The ITO, Ward-9(3), Ahmedabad V. M/s. Ashish Pathology Lab, Ahmedabad

ITA 1301/AHD/2005

• Counselvise Citation: [2009] 114 COUNSELVISE.COM (IT) 9380 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 3 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-08-2009
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 13-08-2009
• Assessment Year: 2001-2002
• Appeal Filed On: 05-05-2005
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M C PANDIT
• Assessee Lawyers: S N DIVETIA
• Keywords: Depreciation; Revenue expenditure; Capital expenditure

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL, AHMEDABAD BENCH A BEFORE SHRI H.L. KARWA, JUDICIAL MEMBER AND SHRI D.C. AGARWAL, ACCOUNTANT MEMBER ITA NO. 1301/AHD/2005 (ASSESSMENT YEAR 2001-02) THE ITO. WD-9(3) AHMEDABAD. VERSUS M/S. ASHISH PATHOLOGY LABORATORY, A/103-104, AASTHAN COMPLEX, OPP : POLY-TECHNIC BUS STOP, AMBAWADI, AHMEDABAD. (APPELLANT) (RESPONDENT) PAN:AABFA3489Q FOR THE APPELLANT: SHRI M.C. PANDIT, DR FOR THE RESPONDENT SHRI S N DIVETIA, AR ORDER PER H.L.KARWA, JUDICIAL MEMBER: THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE CIT(A) -XV, AHMEDABAD DATED 07-02-2005 RELATING TO ASSESSMENT YEAR 2001-2002. 2. THE ONLY EFFECTIVE GROUND RAISED BY THE REVENUE IN THIS APPEAL READS AS UNDER: 1. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE DISALLOWANCE OF RS. 13,42,500/- MADE BY THE A.O. ON ACCOUNT OF LEASE RENT. 3. WHILE FRAMING THE ASSESSMENT, THE ASSESSING OFFI CER DISALLOWED RS. 15,90,000/- BY TREATING THE SAME AS CAPITAL EXPENDI TURE. THE ASSESSEE HAD CLAIMED PAYMENT OF RS. 13,42,500/- AS LEASE RENT TO NICOLAS PIRAMAL INDIA LIMITED (HEREINAFTER TO BE REFERRED TO AS NPIL FO R SHORT) FOR 3 MACHINERIES I.E. ELECSYS 1010 1 UNIT AND SWELAV AC-920-EO-2 UNI TS WHICH HAVE 2 ITA NO. 1301/AHD/2005 (ASSESSMENT YEAR 2001-02) BEEN IMPORTED AND MARKETED BY NPIL. THE ASSESSING OFFICER OBSERVED THAT AS PER CLAUSE-7 OF THE AGREEMENT, THE ASSESSEE WAS REQUIRED TO PAY ADVANCE OF RS. 2,04,000/- AND RS. 1,11,875/- PER MONTH. THE T OTAL VALUE TO BE PAID WAS OF RS. 29,04,000/- TOWARDS MAINTENANCE OF ABOVE EQU IPMENTS DURING THE PERIOD OF AGREEMENT. THE ASSESSING OFFICER ISSUED A SHOW CAUSE NOTICE TO THE ASSESSEE PROPOSING TO DISALLOW THE AMOUNT OF RS . 13,42,500/- CLAIMED AS LEASE RENT BY HOLDING THE SAME AS CAPITAL EXPENDITU RE. IN RESPONSE TO THE ABOVE NOTICE, THE ASSESSEE FILED A WRITTEN STATEMEN T DATED 26-03-2005 ALONGWITH A COPY OF AGREEMENT WITH NPIL AND CLAIMED THAT PROPERTY IN THE NAME OF SAID EQUIPMENTS REMAINED THE PROPERTY OF NP IL. HOWEVER, THE ASSESSING OFFICER DID NOT ACCEPT THE CLAIM OF THE A SSESSEE STATING THAT THE PAYMENT MADE BY THE ASSESSEE CANNOT BE SAID TO BE M AINTENANCE CHARGES OR LEASE RENT BUT IT WAS PAYMENT OF PERIODICAL INSTALL MENTS TOWARDS THE COST OF EQUIPMENTS DEBITED IN THE PROFIT AND LOSS ACCOUNTS OF THE ASSESSEE UNDER THE GUISE OF LEASE RENT. THE ASSESSING OFFICER CONCLUD ED THAT THE ASSET HAS BEEN PURCHASED BY THE ASSESSEE FOR THE TOTAL CONSIDERATI ON OF RS. 29,04,000/-, THE ADVANCE PAYMENT OF RS. 2,04,000/- WAS ALSO DISALLOW ED BY TREATING THE SAME AS CAPITAL EXPENDITURE. 