2013 (3) TMI 51 - HC - Income Tax

Entitlement to depreciation - ITAT entitled the assessee with the depreciation claim only in respect of commercial vehicles acquired and leased out by it in the last week of the accounting period - Held that - It is not the respondent-assessee who is plying those vehicles. The respondent- assessee's business is only to lease out those vehicles, which it did. Therefore, the moment the respondent-assessee entered into the agreement with the lessees for leasing the vehicles to them and transferred possession for that purpose to the lessees, the respondent/assessee would be deemed to have utilized those vehicles for the purposes of its business, which was leasing of vehicles. If any authority for this proposition were needed, the same would be supplied by the decision of this Court in CIT Vs. Bansal Credits Ltd(2002 (11) TMI 76 - DELHI HIGH COURT) - this question is answered in favour of the assessee and against the revenue. Point of sale of the lottery tickets - Tickets sent to the stockist - whether becomes a sale on their despatch or on the happening of various events including the draw taking place? - Held that - After going through the agreement the arrangement by which the assessee sent tickets to the stockists who in turn sold the same to their agents did not indicate that the sale took place at the point of dispatch of tickets to the stockists. Also the unsold tickets are to be returned to the organizing agent of the assessee at least one day before the actual date of the draw and any tickets received thereafter would not be accepted and treated as sold by the stockists. This makes it clear that those tickets which are returned by the stockists cannot be treated as having been sold. The corollary to this is that mere dispatch of tickets to the stockists would not entail a sale. Thus, till the date of the draw or just prior to the date of the draw it cannot be ascertained as to whether the dispatched tickets were actually sold or not -in favour of the assessee. Changed method of accounting adopted by the assessee - whether give a distorted picture of the business for the purpose of computing the taxable income or was acceptable even though the opening stock and closing stock were valued by different methods - Held that - Even if mere dispatches to the stockists did not amount to sales, the unsold amount should have been treated as part of the stock of the respondent-assessee which has not been done by the respondent-assessee in the accounting method adopted by it. It cannot maintain the position that it has not sold the tickets and that those tickets are also not part of its stock. Therefore, to that extent, the accounting method adopted by the respondent-assessee does, in fact, distort the picture for the purpose of ascertaining the taxable income - in favour of the revenue. Interest income received from the Bank on Short Term Fixed Deposit shown as other income - whether eligible for deduction u/s 32 AB - Held that - As decided in CIT Vs. Bokaro Steel Ltd 1998 (12) TMI 4 - SUPREME COURT CIT Versus Koshika Telecom Limited 2006 (2) TMI 140 - DELHI HIGH COURT where income is received from deposits made by the assessee are deposits which are inextricably linked to the business of the assessee, such income cannot be treated as income received from other sources. As in the present case, the Tribunal has held that the interest received by the assessee was inextricably linked to the business of the assessee this is so because the margin money requirement was an essential element for obtaining the bank guarantee which was necessary for the contract between the State Government of Sikkim and the assessee. If the respondent-assessee had not furnished the bank guarantee it would not have got the contract for running the said lottery - in favour of the assessee.

Issues Involved:
1. Entitlement to depreciation claims for commercial vehicles.
2. Determination of the point of sale for lottery tickets.
3. Validity of the changed method of accounting adopted by the assessee.
4. Eligibility for deduction under Section 32AB of the Income Tax Act, 1961 for interest and investment income.

Detailed Analysis:

1. Entitlement to Depreciation Claims for Commercial Vehicles:
The primary issue was whether the assessee firm was entitled to claim depreciation on commercial vehicles acquired and leased out shortly before the end of the accounting period, even though these vehicles were not put to use during the relevant period. The revenue contended that the vehicles, only having temporary registrations and lacking commercial permits, were not used commercially. The court, however, ruled in favor of the assessee, stating that the moment the vehicles were leased out and possession transferred to the lessees, they were deemed to have been utilized for business purposes. This decision was supported by the precedent set in CIT Vs. Bansal Credits Ltd. (2003) 259 ITR 69 (Del.).

2. Determination of the Point of Sale for Lottery Tickets:
The second issue was whether the dispatch of lottery tickets to stockists constituted a sale. The revenue argued that sales occurred at dispatch, whereas the Tribunal, after examining the agreement clauses, held that sales were only finalized upon the draw taking place and unsold tickets being returned. The court agreed with the Tribunal, noting that tickets returned before the draw were not considered sold, thus dispatch alone did not constitute a sale.

3. Validity of the Changed Method of Accounting:
The third issue involved the assessee's change in accounting method, where dispatches not leading to immediate sales were not included in closing stock. The court found this method distorted the taxable income picture, as unsold tickets should have been considered part of the closing stock. Consequently, this question was answered in favor of the revenue, requiring the assessing officer to re-compute the income by including unsold tickets in the stock.

4. Eligibility for Deduction under Section 32AB of the Income Tax Act, 1961:
For the assessment year 1990-91, the eligibility for deductions under Section 32AB for interest income and investment income was questioned. The court ruled in favor of the assessee, referencing decisions such as CIT Vs. Bokaro Steel Ltd. (1999) 236 ITR 315 (SC) and CIT Vs. Koshika Telecom Ltd. (2006) 287 ITR 479 (Del.). It was determined that the interest earned on margin money, required for obtaining bank guarantees essential for the business, was inextricably linked to the business and thus qualified for deductions under Section 32AB.

Conclusion:
The court provided a mixed ruling, favoring the assessee on the issues of depreciation claims and the point of sale for lottery tickets, while siding with the revenue on the distortion caused by the changed accounting method. For the assessment year 1990-91, the court ruled in favor of the assessee regarding the eligibility for deductions under Section 32AB. The references were disposed of accordingly, with directions for the assessing officer to re-compute the income as per the court's findings.

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