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TMI Blog2011 (11) TMI 72X X X X Extracts X X X X X X X X Extracts X X X X ..... n the nomenclature of hire-purchase agreement. The judgments relied upon by the appellant would show and establish that FLCIL is the owner of the assets and not the appellant. If FLCIL is the owner, they are entitled to depreciation and it does not matter if FLCIL had not claimed depreciation. - Claim of depreciation disallowed - decided against the assessee. X X X X Extracts X X X X X X X X Extracts X X X X ..... void its tax liability and proceeded to demonstrate the same. He noted that the net profit of the assessee as per its profit and loss account was Rs.25,10,284/-, which was converted into a loss of Rs.14,00,380/- mainly on account of the claim of depreciation on the assets at the rate of 100% of the cost of assets. Thus, according to the Assessing Officer, what would have taxable income was converted into a loss resulting in no tax liability. The Assessing Officer also noticed certain other contradictions in the case. The assets were purchased on 26.9.1994, but there was no physical movement of the assets from UBPL to the assessee. On the very same day assets were claimed to have been delivered to the lessee i.e. UBPL. However, the details of lease rentals received by the assessee showed that first installment was received by the assessee only on 21.1.1995 from UBPL. This chain of events, according to the Assessing Officer amounted to a colourable device to avoid the legitimate tax dues of the assessee, attracting the rule laid down by the Supreme Court in the case of McDowell & Co. Limited vs. CTO (1985) 154 ITR 148 (SC). The Assessing Officer thus held that the transactions entere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... missions of the appellant. I am inclined to agree with the submissions made by the appellant in the light of the facts and in the light of the various cases cited by the appellant. The appellant has met both the objections of the Assessing Officer regarding the movement of the machinery and regarding use of the machinery. Accordingly, the Assessing Officer is directed to allow depreciation as per law." 6. Aggrieved by the aforesaid order of the CIT(Appeals), the Revenue carried the matter in appeal to the Income Tax Appellate Tribunal (Tribunal, for short). The Tribunal examined the facts in detail and also the lease agreement entered into between FLCIL and the assessee. Before the Tribunal the assessee appears to have filed a copy of the resolution passed on 26.12.1994 by the Board of Directors of UBPL. The Tribunal considered this to be a vital document in the case. It referred to the resolution in para 10 of its order and came to the conclusion that it embodied a formal declaration of the lease by UBPL and revealed that up to the date of passing of resolution there was only a proposal to sell its assets for Rs.38.50 lakhs and take them back on lease and that two persons named t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing or divesting the ownership of the assets from the assessee to FICIL. It was further noticed by the Tribunal that no material was produced before it by the assessee to show its ownership over the assets from 26-12-1994, the date of the board resolution passed by UBPL and 4-1-1995 which is the date of the hire purchase agreement. In the absence of any such material, and on the basis of the documentary evidence referred to above, the Tribunal came to the conclusion that the conduct of the assessee itself shows that it admitted FICIL to be the owner of the machinery. According to the Tribunal, there was no material on record to show that either UBPL, the original owner of the assets, nor FICIL which was described as the owner in the hire-purchase agreement, had given up their ownership right in favour of the assessee. 8. It is thus seen from the findings of the Tribunal that it regarded the claim of the assessee that it was the owner of the assets in question, so as to be entitled to the depreciation on them, as untenable. One of the conditions of Sec.32 for claiming depreciation is that the assessee should be the "owner" of the asset (in addition to using it) on which depreciatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of an asset under a hire-purchase agreement. The same can be said of the other judgment of this Court cited on behalf of the assessee, which is that of CIT v Nagpur Golden Transport Co (1998) 233 ITR 389, which was also a case of an uncomplicated hire-purchase agreement or a finance agreement. 11. The question of law stated above begins with the expression "whether on the facts and circumstances of the case". The difficulty for the assessee in this case however is that the Tribunal has found that the assessee was at no point of time the owner of the asset, notwithstanding that it claimed to have purchased the assets from UBPL in September 1994 itself. The documentary evidence led by the assessee in the form of sale agreement with UBPL and the lease agreement with the same company has been frowned upon by the Tribunal on the ground that they were unreliable since UBPL, even till December 1994, can at best be said to have been only negotiating for the sale of the assets to the assessee as can be found from the board resolution dated 26th December, 1994. The invoices for sale raised by UBPL prior to the above date, according to the Tribunal, could only be considered as proforma inv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecide substantial question of law and does not have power to re-examine or re-appreciate the facts as a first appellate forum/Tribunal, which has jurisdiction to determine and decide questions of fact and law. Tribunal is the final fact finding authority. Secondly, it has been noticed that the appellant had entered into an agreement with FLCIL on 4.1.1995 and the payment for assets to UBPL was directly paid by FLCIL on 21.1.1995. These are obviously relevant circumstances, which have been rightly kept in mind by the Tribunal. The agreement between the appellant and FLCIL has been placed on record before us. The said agreement has been given the nomenclature of hire-purchase agreement. The judgments relied upon by the appellant would show and establish that FLCIL is the owner of the assets and not the appellant. If FLCIL is the owner, they are entitled to depreciation and it does not matter if FLCIL had not claimed depreciation. 13. For the above reasons, we hold that the Tribunal was justified in holding that the appellant (assessee) was not entitled to claim depreciation on the machinery bought by it on hire purchase basis and leased by it to a third party. The substantial questi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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