TaxTMI 
TaxTMI 
2012 (9) TMI 628
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.... Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that reimbursement of medical expenses form part of salary / remuneration for computing disallowance u/s. 40(c) ? (iii) Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that for quantifying disallowance u/s 40(c) expenditure incurred by the company towards the personal use of motor cars provided to the Directors was to be considered and not the perquisite value as per rule 3 of the Income Tax Rules ? (iv) Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that the the rent of Rs.16,91,250/- was to be treated as capital expenditure and that the assessee acquired a capital asset thereby disallowing the entire amount claimed to be revenue expenditure ? (v) Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that the depreciation allowable u/s. 32 of the Act, should not be at the rates prescribed by the income-tax Rules, as amended with effect from 2.4.1983 ? (vi) Whether on the facts and in the circumstances of the case, the Tribunal was right in ho....
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....he Commissioner of Income-tax (Appeals) also rejected the assessee's claim for depreciation at the rates prescribed under the new Income-tax Rules which were effective from 2nd April, 1983, in view of the decision of the Special Bench of the Tribunal. The Tribunal also, following the earlier decision of a Special Bench of the Tribunal in Rajapalayam Mills Ltd. v. ITO (1986) 18 ITD 114 (SD) upheld the order of the Commissioner of Income-tax (Appeals). 5. Section 32 of the Act, as it stood at the relevant time, provided for depreciation in respect of the items mentioned therein owned wholly or partly by an assessee and used for the purposes of the business or profession at such percentage on the actual cost thereof to the assessee or such percentage on the written down value thereof, as the case may be, and as may be prescribed. 6. The Income-tax (Fourth Amendment) Rules, 1983, came into force on 2nd April, 1983. Rule 2 provided the rates at which depreciation is admissible. The question that falls for consideration is whether the assessee was entitled to claim depreciation for the assessment year 1983-84, on the basis of these amended Rules which came into force on 2....
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.... Amendment) Rules, 1983, by which the higher rate of depreciation was laid down came into effect on April 2, 1983. Rates of depreciation are matters of substantive law. The new rates were intended to apply only from the assessment year 1984-85 since these were not in force on April 1, 1983, on which the assessment year 1983-84 began."" Question 5 is, therefore, answered in the affirmative - in favour of the Department and against the assessee. Re: Question Nos.4 and 6 : 8. These questions require the interpretation of the agreements relied upon by the assessee. It is necessary, therefore, to set out the facts in some detail. A lease deed was executed between the assessee (therein called the lessees) and one Prataprai N. Kothari (therein and hereinafter called the lessor) under which the lessor leased a factory shed to the assessee on the terms and conditions mentioned therein, for a term of thirty years, commencing from 1s March, 1982, at a rent of Rs.28,500/- payable half-yearly. The first payment of rent was to be made on 25th March, 1982 and subsequent payments were to be made on or before the 10th day of January and July each year. Clauses 4(a), 4(d), 5(b) and (c) o....
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....f such extended period the lease will stand determined. Provided further and it is hereby agreed by and between the Lessor and the Lessees that the said rent of Rs.28,500/- hereby agreed to be paid by the Lessees to the Lessor as aforesaid is fixed in accordance with the prevailing rate of rent in the locality and the Lessees after making necessary inquiries have agreed to pay the said rent to the Lessor." 9. The importance and significance of clauses 4 and 5 set out above may not be apparent on a reading of the lease deed itself. The deed may still convey a transaction of lease and nothing more between the parties. However, read with the other facts, which we will now refer to, it is clear to us that the intention between the parties was to enter into an agreement of sale of the property by the lessor to the assessee. 10. On the same day as the date of the lease, i.e. 29th March, 1982, the lessor by a letter, in exercise of the power under clause 5(b), called upon the assessee to pay him a sum of Rs.16,76,750/- being the advance rent for 29 years and 6 months. The assessee by a cheque also dated 29th March, 1982, made the payment alongwith a covering note which stated that t....
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....he left five years of the period reserved under the indenture of lease. 14. In effect, therefore, there was no further consideration of Rs.2,90,000/-. The amount was to be adjusted against the advance rent paid as aforesaid. The position, therefore, is that the assessee was put in possession of the property under the indenture of lease dated 29th March, 1982. The nature of the agreement indicates that the assessee had virtually the entire control and dominion in respect of the property. It was entitled to deal with it as it pleased. The entire payment under the lease had also been made. The agreement dated 30th March, 1982, gave the assessee a right to purchase and acquire the premises purportedly for a further consideration of Rs.2,90,000/-. That consideration had, in effect, been paid for it was to be adjusted against the advance rent already paid. Very little remained to be done by the assessee to purchase the property except possibly to have the formal documentation in respect thereof drawn up and registered. It is in this context that it is necessary to see the other provisions of the other agreement dated 30th March, 1982. The remaining clauses of the second agreement date....
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.... in to over or upon the same. 7. Should the Company fail to exercise the aforesaid option to purchase or acquire the demise premises in accordance with the provisions of clauses (3) and (4) above, the Company shall vacate the demise premises on the expiration or sooner determination of the said Indenture of Lease as therein provided." 15. The entire arrangement between the parties, seen as a whole, clearly indicates that the parties never intended entering into an agreement of lease. They intended to and did enter into an agreement of sale of the property by the lessor to the assessee. The documents properly construed established not merely an agreement to sell, but an agreement of sale of the property by the lessee to the assessee. The important aspects which establish the same are that on the same day, the entire consideration had been paid, the assessee had been put in possession with powers being conferred upon it which were akin to those exercisable by the owner of the property. This is clear from clause 4. Although the agreement dated 30th March, 1982, refers to a further consideration, only a paltry, token amount of Rs.5,000/- was paid under that agreement. The balance....
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.... depreciation in respect of it as under section 32, a lessee is not the owner of the property. The Tribunal, accordingly, set aside the decision of the Commissioner of Income-tax (Appeals) directing the Assessing Officer to allow depreciation to the lessee. 18. With respect, there appear to be contradictory findings by the Tribunal. On the one hand, the Tribunal held that the arrangement between the parties was to confer the benefit of ownership upon the assessee and that the assessee had acquired a capital asset and the expenditure in doing so had to be treated as capital expenditure. On the other hand, the Tribunal held that the assessee being a lessee under the agreement, cannot be said to be the owner of the property and was, therefore, not entitled to depreciation under section 32. 19. Section 32 of the Act indeed entitles an assessee, who is the owner of a property, to depreciation. As we have already held, the arrangement between the lessor and the assessee was, in effect, an agreement of sale of the property by the lessor to the assessee. The assessee is, therefore, the owner of the property having acquired the same on 29th March, 1982, itself and, in any event, by 30....