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TMI Blog2013 (12) TMI 355X X X X Extracts X X X X X X X X Extracts X X X X ..... learned Assessing Officer in order dated December 30, 2010 under section 143(3) of the Act." 3. Briefly stated, the facts are that the assessee is a company engaged in the business of dredging, trenching, backfilling and reclamation services. For the assessment year under dispute, the assessee filed its return of income on September 30, 2008 declaring a total income of Rs. 7,29,291. Initially, the return was processed under section 143(1) of the Act. Subsequently, the assessee's case was selected for scrutiny. In the course of scrutiny assessment proceedings, the Assessing Officer while examining the final accounts noticed that the assessee has claimed depreciation of Rs.36,43,57,347 on two dredgers, namely, Ta Lung and Ta Hsing. It was further noticed by the Assessing Officer that the aforesaid two dredgers were shown to have been purchased during the financial year 2007-08 relevant to the assessment year 2008-09 from M/s. Hung Huo Construction Co. Ltd., Taiwan and M/s. Jung Hsing Marine Construction Co. Ltd., Taiwan. For further verification, the Assessing Officer asked the assessee to submit agreement copies of suppliers of the dredgers along with modalities of payment, invoice ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Commissioner of Income-tax (Appeals). The assessee contended before the Commissioner of Income-tax (Appeals) that it cannot be said that title of the assessee over the dredgers are not complete unless there is registration of dredgers. The assessee submitted that there was no legal requirement for registration of dredgers for which reason Port Officials, Machilipatnam had declined to register them. Relying upon the decision of the hon'ble Supreme Court in case of Mysore Minerals Ltd. v. CIT [1999] 239 ITR 775 (SC) it was submitted that anyone in possession of the property exercising such dominion over the property as would enable others from being excluded therefrom and having the right to use and occupy the property in his own right would be owner of the building for the purpose of section 32(1) though a formal deed of title may not have been executed or registered. It was submitted that as the dredgers are floating crafts passing of ownership is decided by agreement for sale/purchase, signing of protocol of delivery and acceptance and bill of sale, etc. It was submitted that on the basis of those documents, the title to the dredgers passed on to the assessee and the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... edgers till the payment of the last instalment and receipt of the no-due certificate from the seller. The Commissioner of Income-tax (Appeals) held that in view of such facts, the assessee cannot claim to be the absolute owner of the dredgers and thereby claim depreciation on them. The Commissioner of Income-tax (Appeals) further held that though the sale agreement for Ta Lung provided that necessary declaration as may be required by customs/banks/Reserve Bank of India for change of import from "import for re-export" to "import for home consumption" would be extended/signed by both parties, the assessee did not furnish any such declaration in respect of both the dredgers to establish that the ownership has been passed on to it and thereby entitling it to depreciation. The Commissioner of Income-tax (Appeals) ultimately concluded that as the assessee has not furnished evidence to show that import duty for home consumption has been paid in respect of the two dredgers nor produced any proof of taxes/fees paid in connection with the purchases and registration under the buyers' flag nor any proof that the name of the dredgers and funnel markings were changed/altered in terms with the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he case of Mysore Minerals Ltd. v. CIT [1999] 239 ITR 775 (SC). The learned authorised representative further submitted that the assessee stands still in a better footing as the dredgers are movable properties and in case of movable properties, the ownership is transferred upon delivery of possession. The learned authorised representative submitted that in the assessee's case, it was outright purchase of dredgers whereas in case of hire purchase agreement also depreciation is allowable. In this context, the learned authorised representative relied upon the Central Board of Direct Taxes Circular No. 9 dated March 23, 1943. The learned authorised representative referring to the schedule of the depreciation in the annual report submitted that the assessee had included the dredgers in the block of assets which proves the ownership of the assessee over the dredgers. 