DCIT, Circle - 7, Kolkata, Kolkata V. M/s. Shree Durga Agencies Ltd., Kolkata

ITA 390/KOL/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 83069 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 4 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-08-2014
• Appeal Filed By: Department
• Bench Allotted: B
• Next Hearing Date: 07-08-2014
• Assessment Year: 1996-1997
• Appeal Filed On: 12-03-2012
• Court: TRIBUNAL
• Department Lawyers: KALYAN NATH
• Keywords: Business income; Depreciation; Opportunity of being heard; Avoidance of tax
• Section: 143(3); 32; 131

Judgement Text

, B , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH: KOL KATA () BEFORE , /AND , ! ) [BEFORE SHRI MAHAVIR SINGH, JM & SHRI SHAMIM YAHYA, AM] ' / I.T.A NO.390/KOL/2012 #$ %&/ ASSESSMENT YEAR: 1996-97 DEPUTY COMMISSIONER OF INCOME-TAX, VS. M/S. SHREE DURGA AGENCIES LTD. CIRCLE-7, KOLKATA. (PAN: AAECS0556L) (() /APPELLANT ) (*+()/ RESPONDENT ) DATE OF HEARING: 07.08.2014 DATE OF PRONOUNCEMENT: 11.08.2014 FOR THE APPELLANT: SHRI KALYAN NATH, JCIT FOR THE RESPONDENT: SHRI SUBHAS AGARWAL, ADVOCAT E / ORDER PER SHRI MAHAVIR SINGH, JM : THIS APPEAL BY ASSESSEE IS ARISING OUT OF ORDER OF CIT(A)-VIII, KOLKATA IN APPEAL NO. 348/CIT(A)-VIII/KOL/07-08 DATED 23.12.2011. ASS ESSMENT WAS FRAMED BY DCIT, CIRCLE-12(5), KOLKATA U/S. 143(3) OF THE INCOME-TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) FOR ASSESSMENT YEAR 1996-97 VIDE HIS ORD ER DATED 05.03.1999. 2. THE ONLY ISSUE IN THIS APPEAL OF REVENUE IS AGAI NST THE ORDER OF CIT(A) DELETING THE DISALLOWANCE IN RESPECT OF DEPRECIATION ON SOLA R GENERATING SYSTEM I.E. LEASED ASSET. FOR THIS, REVENUE HAS RAISED FOLLOWING GROUND NO.1: 1. THAT UNDER THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE, THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DIRECTING THE A.O. TO DELETE THE DISALLOWANCE MADE IN RESPECT OF ASSESSEES CLAIM OF DEPRECIATION AMOUNTING TO RS.18 LAKHS ON SOLAR GENERATING SYSTEM. 3. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUGH FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT THE ASSESSEE COMPANY ACQUIR ED SOLAR COOKERS, SOLAR WATER HEATER AND ANCILLARY EQUIPMENTS FROM LG AUTO ENGINE ERING LTD. ON THE BASIS OF HIRE PURCHASE AGREEMENT DATED 10.06.1995 AND LEASED OUT THE SAME TO UNITED INDUSTRIES AS PER LEASE AGREEMENT DATED 10.06.1995. VIDE THIS TR IPARTITE AGREEMENT, IT WAS AGREED THAT 2 ITA NO.390/K/2012 M/S. SHREE