M. DINSHAW AND CO. (P.) LTD. Vs. DEPUTY COMMISSIONER OF INCOME TAX
LAWS(IT)-2014-7-15
INCOME TAX APPELLATE TRIBUNAL
Decided on July 14,2014

M. Dinshaw And Co. (P.) Ltd. Appellant
VERSUS
DEPUTY COMMISSIONER OF INCOME TAX Respondents

JUDGEMENT

Sanjay Arora, Member (A) - (1.) THIS is an Appeal by the Assessee directed against the Order by the Commissioner of Income -tax (Appeals) -2, Mumbai ('CIT(A)' for short) dated 12.08.2010, dismissing the assessee's appeal contesting its assessment u/s. 143(3) of the Income -tax Act, 1961 ('the Act' hereinafter) for the assessment year (A.Y.) 2004 -05 vide order dated 30.11.2006. The only issue arising in the instant appeal is the validity in law of the consideration of Rs. 1,33,054/ -, being the one time vehicle tax paid by the assessee on the two vehicles purchased by it during the relevant year, as capital expenditure, exigible to depreciation, as against being revenue expenditure, deductible u/s. 37(1).
(2.) THE assessee's case is that the said tax, paid under Bombay Motor Vehicles Tax Act, 1958 ('the said Act' hereinafter) was an annual levy since its inception. Vide an amendment to the said Act, effective 1995, the annual tax was converted into a one time tax, so that it was required to be paid once during the life time of a vehicle, at the time of its purchase. The same would, however, not alter its character. The vehicle tax under the pre -amended Act was being continuously and undisputedly allowed as revenue expenditure. The same would continue to be so in -as -much as a lump sum levy, for administrative reasons, would not change the nature of the expenditure from revenue to capital. The one -time tax is in fact nothing but the net present value of the annual tax, discounted for the time factor. The Revenue's case, on the other hand, is that notwithstanding its imposition in the past, payment of tax under the law, as it now stands, is necessary for the user of the vehicle, i.e., irrespective of the extent or the period of the user. The law in the matter is clear and the user without payment of tax attracts penalty, besides interest. As such, it is a part of the cost of the motor car/s to the assessee, a capital asset/s in its hands, and would accordingly form part of its cost. We have heard the parties, and perused the material on record. 3.1 Our first observation in the matter is that the motor cars, on which the impugned tax stands paid, are capital assets in its hands, intended for use primarily, if not wholly, in Maharashtra, is not in dispute. 3.2 Tax is charged u/s. 3 of the relevant Act, which reads as under: 'Levy of tax 3(1) Subject to the other provisions of this Act, on and from the 1st day of April 1958, there shall be levied and collected on all motor vehicles used or kept for use in the State a tax at the rates fixed by the State Government, by notification in the Official Gazette, but not exceeding the maximum rates specified in the first Schedule: (1D)(a) Subject to the provisions of this Act, there shall be levied and collected on all motor cars and omnibuses used or kept for use in the State, a one time tax for the life time of such vehicle.' (Emphasis, supplied) It is accordingly amply clear that the tax is under law payable on motor cars or omnibuses registered in the State of Maharashtra, as a one -time tax for the life time of said vehicles. Further, the tax is for user, active or passive, of the motor vehicle in the territory to which the jurisdiction of the said Act extends, i.e., the State of Maharashtra. The question is of the nature of the tax in view of the admitted and given position, i.e., of the law under which it is paid. The same being payable for plying of vehicles in Maharashtra, i.e., the intended use for which the motor cars stand acquired, we are unable to see as to how the said tax would not go to form a part of the cost of capital asset to the assessee. Section 43(1) of the Act defines the term 'actual cost', as under: 'Definitions of certain terms relevant to income from profits and gains of business or profession. 43. In sections 28 to 41 and in this section, unless the context otherwise requires - - (1) "actual cost" means the actual cost of the assets to the assessee, reduced by that portion of the cost thereof, if any, as has been met directly or indirectly by any other person or authority: Provided: ........' The same, as evident, does so negatively, i.e., emphasizing the elements which would not form a part thereof, so that the principles of commercial accounting shall apply in determining the actual cost. The same is even otherwise trite law, so that in the absence of a statutory definition or mandate, the accounting prescription shall prevail (refer, inter alia, Challapalli Sugars Ltd. v. CIT : [1975] 98 ITR 167 (SC)). It is only where the law specifically provides for a particular course of action, inconsistent with the accounting mandate, that the same shall prevail and override the latter, viz. section 43B. The Accounting Standard (AS) in respect of accounting for fixed assets, i.e., AS -10, issued by the Institute of Chartered Accountants of India, defines 'fixed asset', also laying down the principles for its valuation (cost) or determining its cost. The relevant parts thereof are reproduced as under: - - 'Definitions 6. The following terms are used in this Standard with the meanings specified: 6.1 Fixed asset is an asset held with the intention of being used for the purpose of producing or providing goods or services and is not held for sale in the normal course of business.' 