Per V.P. Elhence, Judicial Member - 1 to 14 [These paras are not reproduced here As they involved minor issues.]

ITA No. 5677/Del/1988 (Appeal filed by the assessee)

15. The first ground relates to the depreciation claimed by the assessee in the sum of Rs. 14,14,600 in respect of the ship M.V. Jal And Azad. The basic facts in regard to the same are as follows. This ship was originally owned by Scindia Steam Navigation Co. who sold it to M/s. Jaldoot Shipping Pvt. Ltd. for Rs. 74 lakhs. The certificate dated 18-10-1980 of the Mercantile Maine Department, Bombay (Ministry of Transport & Shipping) is to the affect that M/s. Jal Doot Shipping Pvt. Ltd. were the registered owners of M.V. Jal Azad. The Shipping, Carving ad Marking Note issued by the Register of Indian Ships on 2-12-1980, showed that the name of the ship had changed to "Jyoti Vinod. M/s. Jaldoot Shipping Pvt. Ltd. Resolution dated 5-2-1981 that this ship be sold to the assessee for Rs.55.5 lakhs against Rs. 25.5 lakhs down payment and balance of deferred payment for 15 months @ 12 per cent interest Per annum at quarterly rest. The deed of sale for the deal was to be executed on receipt of Rs. 10 lakhs and of the balance of Rs. 30 lakhs On 6-2-1981 4 separate documents were executed namely (1) Agreement between M/s. Ja1 Doot Shipping Pvt. Ltd., and the partners of the assessee for sale of the ship in question; (2) Charter party between M/s. Jal Doot Shipping Pvt., Ltd. the owners of the ship and the assessee (described therein as Charterers) whereby the owner agreed to let and the Charterer agreed to hire the vessel for 15 months on the terms stated therein; (3) time-charterparty between the assessee (described as despondent owners) and M/s. Jal Doot Shipping Pvt. Ltd., Bombay (described as charterers) providing that the owner had let and the charterers had hired the vessel for the period of 15 months on the terms stated therein; (4) Management agreement between the assessee (described as owners) and Jal Doot Shipping Management Services (Proprietor M/s. Jal Doot Shipping Pvt. Ltd.) as managers to the effect that the owners had acquired the vessel on bareboat charter-cum-sale from M/s. Jal Doot Shipping Pvt. Ltd. and that the manager would manage and operate the vessel as if they were owners thereof. on 16-6-1981 letters were addressed by the assessee as well as by M/s. Jal Doot Shipping Pvt. Ltd., to the Director General of Shipping for permission to sell of M.V. Jyoti Vinod (Ex M.V. Jal Azad) by enclosing a copy of the Memorandum of Agreement of Sale;(5) Then there was the Instrument of sale in the prescribed Form No. 9 of the Merchant Shipping Act, 1958 read with section 48 of the Merchant Shipping Act, 1959 dated 20th June. 1981, which was got authenticated by a Judicial Magistrate.

The assessee had made the following payments to M/s. Jal Doot Shipping Pvt. Ltd.:-

The assessee claimed to have paid Rs. 10.5 lakhs as advance management money to M/s. Jal Doot Shipping. On the basis of the said document, the assessee claimed before the Income-tax Officer that it was the owner of the ship that the ship was being chartered and used and therefore, depreciation was allowable to it. Reliance in this connection had also been placed on the CBDT Circular No. 9 of 1943 dated 23-3-1943 in terms of which depreciation is allowable even on assets taken on hire Purchase. The assessee claimed in its letter dated 26-3-1985 that all the documents were with M/s. Jal Doot Shipping Pvt. Ltd. which was suffering heavy losses and was under liquidation. The papers connected with the ship were said to be with the official liquidators. However, the Income-tax Officer found that none of the documents were registered and that the details of liquidation were not given. He also found that M/s. Ja1 Doot Shipping Corporation was a do