8. The learned Departmental representative submitted that more than one amendment was effected to the agreement of sale entered into between the parties which show that negotiations were going on and sale was not finalised. The learned Departmental representative submitted that the effective date as per the agreement is the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he sale agreement dated September 28, 2007 between M/s. Hung Hua Construction Co. Ltd. and the assessee for sale of dredgers Ta Lung. As per the preamble of the agreement, Hung Hua Construction Co. Ltd., agreed to sell and the assessee agreed to buy the said dredgers. As per clause 2 the purchase price of the dredgers was 45.15 million US dollars. Clause 3 of the agreement sets out the payment schedule of the purchase price. Clause 4 of the agreement provides for furnishing a bank guarantee for a sum of $ 7,00,000 valid initially for one year and same to be extended from time to time till payment of last installment as per payment schedule in clause 3. It further stipulated that in case of failure by the buyer to extend the bank guarantee within 30 days of expiry, the seller is not only entitled to take back the dredgers along with all spares and accessories but will also forfeit all the installments paid by the assessee including the amount initially paid. 10. Clause 5 of the agreement stipulates that the seller shall have exclusive charge over the dredgers till last installment amount is paid under clause 3(ii). It is further provided that on receipt of last instalment the selle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nditions by the buyer, i.e., the assessee. 11. It is further worth mentioning that the sale agreement was subjected to further amendment on January 11, 2008 by incorporating certain changes in the payment schedule under clause 3 and again on January 25, 2008 by making some more changes to the payment schedule and incorporating an additional clause mentioning "effective date". As per this clause, effective date of the agreement will be the date on which the Reserve Bank of India communicates approval to the agreement. It is seen from record that the Reserve Bank of India has granted approval for Ta Lung on March 18, 2008 and for Ta Hsing on April 8, 2008. Though the learned authorised representative has submitted that effective date was mentioned only because no payment could be made without Reserve Bank of India approval, we are unable to accept it. "Effective date" as defined in the additional clause is clear enough to indicate that the parties to the agreement intended the date of approval by the Reserve Bank of India to be the effective date of agreement. Thus, according to the meaning of "effective date" the sale agreement for Ta Lung is effective from March 18, 2008 and for T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e learned authorised representative has further relied upon the Central Board of Direct Taxes Circular No. 9 dated March 23, 1943 while submitting that even in case of hire purchase agreement depreciation is allowed. However, clause 2 of the aforesaid circular makes it explicit that the circular is applicable to such hire purchase agreement under which the ownership of the subject is at once transferred to the lessee which in other words means that the lessor obtains a right to sue for failure in payment of instalments but no right to recovery of the asset. However, the sale agreement of the assessee confers a right on the seller to terminate the agreement and take back possession of the dredger and forfeit the payments already made in case of violation of the conditions of payment and failure to extend the bank guarantee. In view of this, the Circular No. 9 does not apply to the facts of the present case. So far as the decision of the hon'ble Supreme Court in the case of Mysore Minerals Ltd. [1999] 239 ITR 775 (SC) is concerned the facts are quite distinguishable. In that case, the assessee a private limited company had purchased some low income group houses from the housing board ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion to consider the claim of payments of hire charges as the same are not prima facie allowable as there is no TDS done nor the same was debited in the profit and loss account ?" 17. In the course of the assessment proceeding the assessee made an alternative claim that the dredgers were taken on lease at USD 7,00,000 per month which should be allowed as expenditure while computing the income. The Assessing Officer did not entertain such claim of the assessee relying upon the decision of the hon'ble Supreme Court in case of Goetze (India) Ltd. v. CIT [2006] 284 ITR 323 (SC) wherein it was held that unless fresh claim is supported by the revised return, the Assessing Officer cannot entertain such request. The Assessing Officer further observed that the assessee's claim cannot be considered as lease rentals were not made and also not included in the balance sheet or profit and loss account. 18. The assessee repeated its claim before the first appellate authority. The Commissioner of Income-tax (Appeals) allowed the claim of the assessee by holding that as the assessee has used the dredgers for the purpose of business the payments made towards hire charges are to be allowed. 19. We ..... X X X X Extracts X X X X X X X X Extracts X X X X
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