9911796707
TMI Blog2000 (11) TMI 1182X X X X Extracts X X X X X X X X Extracts X X X X ..... scheme from the Tea Board ; and (b) that the learned Commissioner of Income-tax erred, on the facts and in the circumstances of the case, in assuming jurisdiction under section 263 of the Income-tax Act, 1961. Brief facts, giving rise to this dispute before us, are that the assessee is owner of tea garden factory and the assessee had claimed, in the relevant previous years, depreciation on plant and machinery acquired on hire purchase basis from the Tea Board, a body corporate established under the Tea Act, 1953. These claims of depreciation were duly allowed by the Assessing Officer vide assessment orders under section 143(3) for the assessment years 1991-92, 1992-93 and 1993-94 on December 23, 1995, February 20, 1995 and December 23, 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Revenue. The Commissioner of Income-tax, however, did not yield to these submissions and held that the depreciation in not allowable since the ownership of the machinery remained with the Tea Board. It was observed that the Tea Board had the right for recovery of assets if the hirer made a default in punctual payment of instalment and that the Tea Board even had the right to break open any door or locks to take possession of machinery and to remove the same. The Commissioner of Income-tax, therefore, concluded by observing that the Central Board of Direct Taxes circular relied upon by the assessee in fact goes against the assessee and by directed the Assessing Officer to disallow depreciation claims of Rs. 69,543, Rs. 1,20,920, Rs. 1,0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tments for the purpose of depreciation. In the first case, according to the Central Board of Direct Taxes circular, the transaction is required to be treated as that of purchase by instalments and the depreciation to be computed on entire purchase price as per the agreement. In the second situation, however, the transaction is required to be treated as one of hire purchase and the periodical payment made by the hirer is regarded as made up of : (a) consideration for hire, to be allowed as deduction in the assessment ; and (b) payment on account of purchase, to be treated as capital outlay, depreciation being allowed to the lessee on the initial value (i.e., the amount for which the hired subject would have been sold for cash at the date ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... et, if they are not treated as capital payments, they will necessarily be amounts expended towards the carrying out of the business. On the other hand, if the property passes at the time of the last instalment, then the entire revenue payment will be transformed into a capital payment at that stage. To meet this obvious difficulty, the Central Board of Direct Taxes has issued circulars at various times directing that assets purchased on hire-purchase basis should be treated as belonging to the assessee. It is therefore settled position that depreciation is to be allowed on the assets purchased on hire purchase basis. The Commissioner of Income-tax, however, concluded that depreciation should not have been allowed by the Assessing Officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessing Officer granting such depreciation. In our considered view, therefore, the order granting depreciation on the assets purchased under the hire purchase arrangement with the Tea Board were neither erroneous nor prejudicial to the interests of the Revenue. A large number of case laws have been cited at the Bar, in support of and against the proposition that ownership is not a mandatory pre-condition for allowance of depreciation, but, in our opinion, it is not necessary to deal with those erudite submissions in the present context. We, accordingly, leave the matter at that. In view of the above discussions, we hold that the impugned order passed by the Commissioner of Income-tax (West Bengal-IX) under section 263 of the Income-tax ..... X X X X Extracts X X X X X X X X Extracts X X X X
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