Deemed sale and disclosure duty: lease rent for plant and machinery was taxable in the State where goods were used, with penalty upheld for non-disclosure.

A lease of plant and machinery was treated as a taxable transfer of the right to use goods under the U.P. Trade Tax Act because the deeming provision fixed the place of sale in Uttar Pradesh where the goods were used, even if the lease deed was executed outside the State. The territorial fiction displaced reliance on the place of execution, and lease rent was therefore within the State's taxing jurisdiction. Non-disclosure of the rent receivable in the return also attracted penalty because taxable turnover had to be reported despite deferred or unpaid consideration, and the explanation that payment had not yet been received was rejected.

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Issues: (i) Whether rent received for leasing plant and machinery was liable to tax in Uttar Pradesh when the lease deed was alleged to have been executed outside the State. (ii) Whether penalty was sustainable for failure to disclose the rent receivable in the return.

Issue (i): Whether rent received for leasing plant and machinery was liable to tax in Uttar Pradesh when the lease deed was alleged to have been executed outside the State.

Analysis: The definition of "sale" in section 2(h) of the U.P. Trade Tax Act, 1948 includes a transfer of the right to use goods. Explanation I(ii) deems such sale to take place in the State if the goods are used by the lessee within the State during any period, even if the lease agreement was entered into outside the State or the goods were delivered outside the State. The Tribunal's finding that the lease deed was not shown to have been executed at Delhi was a finding of fact, and in any event the admitted use of the plant and machinery in Uttar Pradesh attracted the deeming provision. The rule in 20th Century Finance Corporation did not assist the assessee because the statute contained a contrary territorial deeming fiction.

Conclusion: The tax authorities had jurisdiction to levy trade tax on the lease rent, and the issue was decided against the assessee.

Issue (ii): Whether penalty was sustainable for failure to disclose the rent receivable in the return.

Analysis: The assessee did not disclose the rent receivable in the return on the ground that it had not yet been received. The Act treats deferred payment as falling within the ambit of "sale", and the obligation to disclose taxable turnover is not avoided merely because consideration remains unpaid. Since the turnover was liable to be shown in the return and tax payable thereon, the explanation for non-disclosure was rightly rejected. No infirmity was found in the penalty order under section 15A(1)(a).

Conclusion: The penalty was upheld and the issue was decided against the assessee.

Final Conclusion: The revisions failed on both the taxability and penalty questions, leaving the levy and the penalty intact.

Ratio Decidendi: Where a statute contains a deeming provision fixing the place of sale on the use of goods within the State, the transfer of the right to use goods is taxable in that State notwithstanding the place of execution of the lease agreement, and turnover so liable must be disclosed even if consideration is deferred or unpaid.

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