4. ON APPEAL, THE CIT(A) ALLOWED THE CLAIM OF THE A SSESSEE, OBSERVING AS UNDER: I HAVE CONSIDERED THE SUBMISSIONS OF THE AUTHORISE D REPRESENTATIVE CAREFULLY AND HAVE ALSO GONE THROUGH THE DETAILS FI LED BY THE AUTHORISED REPRESENTATIVE. I FIND THAT THE AGREEME NT IS A LEASE AGREEMENT FOR THREE EQUIPMENTS. THE CLAUSE 2 CLEAR LY SAYS THAT NPIL HAS SOLE DISCRETION AND LIBERTY TO WITHDREW OR TAKE POSSESSION OF THE SAID EQUIPMENT, CLAUSES 8, 9 PROVIDE THAT THE EQUIP MENTS REMAINED PROPERTY OF NPIL AND AS PER CLAUSE 11 THE APPELLANT WAS NOT AUTHORISED TO CREATE ANY CHARGE, SUBLET OR TAKE ANY LOAN IN RESPECT OF THESE EQUIPMENTS. FURTHER AS THE APPELLANT WAS INC URRING LOSS, THERE WAS NO INTENTION OF THE APPELLANT OF SAVING ANY TAX BY CLAIMING THE SAME AS REVENUE EXPENDITURE. IN VIEW OF THE ABOVE FACTS AND THE CITATIONS REFERRED TO BY THE AUTHORISED REPRESENTAT IVE, THE EXPENDITURE 3 ITA NO. 1301/AHD/2005 (ASSESSMENT YEAR 2001-02) CLAIMED BY THE APPELLANT IS HELD AS REVENUE EXPENDI TURE REPRESENTING LEASE RENT. THEREFORE, THE SAME IS ALLOWED AS DEDU CTION. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS. WE HAVE AL SO PERUSED THE AGREEMENT DATED 21-02-2000 ENTERED INTO BETWEEN NPI L AND ASSESSEE COMPANY. ON PERUSAL OF AGREEMENT, WE FIND THAT THE AGREEMENT IS A LEASE AGREEMENT FOR 3 EQUIPMENTS. RELEVANT CLAUSES OF AG REEMENT READ AS UNDER:- CLAUSE 2. THE SAID EQUIPMENT SHALL AT ALL TIMES RE MAIN THE PROPERTY OR NPIL AND NPIL AT ALL TIMES BE AT ITS SOLE DISCRE TION AND LIBERTY TO WITHDRAW OR TAKE POSSESSION OR THE SAID EQUIPMENT WITHOUT ASSIGNING ANY REASON WHATSOEVER A ND ALSO ON THE OCCURRENCE OF ANY OR THE EVENTS MENTION ED HEREAFTER IN THIS AGREEMENT. CLAUSE 3. NPIL SHALL BEAR THE COST OF SPARE PARTS ( EXCLUDING CONSUMABLE SPARES AS PER ANNEXURE), REPAIRS ETC., INCURRED NECESSITATED IN THE COURSE OF NORMAL BREAK DOWN SERVICE UNDERTAKEN BY NIPL DURING THE PERIOD OF THI S AGREEMENT OR ITS EARLIER TERMINATION AS HEREINAFTER PROVIDED. PROVIDED HOWEVER THAT ANY REPAIR ARISING OUT OF ASHISH PATHOLOGY LABORATORY NOT FOLLOWING THE PRESCRIBED PROCEDURE IN THE OPERATIONS MANUAL W HICH WILL BE PROVIDED ALONGWITH THE SAID EQUIPMENT AND/O R BY NEGLIGENCE AND/OR BY OPENING OR HANDLING THE SAID EQUIPMENT FOR MAINTENANCE WHICH IS TO BE CARRIED OU T ONLY BY NPIL (NORMAL OPERATIONAL MAINTENANCE TO BE CARRIED OUT BY ASHISH PATHOLOGY LABORATORY EXPECTED) AND/OR SABOTAGE AND/OR DAMAGE CAUSED BY ASHISH PATHOLOGY LABORATORY