DURGA AGENCIES LTD. AY 1996-97 THE LEASE HIRE CHARGES PAYABLE BY THE LESSEE TO THE ASSESSEE SHALL BE DIRECTLY PAID TO LG AUTO ENGINEERING LTD. ON ACCOUNT OF SETTLEMENT OF C USTOMERS BY THE ASSESSEE. THIS FACT IS NOT DISPUTED AND ACT WAS DONE BY BOTH LG AUTO EN GINEERING LTD. AND UNITED INDUSTRIES. THE ASSESSEE CLAIMED 100% DEPRECIATION ON THOSE ASSETS AS PER PRESCRIBED DEPRECIATION RATE AS PER I. T. RULE, 1962. THE AO IN THE ORIGINAL ROUND DISALLOWED THE CLAIM OF DEPRECIATION OF THE ASSESSEE AND CIT(A) AL LOWED THE CLAIM OF ASSESSEE AND DELETED THE DISALLOWANCE ON DEPRECIATION ON THE BAS IS OF CLAUSE 3 OF CIRCULAR 9 OF THE CBDT. THE MATTER WENT TO ITAT AND REVENUES APPEAL WAS ALLOWED VIDE ITA NO. 2494/KOL/2003 DATED 04.10.2004. SUBSEQUENTLY, THIS ORDER WAS RECALLED IN M.A. NO. 75/KOL/2005 DATED 09.1.2005. SUBSEQUENTLY, THE ASS ESSMENT WAS SET ASIDE BY THE TRIBUNAL IN ITA NO.2494/KOL/2003 VIDE ORDER DATED 2 8.02.2006 BY OBSERVING IN PARA 6.2 AS UNDER: 6.2. CONSIDERING THE TOTALITY OF THE FACTS OF THE CASE, WE ARE OF THE CONSIDERED OPINION THAT THE MATTER REQUIRES DEEP INVESTIGATIO N AT THE LEVEL OF THE AO TO FIND OUT WHETHER THE TRANSACTION IS A GENUINE TAX PLANNI NG ONE OR IT IS A COLOURABLE DEVICE MADE OUT FOR EVASION OF TAX. THE AO HAS TO FIND OUT WHETHER THE ENTIRE TRANSACTION WAS WITHIN THE FRAME WORK OF LAW. WHIL E DOING SO HE SHOULD KEEP IN MIND THE PROVISIONS OF SECTION 32 OF THE I. T. ACT AND THE RELEVANT RULES, THE CIRCULARS AND INSTRUCTION ISSUED BY CBDT FROM TIME TO TIME ON ALLOWABILITY OF DEPRECIATION ON LEASED ASSETS, THE DECISION OF THE APEX COURT IN THE CASE OF MC DOWELL AND CO. LTD. AND AZADI BACHO ANDOLAN. THE A .O SHALL GIVE ADEQUATE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE AS PER L AW. WHILE GIVING EFFECT TO THE ORDER OF ITAT, THE AO FR AMED THE ASSESSMENT VIDE ORDER DATED 28.2.2006 WHEREBY AGAIN THE DEPRECIATION WAS DISALLOWED BY OBSERVING AS UNDER: THE ASSESSEE HAD CONTENDED BEFORE THE CIT(A) THAT IF THE A.O. HAD ANY DOUBT ABOUT THE TRANSACTIONS SHOWN BY THE ASSESSEE, HE CO ULD HAVE CALLED ALL THE PARTIES U/S. 131 OF THE ACT TO VERIFY THE FACT. IN FACT, T HE A.O. HAD NOT DOUBTED THE AGREEMENTS ON PAPER ENTERED INTO BY THE ASSESSEE AN D HAS RATHER RELIED ON THE PROVISIONS OF THE SAME VERY AGREEMENTS FURNISHED BY THE ASSESSEE TO COME TO A CONCLUSION. IT HAS BEEN HELD BY THE TRIBUNAL ALSO IN TRIBUNALS ORDER DATED 04.10.2004 THAT THE PURCHASE AND LEASE