1981 (9) TMI 10 - HC - Income Tax

Summary

Issues Involved:
1. Legal ownership of plant and machinery imported from the USA.
2. Entitlement to claim depreciation and development rebate.
3. Deduction of interest paid to the Government of India.

Issue-wise Detailed Analysis:

1. Legal Ownership of Plant and Machinery Imported from the USA:
The primary issue was whether the assessee was the legal owner of the machinery imported from the USA, which would determine their entitlement to claim depreciation and development rebate under sections 32 and 33 of the Income-tax Act, 1961. The Tribunal examined the correspondence between the assessee and the Vizag Port authority, noting that the machinery was imported by the Government of India under the TCM procedure, with the payment made by the Government. The Tribunal concluded that the assessee was the owner of the machinery, with the Government acting merely as a financier. Key phrases such as "the Government of India has agreed to the import of the items mentioned by the assessee" and "the equipment shall become the property of the contractor free of any lien of the Government of India" were pivotal in this determination. The Tribunal emphasized that the use of terms like "transferred" instead of "sold" and "lien" indicated that the machinery was owned by the assessee, not the Government.

2. Entitlement to Claim Depreciation and Development Rebate:
The Tribunal upheld the AAC's decision that the assessee was entitled to claim depreciation and development rebate. The Revenue argued that the assessee was not the legal owner and relied on the concept of legal ownership under Indian law, citing several court decisions. However, the Tribunal found that the assessee's ownership was established through the correspondence and the terms of the agreement. The Tribunal noted that the machinery was shown as assets in the assessee's balance sheet, with the value reduced by installments paid during the year, indicating ownership.

3. Deduction of Interest Paid to the Government of India:
The assessee claimed a deduction for the interest paid to the Government of India, which the AAC allowed. The Revenue contended that the interest was of a capital nature and should enhance the purchase price of the imported items. However, the Tribunal upheld the AAC's decision, citing the Supreme Court's ruling in Bombay Steam Navigation Co. (1953) P. Ltd. and a CBDT circular. The Tribunal agreed that the interest paid was deductible, as it was required by the Government's directives and supported by legal precedent.

Conclusion:
The High Court affirmed the Tribunal's decision, concluding that the assessee was the legal owner of the machinery imported from the USA and thus entitled to claim depreciation and development rebate. The Court also upheld the deduction of interest paid to the Government of India. The question referred to the Court was answered in the affirmative and in favor of the assessee, with each party bearing its own costs.