Commissioner of Income-tax, thereby allowing the appeal.

In summary, the Tribunal ruled in favor of the assessee, holding that they were entitled to depreciation on plant and machinery acquired under the hire purchase scheme. The Commissioner's order under section 263 was deemed unsustainable, and the Tribunal set it aside. The decision was based on a thorough analysis of the Central Board of Direct Taxes circular and relevant legal principles surrounding depreciation claims on assets acquired through hire purchase agreements.