AGREEMENTS A RE NOTHING BUT MERELY THE PLANNING ON PAPER TO AVOID PAYING TAX ON LEGITIMATE REVENUE BY THE ASSESSEE. TO REITERATE, THE TRIBUNAL HAS MENTIONED IN ITS ORD ER DATED 04.10.2004, AS QUOTED IN PARA (6) OF THIS ORDER (I) THAT THE FACTS AS C ONSIDERED BY THE ASSESSING OFFICER WERE RIGHT AND (II) THAT THE ASSESSING OFFICER HAD RIGHTLY DERIVED THE COLLUSIVE TRANSACTION ENTERED INTO BY THE THREE PARTIES WITH THE SOLE MOTIVE OF ALLOWING THE ASSESSEE COMPANY TO ENJOY THE BENEFIT OF DEPRECIATI ON. 3 ITA NO.390/K/2012 M/S. SHREE DURGA AGENCIES LTD. AY 1996-97 THESE ARE THE CONCLUSIONS ON ASPECTS OF FACTS BY TH E TRIBUNAL WHICH IS THE HIGHEST BODY TO ADJUDICATE ON THE ASPECTS OF FACTS IN A CAS E. AGGRIEVED, ASSESSEE PREFERRED APPEAL BEFORE CIT(A), WHO AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE DELETED THE DISALLOWANC E BY OBSERVING IN PARA 5.1 AS UNDER: 5.1. GROUND NO. 1 & 2: THESE GROUNDS OF APPEAL OF THE APPELLANT ARE DIRECTED AGANST THE ACTION OF THE AO IN DISALLOWING THE ASS ESSEES CLAIM OF DEPRECATION AMOUNTING TO RS. 18 LACS ON SOLAR GENERATING SYSTEM BY NOT FOLLOWING DIRECTION GIVEN BY THE HONBLE ITAT IN ITS ORDER DATED VIDE H IS ORDER DATED 28.12.06, PASSED FOR GIVING EFFECT TO THE ITATS ORDER DATED 28.02.2 006 . 4. WE HAVE CONSIDERED THE FACTS ON RECORD AND THE S UBMISSIONS PUT FORTH ON BEHALF OF THE APPELLANT. THE ITAT VIDE ORDER DATED 28.02.2 006 HAS SET ASDE THE ASSESSMENT AND RESTORED THE MATTER BACK TO THE FILE OF THE A.O. FO R DECIDING THE ISSUE KEEP IN MIND THE PROVISIONS OF SECTION 32 AND THE RELEVANT RULES, C RCULARS AND INSTRUCTIONS ON THE POINT AND THE DECISOINS OF THE HONBLE SUPREME COURT IN THE CASE OF MCDOWELL AND AZADI BACHO ANDOLAN. THE GREVANCE OF THE APPELLANT IS TH AT WHILE GIVING EFFECT TO THE TRIBUNALS ORDER, THE ASSESSING OFFICER HAS NOT FOL LOWED THE DIRECTIONS OF THE TRIBUNAL. THEREFORE, NOW, TO BEGIN WITH, THE PROVISIONS OF SE CTION 32 OF THE ACT MAY BE EXAMINED. THE RELEVANT PROVSIONS READ AS UNDER: 32. (1) IN RESPECT OF DEPRECIATION OF BUILDINGS, MACHINERY, PLANT OR FURNITURE, BEING TA NGIBLE ASSETS; KNOW-HOW, PATENTS, COPYRIGHTS, TRADE MARKS, LICENC ES, FRANCHISES OR ANY OTHER BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE, BE ING INTANGIBLE ASSETS ACQUIRED ON OR AFTER THE 1ST DAY OF APRIL, 1998, OWNED, WHOLLY OR PARTLY, BY THE ASSESSEE AND USED F OR THE PURPOSES OF THE BUSINESS OR PROFESSION, THE FOLLOWING DEDUCTIONS SH ALL