INDIAN MANAGEMENT ADVISERS AND LEASING P LTD Vs. DEPUTY COMMISSIONER OF INCOME TAX
INCOME TAX APPELLATE TRIBUNAL
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Vimal Gandhi, Judicial Member -
(1.) THESE two appeals, one by the assessee and the other by the revenue for the assessment year 1990-91 are directed against order of CIT (Appeals)-I, New Delhi dated 22-12-1993. As common points are involved, these appeals were heard together and are being disposed of through this consolidated order.
(2.) The first issue relates to disallowance of depreciation on bottles. The assessee-company in the relevant period carried production of Punching, binding and laminating machines and leasing business. It had claimed 100% depreciation on soft drink bottles which the company purchased from M/s Arizona Printers and Packers Ltd. and leased out to M/s Residency Food and Brewerages Ltd. vide Lease agreement dated 1-2-1990. The learned revenue authorities disallowed the claim mainly on the ground that these bottles were not put to use and, therefore, conditions of Section 32 of the Act were not satisfied. The CIT (Appeals) held that only 11 out of 50 trucks of bottles sent by the manufacturer (Supplier) had entered into the factory premises of the lessee before 31-3-1990 as evidenced by the Gate Entry Register. Even for these trucks, there was no sufficient time to debag and make them ready for use. Secondly, it was held that these bottles were to be printed with logo, "SEVEN UP ERA" (should be LEHAR SEVEN UP) for which approval of the Ministry of Food and Processing Industry was obtained much after the end of the accounting year and only on 19-4-1990. It was accordingly held that assets were incapable of being used. The learned CIT (Appeals) in the inpugned order has further observed that whole thing was only a paper transaction. The assessee has come up in appeal before the Appellate Tribunal.
In appeal, Shri O.P. Vaish, the learned counsel for the assessee drew our attention to agreement dated 1-2-1990 between the assessee and its lessee. Clause 3 of the said agreement stipulated that the lease would commence from the date of delivery of the equipment or the date of payment for equipment, whichever was earlier. In this case, payment for equipment was made by means of three bank drafts on 20-2-1990, 26-2-1990 and 2-3-1990 for supply of 1.38 million bottles. The supplier despatched bottles from its premises between 26th to 28th March, 1990. Shri Vaish drew our attention to details of despatch filed before the Assessing Officer and made available in the Paper Book. He further pointed out that even rent for the quarter, February-April, 1990, amounting to Rs. 3,98,735 was received and credited on 26-2-1990. This was offered for assessment and assessed accordingly. It was further submitted that in the case of a leasing business, the assets are put to use when lease commences. In other words, assets are deemed to be used when the lessor becomes entitled to rent. It is not necessary that assets should be put to actual use by the lessee to entitle the lessor to claim depreciation. The lessor cannot remain at the mercy of the lessee to put the leased assets to actual use. No such condition can be read in Section 32 of the Act. In support of propositions canvassed, Shri Vaish relied upon the decision of ITAT, Delhi, in the case of Oriental Leasing Co. v. Dy. CIT [IT Appeal No. 1590 (Delhi) of 1992 dated 6-11-1992]. Shri Vaish further relied upon decision of Bombay Bench in the case of Mulraj Dwarkadass Goculdas v. Dy. CIT  48 TTJ (Bom.) 531. The learned Departmental Representative, on the other hand, supported the impugned order of CIT(A) and of Assessing Officer.
(3.) AFTER examining carefully, the rival submissions of the parties in the light of material available on record, we are of view that submissions advanced by Shri Vaish have substance and are required to be accepted. As pointed out by learned CIT(A), for claiming allowance of depreciation the assessee has to satisfy that-
(i) the assets were owned by the assessee; and
(ii) that assets were used for the purposes of assessee's business.
There is no dispute regarding assessee's ownership of bottles. The Assessing Officer in para 3 of the order specifically admits "the assessee-company purchased soft drink bottles worth Rs. 40,54,933 from M/s Arizona Printers and Packers Limited". This fact was not disputed by learned CIT(A) or by the revenue during the course of hearing before us. Even otherwise, there is documentary evidence of purchase and payment and, therefore, condition No. (i) regarding ownership is treated as fully satisfied. The dispute revolves round the user of the assets for purposes of business. Before discussing above aspect, we deem it necessary to comment on CIT(A)'s observation that entire transaction appeared to be a paper transaction entered solely to claim depreciation. In this case, the lease of bottles is supported by a lease deed. The lessee paid rent through bank accounts which was credited and assessed. There is no dispute on orders placed with suppliers M/s Arizona Printers and Packers Limited and despatch of bottles to the premises of the lessee. In fact, lower authorities admit that 50 trucks entered the premises of the lessee before the end of the accounting period. In the light of the above facts and circumstances, it is not known as to how and on what basis the learned CIT(A) affirmed the finding of the Assessing Officer that entire transaction was merely a paper transaction. Having regard to the documentary evidence available on record, we hold that transaction as stated by the assessee was genuinely entered to earn rental income by leasing soft drink bottles.;
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