Sabyasachi Mukherjee, J. - (1.) This reference relates to the assessment year 1964 -65. The assessee is a private limited company and is engaged in the construction work of a huge magnitude. The assessment year, as we have stated before, is 1964 -65 and the relevant accounting year ended on 30 -6 -1963. The assessee got a big contract from the Vizag Port Authority for over Rs. 3 crores for construction of four berths of the Port. The contract was awarded during the accounting year relevant to the assessment year under reference, and the construction was continues for 3 to 4 years. In order to do this job, the assessee had intimated to the Government of India that it should be allowed to import special types of cranes, machinery, dumpers, etc, from East European countries. The Government, however, insisted upon the assessee import the aforesaid items from the USA as could be seen from the letter dated 26 -6 -1961, addressed to the assessee by the Superintending Engineer, Vizag Port. The assessee, accordingly, agreed to import the aforesaid items from the USA as could be seen from its letter dated 1 -7 -1961 addressed to the Chief Engineer, Vizag Port. Thereafter, in the letter dated 14 -12 -1961, the Chief Engineer, Vizag Port, informed the assessee that the Government of India would recover rupee equivalent of the total cost of the aforesaid items from the monthly bills submitted by the assessee and till the completion of the project the Government will have permanent lien on the said items. We shall refer to the actual terms used in the correspondence, as great deal of argument has been advanced before us on the expressions used in those letters. On the basis of the aforesaid correspondence, the machinery including the spare parts worth Rs. 52.65 lakhs were actually imported by the Government of India from the USA. The payment for the machinery was also made by the Government of India as per T.C.M. procedure. The assessee was allowed to use the machinery with the stipulation that it would be transferred to the assessee on the completion of the job. The assessee showed such machinery as assets in the balance sheets while on the liability side the value of such machinery as reduced by instalments paid during the year as loan from the Government of India. In its return of income for the year under reference, the assessee claimed deduction of Rs. 9.6 lakhs and Rs. 8.05 lakhs for depreciation and development rebate in respect of the plant and machinery imported from the USA. The ITO in his order dated 5 -3 -1970 after setting out the facts as well as considering the letters was of the opinion that the asses see was not the legal owner of the machinery imported and, therefore, was not entitled to claim any depreciation as well as development rebate thereupon.
(2.) There was an appeal before the AAC. The assessee reiterated its claim for deduction for depreciation and development rebate. The AAC, in his order dated 7 -9 -1979, after considering, at great length the arguments advanced on behalf of the assessee, accepted the assessee's claim.
(3.) Being aggrieved by the order of the AAC, the revenue went up in appeal before the Tribunal. It was argued on behalf of the revenue after referring to the various correspondence between the assessee and the Vizag Port Authority that the tenor of the correspondence did not show that there was any hire purchase agreement between the assessee and the Government of India in respect of the importation of the aforesaid items from the USA. It was, further, submitted that there was no element of outright purchase of the aforesaid items by the assessee but there was an agreement to sell, as contemplated under Sec. 19 of the Sale of Goods Act. It was further submitted that till the sale was finally completed the assessee did not become the owner of the aforesaid items and, therefore, was not entitled to any depreciation or development rebate. Reliance was placed on the decision of the Madhya Pradesh High Court in the case of Sardar Tara Singh v/s. CIT : [1963] 47 ITR 756, as well as the decision of the Allahabad High Court in the case of Seth Banarsi Das Gupta v/s. CIT : [1971] 81 ITR 170 and it was submitted on behalf of the revenue that in order to be entitled to claim depreciation and development rebate under the Income -tax Act, 1961 ('the Act'), the assessee had to prove the legal ownership over the assets and not merely the beneficial ownership. On behalf of the revenue, reliance was placed on the decision of this High Court in the case of CIT v/s. Ganga Properties Ltd. : [1970] 77 ITR 637 and was submitted that the concept of beneficial ownership was unknown under the Indian law and the only ownership which was recognised under the Indian law was the legal ownership. In this view of the matter, it was submitted that the AAC was not justified in holding that the assessee was entitled to depreciation and development rebate in respect of the aforesaid items.;