'Main Principles 20. The cost of a fixed asset should comprise its purchase price and any attributable cost of bringing the asset to its working condition for its intended use.' (Emphasis, supplied) Without doubt, therefore, payment of tax, in -as -much as it only enables the vehicle being put to its intended use; in fact, represents a condition therefore, shall form part of its cost. In fact, we consider it to be akin to registration fee incurred for registration of the vehicle, which the ld. AR would before us concede to be a part of the cost of the asset. 3.3 The assessee has, in our view, in being guided by the law as it stood prior to its amendment in 1995, misled itself. What is relevant is the tax as levied, i.e., under the extant law, and not what it had been in the past. Two, it needs to be appreciated, as also observed during hearing itself, that the amendment has the effect of a change in the nature of the levy in -as -much as where levied on an annual basis, the same may be reasonably considered as a charge on or a levy for the use of the asset for a year. This would also meet the assessee's reliance on the decision in the case of Indian Molasses Co. (P.) Ltd. v. CIT : [1959] 37 ITR 66 (SC), whereby it stands held that the lump -sum payment in lieu of or toward a series of payments, would bear the same character, so that where the latter is of revenue nature, so would be the former. The same represents well -settled law. The misconception arises as the assessee, in its mind, and without basis, links the provisions of the said Act as it stood prior to the amendment of 1995 with that as amended. There is nothing in law, as it stands, to suggest that the levy is in lieu of a series of annual payments. In fact, we have held that the amendment/s has the effect of altering the nature of the levy in -as -much as the pre -amended tax could be regarded as an annual charge for the user of the vehicle for one year at a time. 3.4 Finally, we may also address the argument that the said Act permits the user of the vehicle without payment of tax, so that it cannot be regarded as a tax for its user, advanced before us by the ld. counsel with reference to section 12A, which reads as under: '12A No motor vehicle used or kept for use in the State shall be used on any road in the State in case any tax payable in respect thereof remains unpaid for more than thirty days after it has become due under the provisions of this Act until the tax and interest, if any, due is paid.' The said provision, if at all, further confirms the levy to be toward the use of the vehicle in -as -much as it makes the registered owner (of the vehicle) liable to interest and, further, the user of the vehicle as subject to the payment of tax and interest, making the vehicle liable to seizure (S. 12B). The nature of a levy is to be gathered from the preamble to the enactment, and the charging section, sec. 3 in the instant case, reproduced hereinbefore. Tax is chargeable under the said Act even if the vehicle is kept for use, so that it becomes due and, thus, liable to be recovered, even where the vehicle is not actually used or used even for a single day. Interest is charged for the non -payment of tax by a particular date, i.e., the 30th day of the tax becoming due. Interest is a compensatory levy, for which a reasonable period of 30 days has been allowed for the payment of tax without interest. To infer that, therefore, the Act allows user for 30 days without payment of tax, so that it is thus not a levy for the use of the vehicle, is, to say the least, misconceived. Is, one may ask, the asset intended to be used for only 30 days? Would it, in that event, qualify to be a capital asset (and for which we may also advert to the definition of a fixed asset as per AS -10)? Would, in any case, a user for a limited period save levy of tax? Such questions, arising from the assessee's argument, are posed only to underline the preposterousness thereof.
(3.) IN view of the foregoing, we have no hesitation in endorsing the stand of the Revenue that the tax levied by the said Act would form part of the actual cost of the motor car, a capital asset, on which the same is levied, and exigible to depreciation as a part to the actual cost thereof. In the result, the assessee's appeal is dismissed.;


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