BE ALLOWED UNDER APPENDIX 1 TO RULE 5 OF THE I. T. RULES, DEPR ECIATION IS ADMISSIBLE ON RENEWABLE ENERGY DEVISES @ 80%. THE TERM OWNED AS OCCURRING IN S. 32(1) OF THE 19 61 ACT MUST BE ASSIGNED A WIDER MEANING. ANYONE IN POSSESSION OF THE PROPERTY (BUILDINGS) IN HIS OWN TITLE EXERCISING SUCH DOMINION OVER THE PROPERTY AS WOULD ENABLE OTHERS BEING EXCLUDED THEREFROM AND HAVING THE RIGHT TO USE AND OCCUPY THE PROPERTY AND/OR ENJOY ITS USUFRUCT IS HIS OWN RIGHT WOULD BE THE OW NER OF THE PROPERTY (BUILDINGS) THOUGH A FORMAL DEED OF TITLE MAY NOT HAVE BEEN EXE CUTED AND REGISTERED AS CONTEMPLATED BY THE TRANSFER OF PROPERTY ACT OR THE REGISTRATION ACT. THE INTENTION OF THE LEGISLATURE IN ENACTING S.32 WOULD BE BEST FULFILLED BY ALLOWING DEDUCTION IN RESPECT OF DEPRECIATON TO THE PERSON IN WHOM FOR THE TIME BENG VESTS THE DOMINON OVER THE BUILDING AND WHO IS ENT ITLED TO USE IT IN HIS OWN RIGHT AND IS USING THE SAME FOR THE PURPOSES OF HIS BUSIN ESS OR PROFESSION. HELD 4 ITA NO.390/K/2012 M/S. SHREE DURGA AGENCIES LTD. AY 1996-97 ACCORDINGLY, THAT THE APPELLANT WHICH HAD MADE PART PAYMENTS FOR THE PURCHASE OF SEVEN LOW INCOME GROUP HOUSES FOR THE USE OF ITS STAFF AND WAS IN TURN ALLOTTED HOUSES FOLLOWED BY DELIVERY OF POSSESSION BY THE HO USING BOARD BUT ACTUAL DEED OF CONVEYANCE HAD NOT BEEN EXECUTED IN FAVOUR OF TH E APPELLANT, WAS ENTITLED TO DEPRECIATION ON THE BUILDINGS-MYSORE MINERALS LTD. V. CIT [1999] 239 ITR 775. THE CENTRAL BOARD OF DIRECT TAX, VIDE CIRCULAR NO. 9[R.DIS.NO.27(4)IT/43] DATED 23-3-1943 HAVE LAID DOWN THE MODALITIES ON TH E BASIS OF WHICH DEPRECIATION IS TO BE ALLOWED ON LEASED ASSETS. T HE CIRCULAR READS AS UNDER: WHERE THE EFFECT OF AN AGREEMENT IS THAT THE OWNER SHIP OF THE SUBJECT IS AT ONCE TRANSFERRED TO THE LESSEE THE TR ANSACTION SHOULD BE REGARDED AS ONE OF PURCHASE BY INSTALLMENTS AND NO DEDUCTION IN RESPECT OF HIRE SHOULD BE MADE. DEPRECIATION SHO ULD BE ALLOWED TO THE LESSOR ON THE ENTIRE PURCHASE PRICE AS PER THE AGREEMENT. WHERE THE TERMS OF THE AGREEMENT PROVIDE THAT THE E QUIPMENT SHALL EVENTUALLY BECOME THE PROPERTY OF THE HIRER OR CONF ER ON THE HIRER AN OPTION TO PURCHASE THE EQUIPMENT, THE TRANSACTION S HOULD BE REGARDED AS ONE OF HIRE PURCHASE. IN SUCH CASES, T HE PERIODICAL PAYMENTS MADE BY THE HIRER SHOULD FOR TAX PURPOSES BE REGARDED AS MADE UP OF: CONSIDERATION OF HIRE, TO BE ALLOWED AS A DEDUCTION IN THE ASSESSMENT, AND PAYMENT ON ACCOUNT OF