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High Court Of Calcutta
SABYASACHI MUKHERJI, SUHAS CHANDRA SEN
COMMISSIONER OF INCOME-TAX - Appellant
Versus
SALKIA TRANSPORT ASSOCIATES - Respondent
Income-Tax Reference 159 Of 1976
Decided On : 09/07/1982
INCOME TAX - Depreciation - Agreement between assessee and company - Assessee to replace worn out buses at own cost - Ownership of replaced buses - Whether assessee entitled to depreciation on replaced buses - Motor Vehicles Act, 1939 - S. 22(1) - Income Tax Act, 1961 - S. 32(1).
Fact of the Case:
The assessee, a partnership firm, entered into an agreement with a company to take on hire 23 buses. The agreement provided that the assessee would keep the buses in good running condition and replace any worn out buses at its own cost. The assessee replaced five of the worn out buses with five new buses. The assessee claimed depreciation on the cost of the new buses, but the ITO disallowed the claim on the ground that the assessee was not the owner of the buses.
Finding of the Court:
The Tribunal held that the assessee was the owner of the new buses and was entitled to claim depreciation on them. The Tribunal found that the agreement between the assessee and the company provided that the new buses acquired by the assessee in replacement of the old buses would be the property of the assessee. The Tribunal also found that the assessee had purchased the five new buses and that the only argument was that the vehicles were not registered in the name of the assessee under the Motor Vehicles Act.
Issues: Whether the assessee was the owner of the five new buses acquired at the cost of Rs. 1,88,464 and entitled to depreciation in respect of the expenditure on the acquisition of those buses.
Ratio Decidendi: The court held that the assessee was the owner of the new buses and was entitled to claim depreciation on them. The court held that Section 32(1) of the Income Tax Act, 1961 provides for deductions “in respect of depreciation of buildings, machinery, plant or furniture owned by the assessee and used for the purpose of the business or profession”. The court held that there was no dispute that the buses were used in the assessee's business and that the only dispute was whether the buses were owned by the assessee. The court held that the agreement between the assessee and the company provided that the new buses acquired by the assessee in replacement of the old buses would be the property of the assessee. The court also held that Section 22(1) of the Motor Vehicles Act, 1939 does not lay down that a person cannot be the owner of a motor vehicle unless the motor vehicle is registered in his name.
Final Decision: Both the questions are answered in the affirmative and in favour of the assessee.
( 1 ) AT the instance of the CIT the two following questions of law have been referred to this court under Section 256 (1) of the I. T. Act, 1961 :"1. Whether, on the facts and in the circumstances of the case, and on a correct interpretation of the agency agreement dated March 29, 1963, and in particular Clause 10 thereof and having regard to the relevant provisions of the Motor Vehicles Act, the Tribunal was correct in holding that the assessee-firm was the owner of the five new vehicles acquired at the cost of Rs. 1,88,464 and the assessee was entitled to depreciation in respect of the expenditure on the acquisition of those buses ?
( 2 ) WHETHER, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the amounts received by the assessee from the persons to whom it sub-let the buses in the previous years relevant to the assessment years 1964-65, 1965-66, 1967-68, 1968-69 and 1969-70 could be construed as premiums for parting with a capital asset and, in that view, holding that the said amounts were capital receipts and not revenue receipts in the assessee's hands?" 2. The facts relevant for the purpose of this case are as follows :
( 3 ) ONE group of Khannas, namely, Aminchand Khanna, Indra Kumar Khanna, M. R. Khanna and Vijoy Kumar Khanna, took on hire 23 buses from M/s. Salkia Transport Agency Pvt. Ltd. (hereinafter described as " the company ") under an agreement dated March 29, 1963. The said Khannas formed themselves into a partnership styled as M/s. Salkia Transport Associates with the object of plying the aforesaid 23 buses. Salkia Transport Associates, the assessee herein, replaced five of the worn out buses with five new buses. Clause 10 of the agreement between the parties provided :"the agents shall, during the continuance of the agency, keep the motor vehicles in good repaired running condition complete with all necessary accessories, tools and implements which they have received from the owners as clearly described in schedule C attached hereto and, if necessary, shall replace one or more or all of the said motor vehicles at their own cost. But they shall always keep the owners informed about all replacements. The vehicles so replaced will be the property of the agents. "
( 4 ) AS part of the consideration the assessee paid to the company Rs. 1,76,172 representing the cost of the chassis and the cost of building bodies of the 23 buses. The assessee claimed deduction of this amount as revenue expenditure. The ITO rejected this claim holding that the payment of this sum represented capital expenditure. Alternatively, the assessee claimed depreciation in respect of the worn out buses and also the five new buses. The ITO disallowed the assessee's claim for depreciation in respect of all the buses on the ground that the assessee was not the owner of the vehicles in respect of which this depreciation was claimed. In this connection reliance was placed by the ITO on a judgment of this court wherein it was held that the buses belonged to the company, M/s. Salkia Transport Agency Pvt. Ltd.
( 5 ) ANOTHER point also came up for consideration before the ITO. The assessee-firm had hired out the buses which were taken on hire from the company by the partners constituting the firm. The assessee had received sums of Rs. 68,652, Rs. 52,500, Rs. 14,706, Rs. 4,578 and Rs. 23,343 for the assessment years 1964-65, 1965-66, 1967-68, 1968-69 and 1969-70, respectively. The ITO treated the sum as revenue receipts and brought them to tax.
( 6 ) IN the appeals preferred before the AAC against the assessments for the assessment years under reference, the assessee-firm challenged, inter alia, the action of the ITO in disallowing the claim for depreciation. As regards the claim for depreciation on the amount initially paid to the company towards the cost of one chassis and the cost of building bodies of 23 buses, the AAC did not disagree with the findings of the ITO that the e
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