2014 (11) TMI 941 - HC - Income Tax

Entitlement for depreciation - determination of date of purchase - date of delivery taken for the assets or date of payment made for the transactioin Whether the Tribunal was right in holding that when the sale consideration is paid subsequently, the entire sale transaction becomes conditional and the date of such would be the date on which the payment is made Held that - The assessee has taken delivery of the machine on 28.8.1993 and the payment was made on 22.2.1994 and the insurance policy which was taken in October was amended with effect from 1.11.1993 - there is nothing on record to show that there was any contract between the appellant and the seller, so that the same can be said to be contingent contract - No condition is produced on record whether it was a conditional sale or not - The letter written by the assessee to the AO is on record - the contention of Mr. Mehta that it was a conditional sale is misconceived - The finding of Tribunal is not borne out from the facts and is contrary to the law of Contract and the Income-Tax Act relating to depreciation - the delivery is taken prior to 31.10.1994, the appellant-assessee is entitled for 100% depreciation for the relevant year Decided in favour of assessee.

Summary

Issues:
Challenge to judgment by Income Tax Appellate Tribunal for AY 1994-95; Interpretation of Sale of Goods Act, 1930; Determination of ownership based on payment date; Entitlement to depreciation; Conditional sale agreement.

Interpretation of Sale of Goods Act, 1930:
The case involved a dispute over the ownership of a machine purchased by the appellant, with the Tribunal suggesting ownership was established only upon payment. The appellant's Senior Advocate argued that delivery of goods under the Sale of Goods Act, 1930, makes the purchaser the owner. Section 32 of the Act was cited to support the argument that delivery and payment are concurrent conditions unless agreed otherwise. The contention was that ownership transferred upon delivery, entitling the appellant to 100% depreciation.

Conditional Sale Agreement:
The respondent's Advocate relied on sections 12, 19, and 20 of the Sale of Goods Act, 1930, to assert a conditional sale based on a letter indicating delayed payment due to assessing the asset's performance for six months. The letter stated a condition for payment after satisfactory performance review. However, the Court found no evidence of a formal contract or specific conditions defining a conditional sale. The Court rejected the argument of a conditional sale, emphasizing the lack of contractual evidence and the misapplication of Contract Law and Income Tax Act principles.

Entitlement to Depreciation:
The Court concluded that ownership was established upon delivery before a specified date, entitling the appellant to claim 100% depreciation for the relevant year. The judgment favored the appellant, highlighting the importance of delivery under the Sale of Goods Act, 1930, in determining ownership for depreciation purposes. The decision was based on the timing of delivery and not on the subsequent payment date, as argued by the Tribunal.

In summary, the High Court ruled in favor of the appellant, rejecting the Tribunal's interpretation that ownership was contingent on payment. The judgment emphasized the significance of delivery under the Sale of Goods Act, 1930, in determining ownership for depreciation claims. The Court dismissed the notion of a conditional sale agreement due to the absence of contractual evidence, ultimately allowing the appellant's claim for 100% depreciation based on the delivery date.