PURCHASE TO BE TREATED AS CAP ITAL OUTLAY, DEPRECIATION BEING ALLOWED TO THE LESSEE ON THE INI TIAL VALUE (I.E. THE AMOUNT FOR WHICH THE HIRED SUBJECT WOULD HAVE BEEN SOLD FOR CASH AT THE DATE OF AGREEMENT) . THE ALLOWANCE TO BE MADE IN RESPECT OF HIRE SHOULD BE THE DIFFERENCE BETWEEN THE AGGREGATE AMOUNT OF THE PERIODICAL PAYM ENTS UNDER THE AGREEMENT AND THE INITIAL VALUE, THE AMOUNT OF THIS ALLOWANCE BEING SPREAD EVENLY OVER THE TERM OF THE AGREEMENT. A COMMERCIAL ASSET CAPABLE OF BEING EXPLOITED BY M ORE THAN ONE PERSON WILL REMAIN A COMMERCIAL ASSET EVEN IF IT IS TEMPORARILY PUT OUT OF USE OR HIRED OUT CIT V. HINDUSTHAN ALLUMINIUM CORPORATON LTD. [1989] 176 1TR 206(CAL). DEPRECIATION IS ADMISSIBLE ON BUSINESS ASSETS LEASE D OUT SADHUCHARAN ROY CHOWDHURY, IN RE [1935] 3 ITR 114 (CAL) /MANGALAGIR I SRI UMAMAHESWARA GIN & RICE FACTORY LTD V CIT 2 ITC 251 (MAD) IN SBI HOME FINANCE LTD. V. CIT [2005] 148 TAXMAN 5 85 (CAL.), IT HAS BEEN HELD THAT WHERE A PERSON HAS ACQUIRE INTEREST IN A PROPERTY WITH NOTICE OF A RIGHT OF A THIRD PARTY, THE PERSON CONTINUES TO BE THE OW NER OF THE PROPERTY, AGAINST THE WHOLE WORLD UNTIL SUCH RIGHT IS ENFORCED BY THE THI RD PARTY. THE LESSEE CANNOT 5 ITA NO.390/K/2012 M/S. SHREE DURGA AGENCIES LTD. AY 1996-97 DISPUTE THE TITLE OF THE LESSER AND THE ALLEGED THI RD PARTY INTEREST WOULD NOT AFFECT THE OWNERSHIP OF THE LESSOR NOR CAN IT BE DOUBTED O R DISPUTED. COMING TO THE APPLICABILITY OF THE RATIO LAID DOWN IN THE CASES OF MCDOWELL AND AZADI BACHAO ADOLAN, AFTER GOING THROUGH THE FACTS OF THE CASE, I DO NOT FIND THAT THE ASSESSEE ADOPTED A COLOURABLE DEVICE BY CLAIMIN G DEPRECIATION ON THE LEASED OUT PLANT AND MACHINERY TO FIT IN THE APPELLANTS C ASE IN THE FACTS AND CIRCUMSTANCES OF THE TWO REPORTED CASES. IT IS APPR OPRIATE TO NOTE HERE THAT IN MCDOWELI & CO LTD. VS. COMMERCIAL TAX OFFICER (1985 ) 47 CTR 126 (SC)/(1985) 154 1TR 148 (SC) (JUDGMENT DELIVERED O N 17/4/1998), THE HONBLE SUPREME COURT HAD HELD THAT TAX AVOIDANCE PERMISSIBLE BY LAW VIS-A-VIS TAX EVA SION-PLANNING TO AVOID TAX WITHOUT BREAKING LAW IS TO BE CURBED AND NO LONGER APPROVAB1E ENG1ISH DECISION HOLDNG THAT INCIDENCE OF TAX COULD BE AVOIDED IF PERMISSIBLE IN LAW CANNOT BE APPLIED IN LNDIAN SCENARIO AND ARE ABSOLUTE DUTY IS CAST UPON THE COURT NOT TO ALLOW AVOIDANCE OF TAX THOUGH THERE IS NO INFRINGEMENT OF LAW IN ANOTHER LAND MARK JUDGMENT IN C1T VS. MCDOWELL & CO. LTD (2009] 224 CTR 