AND/OR ITS EMPLOYEES, AGENTS, VISITORS, CONTRACTORS, AND CONTR ACTORS EMPLOYEES ETC. WILL BE CARRIED OUT BY NPIL BY CHARG ING TO ASHISH PATHOLOGY LABORATORY, THE ACTUAL COST OF SUCH REPAIR INCLUDING THE COST OF SPARE PARTS. CLAUSE 4. NIPL SHALL AT ITS COST TAKE A COMPREHENSI VE INSURANCE POLICY TO COVER THE SAID EQUIPMENT AGAINST THEFT, F IRE, RIOTS, CIVIL COMMOTION, NATURAL CALAMITIES, BREAKDO WN ETC. PROVIDED THAT IRRESPECTIVE OF THE INSURANCE COVERAG E, THE ASHISH PATHOLOGY LABORATORY SHALL BE RESPONSIBLE FOR THE COST AND CONSEQUENCE OF ANY DAM AGE 4 ITA NO. 1301/AHD/2005 (ASSESSMENT YEAR 2001-02) AND/OR LOSS ARISING OUT OF CONTINGENCIES MENTIONED IN CLAUSE 13 HEREINAFTER. CLAUSE 7. APART FROM THE MINIMUM PURCHASE OF REAGEN TS AND/OR CONSUMABLES AS SPECIFIED HEREINABOVE. ASHISH PATHOLOGY LABORATORY AGREES TO PAY A SUM OR ADVANCE RS. 2,04,000/- (RUPEES TWO LAKHS FOUR THOUS AND ONLY) P.M. TOTAL VALUE RS. 29,04,000/- (RUPEES TWEN TY NINE LAKHS FOUR THOUSAND ONLY) TOWARDS THE MAINTENA NCE OF THE EQUIPMENT DURING THE PERIOD OF THIS AGREEMEN T OR PRIOR DETERMINATION THEREOF AS PROVIDED HEREINAFTER . THE ABOVE MENTIONED AMOUNT WILL BE PAID IN ADVANCE TO N IPL ON THE 3 RD WORKING DAY OF EACH MONTH. CLAUSE 8. DURING THE CONTRACTUAL PERIOD THE EQUIPME NT WILL BELONG TO AND BE THE PROPERTY OR NPIL. ASHISH PATHOLOGY LABORATORY SHALL PAY THE MAINTENANCE CHARGES AS STIPULATED IN CLAUSE 7 HEREINABOVE WITHOUT ANY DEFA ULT DURING THE ENTIRE TERM OF THIS AGREEMENT AND PERFOR M AND OBSERVE ALL THE TERMS AND CONDITIONS OF THIS AGREEM ENT AND THIS AGREEMENT SHALL COME TO AN END AS PROVIDED IN CLAUSE 5 OF THIS AGREEMENT AND THE EQUIPMENT SHALL BE SOLD TO ASHISH PATHOLOGY LABORATORY AT A NOMINAL SALE PRICE OF RS. 1/- AND THEREAFTER THE SA ID EQUIPMENT SHALL BECOME THE ABSOLUTE PROPERTY OF ASH ISH PATHOLOGY LABORATORY. CLAUSE 9. DURING THE PERIOD OF THIS AGREEMENT, THE ASHISH PATHOLOGY LABORATORY SHALL AT NO TIME CONTEST OR CHALLENGE NPILS SOLE AND EXCLUSIVE RIGHT, TITLE AN D INTEREST IN THE EQUIPMENT NOR SHALL CONTEST AND STA LL THE REPOSSESSION OF THE SAID EQUIPMENT BY NIPL IN THE E VEN OF ANY DEFAULT OR BREACH OR VIOLATION BY ASHISH PATHOLOGY LABORATORY OF ANY OF THE PROVISIONS CONTAINED IN THIS AGREEMENT. CLAUSE 10. ASHISH PATHOLOGY LABORATORY SHALL NOT CL AIM ANY RELIEF BY WAY ANY DEDUCTION, ALLOWANCE, OR GRAN T, AVAILABLE TO NPIL UNDER THE INCOME TAX ACT, 1961 OR UNDER ANY OTHER STATUTE, RULES, REGULATIONS OR GUID ELINES IN RESPECT OF THE SAID EQUIPMENT AND ASHISH PATHOLOGY LABORATORY ASSURES AND UNDERTAKES TO FURNISH 5 ITA NO. 1301/AHD/2005 (ASSESSMENT YEAR 2001-02) NECESSARY CERTIFICATE RELATING TO DEPRECIATION ELIG IBILITY, IN CASE IT IS REQUIRED. CLAUSE 11. ASHISH PATHOLOGY LABORATORY SHALL NOT HYPOTHECATE, TRANSFER, PART WITH POSSESSION OF, SUB