9911796707
TMI Blog1996 (8) TMI 71X X X X Extracts X X X X X X X X Extracts X X X X ..... which is the subject-matter of these references, was claimed by the assessee for the abovesaid assessment years. Various amounts were claimed for those assessment years. After purchasing the trucks, the assessee entered into agreements with contractors. The germane terms and conditions of the agreement show that the assessee delivered the trucks to the contractors for operation and transporting wholly and exclusively the material of the assessee. The contractors were to operate the trucks exclusively for the abovesaid purposes. They agreed to deposit a sum of Rs. 15,000 as security for fulfilment of the contract and a further sum of Rs. 33,000 in 42 instalments at the rate of Rs. 1,000 per month for the first 12 months and Rs. 700 per month for the further period of 30 months. The operational staff, to be appointed by the contractors on the trucks, was to have the prior approval of the assessee which had the discretion to disallow any member of the staff to work on the vehicle. Though the contractors were given the custody and possession of the trucks during the period of operation, yet they were under an obligation not to allow the trucks to be used by anyone else or to sub-let th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eferred to this court for opinion. Section 32 of the Income-tax Act, 1961, for short "the Act", which deals with "depreciation", in so far as it is relevant for our purpose, reads as under : " 32. Depreciation.--(1) In respect of depreciation of buildings, machinery, plant or furniture owned by the assessee and used for the purposes of the business or profession, the following deductions shall, subject to the provisions of section 34, be allowed--.... " A plain reading of the provision, extracted above, indicates compliance with the following conditions for being eligible for depreciation : (1) the depreciation is permissible in respect of the building, machinery, plant or furniture owned by the assessee ; (2) such building, machinery, plant, etc., should have been used for the purpose of the business or profession of the assessee. That the trucks were being used for the purpose of business of the assessee, is not in controversy. Thus, the second condition is satisfied. However, the debate centres round the question with regard to fulfilment of the first condition, viz., whether the assessee is the owner of the trucks. Sri S. R. Ashok, learned standing counsel for the Income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Sales Tax Act was the sale of the goods (motor vehicle) and until that taxable event took place, there could be no liability to pay tax. It is pointed out that a hire purchase agreement has two elements : (1) element of bailment, and (2) element of sale, in the sense, that it contemplated the eventual sale and that the element of sale fructifies when the option is exercised by the intending purchaser after fulfilling the terms of the agreement. It is laid down that sales tax is not exigible at the time of entering into hire purchase agreement but is exigible on the exercise of option and fulfilment of the terms of the agreement when sale takes place. In Damodar Valley Corporation v. State of Bihar [1961] 12 STC 102 (SC) ; AIR 1961 SC 440, the question that fell for consideration of the Supreme Court was, whether supplying of the machinery and equipment by the Corporation to the contractors amounted to a mere contract of hiring as contended by the Corporation, or a sale or a hire purchase as contended on behalf of the respondent. The Supreme Court observed as under (at page 445 of AIR 1961 SC and at page 113 of 12 STC) : " It is well-settled that a mere contract of hiring, with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere was no contract of sale. On the facts of the present case, if we apply these two tests, the answer to the first question has to be in the negative because there is no binding obligation on the contractors to purchase the trucks ; what they have is only an option to purchase. So far as the second question is concerned, the answer can be in the positive because the right is reserved in the contractors to return the goods at any time during the subsistence of the contract. It follows that there was no sale of the trucks in favour of the contractors, on a deferred payment of the purchase price. However, learned standing counsel relied on the judgment in S. P. B. P. Srirangacharyulu v. CIT [1965] 58 ITR 95 (AP) to contend, that in the case of a hire purchase agreement, the hirer would become the owner. In that case the assessee claimed development rebate under section 10(2)(vib) of the Indian Income-tax Act, 1922, in respect of a bus which he had purchased by borrowing money from the third party under a hire purchase agreement whereunder the third party was described to be the owner and the assessee was described as the hirer. The Income-tax Tribunal held that the assessee was not ..... X X X X Extracts X X X X X X X X Extracts X X X X
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