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TMI Blog2006 (9) TMI 138X X X X Extracts X X X X X X X X Extracts X X X X ..... 0, 1991. Under the directions of the assessee, these bottles were to be directly supplied by the manufacturer to the lessee. The lease agreement for the soft drink bottles between the assessee and the lessee was entered into on February 15, 1991. The Assessing Officer allowed the claim of the assessee for 100 per cent. depreciation only on 42,000 soft drink bottles out of 5,46,000 bottles which were leased out to the lessee on the ground that only 42,000 bottles were received by the lessee and put in use before March 31, 1991. There was another claim of depreciation made by the assessee in respect of soft drink bottles leased out to M/s. Aravali Leasing Limited. The assessee had shown purchase of soft drink bottles from M/s. Arizona Printers & Packers Limited, Greater Kailash, New Delhi, for Rs. 30,70,122 and allegedly leased out the same to M/s. Aravali Leasing Limited, vide lease agreement dated March 15, 1991. M/s. Aravali Leasing Limited, according to the assessee, had sub-leased these bottles to M/s. Unikol Bottlers Limited. The assessee filed a certificate from M/s. Unikol Bottlers Limited stating that these bottles were put to use during the financial year ending March 31, 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assets. The assessee could not be said to have become the owner of the bottles till these bottles had parted the ownership of manufacturer, i.e., M/s. Glass & Ceramics Decorators, Bombay. The assessee can be said to have become the owner only if these soft drink bottles, in the relevant previous years, were dispatched by the manufacturer before March 31, 1991. He, therefore, referred back the question of depreciation in respect of bottles leased to M/s. Coolade Beverages Pvt. Ltd. and directed the Assessing Officer to call for evidence and make inquiry to ascertain how many of the remaining bottles, i.e., excluding 42,000 bottles were dispatched before March 31, 1991. He observed that the appellant would be entitled to depreciation in respect of those bottles which were dispatched by the previous owner, i.e., the manufacturer on or before March 31, 1991. As far as the lease in respect of soft drink bottles between the assessee and M/s. Aravali Leasing Limited was concerned, the Commissioner of Income-tax (Appeals) agreed with the conclusion arrived at by the Assessing Officer that it was only a paper transaction and upheld the order of the Assessing Officer by not allowing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fact that the Assessing Officer had already accepted the transaction to be a lease and allowed the claim of the depreciation in part, which finding had become final. 6. We have heard counsel for the parties at length and perused the record. 7. We shall first deal with the arguments of the appellant that the Tribunal had no jurisdiction to examine the lease deed and arrive at a conclusion different from the Assessing Officer. Section 254(1) which empowers the Tribunal to hear appeals reads as under : "254. (1) The Appellate Tribunal may, after giving both the parties to the appeal an opportunity of being heard, pass such orders thereon as it thinks fit." 8. This section does not put any fetters on the power of the Tribunal to consider the issue which may arise in an appeal. When an appeal comes before the Tribunal for hearing and the Appellate Tribunal finds that some documents have been relied upon by the assessee, which are on record and the documents are crucial to allow or refuse the claim made by the assessee, even if the Assessing Officer and the Commissioner of Income-tax (Appeals) had not gone into the contents of the document and had not bothered to find out the real ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... called upon to decide whether the claim of the assessee of 100 per cent. depreciation on the soft drink bottles, which the assessee allegedly leased out, was allowable or not ? The assessee had relied upon the lease agreement entered into by the assessee with the lessees to claim the depreciation, claiming that the assessee was a leasing company. In order to appreciate the claim of the assessee, it was necessary for the Tribunal and for that matter any adjudicating body to go into the different clauses of the lease agreement. If the Assessing Officer or the Commissioner of Income-tax (Appeals) had not looked into the lease agreement and considered the claim of the assessee only on the face of it, no fault can be found with the Tribunal for analysing the lease agreement by looking into its different clauses and finding the true import of the lease agreement. We, therefore, consider that there is no force in this argument of the appellant/assessee. No question of law arises for our consideration. 10. The next issue raised is that the order of the Tribunal in not allowing the depreciation is illegal and the assessee was entitled for 100 per cent. depreciation on the leased bottles. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erms and conditions of a document are confusing, the surrounding circumstances and the conduct of the parties has also to be borne in mind for ascertaining the real relationship of the parties. In this case, the lease agreement relied upon by the assessee was executed between the parties on February 15, 1991. This lease was executed in advance in respect of bottles which were yet to be manufactured. The period of lease was stated to be three years and could be extended on such terms and conditions as may be agreed between the parties. Regarding commencement of the lease, it was stated that it shall commence from the date of delivery of bottles or from the date of the payment made by the assessee for the bottles to the manufacturer whichever was earlier. It was provided in clause 4 that glass bottles would be supplied directly by the supplier, i.e., manufacturer to the location specified by the lessee and the lessor will not be responsible for any damage prior to delivery or during the delivery. It was the lessee who was to pay all charges in respect of delivery from the supplier to the lessee. In written arguments filed by the assessee, it is contended that the lessor was liable fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... within the period of three years. The residual value of the assets has been shown as 2 per cent. and renewal option has been at 50 paisa per 1000 per month. 13. During the argument, learned counsel for the appellant was specifically asked if the renewal option was exercised after three years in 1994 and we were informed that no renewal option was exercised. We were also told that the bottles were not called back by the assessee after the expiry of the lease period despite non-renewal of lease. The assessee took the plea that the bottles had lived their life and it was worthless to recall them as they were useless for the assessee. Their life span itself was hardly three years and the cost of calling them back would have been more than the value of the bottles. All these facts point out to only one thing that it was not a lease arrangement but a finance arrangement. 14. In Damodar Valley Corporation v. State of Bihar 12 STC 102 (SC), the Supreme Court laid down two tests to determine the question whether a particular contract was a contract of mere hiring or whether it was a contract of purchase on a system of deferred payment of purchase price : (1)whether there is any binding ob ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bottles and a pro forma of a motor vehicle lease agreement was just used. The lease agreement provides that the lessee has inspected the equipment and got itself satisfied about its fitness. The lease agreement was executed on February 15, 1991, when the equipment, i.e., bottles were not in existence, but the document provided that the lessee has inspected the bottles. The expiration clause provides that in case after the expiry of the lease, the lessee fails to deliver equipment as per direction of the lessor, it shall be deemed that the lessee had elected to hire the equipment at the same terms and conditions and such tenancy shall be terminable by the lessor on payment of default by serving a seven days notice. 16. All the above clauses and many more in the lease agreement are contrary to what actually transpired between the parties. It is apparent that the lease agreement was merely meant for consumption of the Income-tax Department to claim depreciation. The fact is that neither were the bottles recalled by the assessee nor was the lease renewed and the bottles became the property of the lessee after three years. 17. The entire conduct of the parties in relation to the bott ..... X X X X Extracts X X X X X X X X Extracts X X X X
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