LET OR CREATE ANY CHARGE, LIEN OR TAKE ANY LOAN OR CREATE ANY ENCUMBRANCE, IN ANY MANNER WHATSOEVER, ON OR IN RELATION TO THE SAID EQUIPMENT OR PART WITH THE POS SESSION OF OR SUBLET THE SAID EQUIPMENT. CLAUSE 13. IN THE EVENT IF THE WHOLE OR ANY PART OF THE SAID EQUIPMENT IS LOST, STOLEN OR DESTROYED OR DAMAGED BEYOND REPA IR FOR ANY REASON WHATSOEVER DUE TO THE DEFAULT TO THE ASH ISH PATHOLOGY LABORATORY AND/OR ITS EMPLOYEES, AGENTS, VISITORS, CONTRACTORS, EMPLOYEES, THEN ASHI SH PATHOLOGY LABORATORY SHALL FORTHWITH NOTIFY NPIL OF SUCH AN EVEN AND SHALL PAY TO NPIL A SUM WHICH W ILL BE EQUIVALENT TO THE DIFFERENCE IN THE REPLACEMENT COST OF AN EQUIVALENT EQUIPMENT. 6. FROM THE ABOVE, FOLLOWING FACTS, CLEARLY EMERGE: I) THE OWNERSHIP OF THE EQUIPMENTS CONTINUED TO BE THAT OF NPIL. THE ASSESSEE DID NOT ACQUIRE ANY RIGHT, INTEREST OR TITLE IN THESE EQUIPMENTS. II) NPIL WAS AUTHORISED TO TAKE EQUIPMENTS BACK EVE N WITHOUT ASSIGNING IN REASON THERETO. III) THE ASSESSEE WAS OBLIGED TO BUY CONSUMABLES FR OM NPIL, A NECESSARY PRECONDITION SO AS TO USE THE EQUIPMENTS. IV) NPIL WAS TO INSURE THE EQUIPMENT AT ITS COST. V) THE ASSESSEE IS LIABLE TO PAY FIX MAINTENANCE CH ARGES TO NPIL TOWARDS THE USAGES OF THE MACHINE OR COST OR ITS MA INTENANCE, DURING THE CURRENCY OF THIS AGREEMENT. VI) THE ASSESSEE WAS NOT ALLOWED TO CLAIM DEPRECIAT ION ON THE CAPITAL COST OF THE EQUIPMENT DURING THE CURRENCY O F THIS AGREEMENT. 6 ITA NO. 1301/AHD/2005 (ASSESSMENT YEAR 2001-02) 7. IT IS ALSO SEEN THAT IN TERMS OF ABOVE AGREEMEN T, THE ASSESSEE HAVING TAKEN EQUIPMENTS ON LEASE, CONTINUED TO PAY THE MONTHLY C HARGES TO NPIL. THUS, IN VIEW OF CLEAR TERMS OF AGREEMENT, THE ASSESSING OFF ICER WAS NOT JUSTIFIED IN TREATING THE CHARGES SO PAID BY THE ASSESSEE AS CAP ITAL IN NATURE. IN OUR VIEW, AN EXPENDITURE IS SAID TO BE A CAPITAL EXPENDITURE WHE N IT RESULTS INTO CREATION OF ANY ASSET, RIGHT OR INTEREST. IN THE INSTANT CASE FROM THE RELEVANT EXTRACTS OF THE AGREEMENT, IT IS CLEAR THAT THE ASSESSEE DID NOT AC QUIRE ANY OWNERSHIP, RIGHT OR INTEREST IN THE ASSET. THUS, THERE WAS NO JUSTIFIC ATION IN TREATING THE PAYMENT OF CHARGES MADE BY THE ASSESSEE TO NPIL AS CAPITAL IN NATURE. 8. IN VIEW OF THE ABOVE DISCUSSION, WE DO NOT FIND ANY INFIRMITY IN THE FINDINGS OF THE CIT(A) ON THIS ISSUE AND ACCORDINGL Y, WE DISMISS THE APPEAL. 9. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. THE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 21-08 -2009. [ SD/- SD/- (D.C. AGRAWAL) (H.L. KARWA) ACCOUNTANT MEMBER JUD ICIAL MEMBER AHMEDABAD; DATED: 21/08/2009 ANKIT* COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) CONCERNED 4. THE CIT, 5. THE DR, AHMEDABAD BENCH 6. THE GUARD FILE. BY ORDER, ASSTT. REGISTRAR/ DEPUTY REGISTRAR ITAT, AHMEDABAD BENCHES, AHMEDABAD.