27 (SC)/[2009]314 ITR 180(SC) FOR A.YR, 1993-94 (JU DGMENT/ORDER DATED 08/05/2009), THE HONBLE SUPREME COURT HAS HELD THA T TRIBUNAL AND THE HIGH COURT HAVING RECORDED A FINDING THAT THE NEW AGREEM ENT IN APRIL 1992 WAS NOT SUBTERFUGE OR CLANDESTINE DEVICE TO REDUCE THE TAX LIABILITY BUT WAS AN EXPENDITURE ON BUSINESS EXPEDIENCY AND THE DECISION OF THE PARTIES TO ENTER INTO AN AGREEMENT WAS BASED ON COMMERCIAL CONSIDERATION SAID FINDING IS ESSENTIALLY A FINDING OF FACT BASED ON COGENT ASSESSMENT OF THE FACTUAL SCENARIO HENCE DOES NOT WARRANT INTERFERENCE. THUS, IT MAY BE SEEN THA T THE HONBLE SUPREME COURTS JUDGMENT REPORTED IN (1985) 154 ITR 148(SC) DID NOT HOLD THE FIELD BECAUSE OF THE CHANGING SCENARIO. IN UNION OF LNDIA & ANOTHER VS AXADI BACHAO ANDOLAN & ANOTHER [2003] 184 CTR 450 (SC)/(2003) 263 ITR 706 (SC) (JUDGMENT DATE D 7/10/2003), THE CONCLUSION REACHED BY THE HONBLE SUPREME COURT IS AS UNDER: AN ACT IS OTHERWISE VALID IN LAW CANNOT BE TREATED AS NON EST MERELY ON THE BASIS OF SOME UNDERLYING MOTIVE SUPPOSEDLY R ESULTING IN SOME ECONOMIC DETRMENT OR PREJUDICE TO THE NATIONAL INT ERESTS; NOT ONLY IS THE PRINCIPLE IN DUKE OF WESTMINISTER ALIVE AND KIC KING N ENGLAND, BUT IT ALSO SEEMS TO HAVE ACQUIRED JUDICIAL BENEDI CTION OF THE CONSTITUTIONAL BENCH IN INDIA NOTWITHSTANDING THE T EMPORARY TURBULENCE CREATED IN THE WAKE OF MCDOWELL. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, AND THE EMERGING LEGAL POSITION, I HOLD THAT THE ASSESSING OFFICER WAS NOT JUSTIFIED IN REJECTING THE ASSESSEES CLAIM OF DEPRECIATION AMOUNTING TO RS. 1 8 LACS ON SOLAR GENERATING SYSTEM VIDE HIS ORDER DATED 28.12.06, PASSED FOR GI VING EFFECT TO THE ITATS ORDER DATED 28.02.2006. THE ASSESSING OFFICER IS DIRECTED TO ALLOW THE SAME IN 6 ITA NO.390/K/2012 M/S. SHREE DURGA AGENCIES LTD. AY 1996-97 ACCORDANCE WITH THE PROVISIONS OF SEC. 32 AND CORRE SPONDING RULE UNDER SEC. 5 OF THE ACT. AGGRIEVED, NOW REVENUE IS IN APPEAL BEFORE US. 5. WE HAVE GONE THROUGH THE FACTS IN ENTIRETY AND H EARD BOTH LD. DR AS WELL AS LD. COUNSEL FOR THE ASSESSEE. AT THE OUTSET, IT IS TO BE MENTIONED THAT THE LEASE RENTALS ARE AS IT IS ACCEPTED BY THE AO DURING ORIGINAL ASSESSMENT PROCEEDINGS AND ALSO DURING GIVING EFFECT TO THE ORDER OF ITAT. THESE LEASE RENTALS AR E NOT AT ALL DOUBTED BY THE AO BUT FOR DISALLOWING DEPRECIATION TOTALLY RELIED ON THE OBSE RVATIONS MADE BY ITAT WITHOUT GOING INTO THE DETAILS AND WITHOUT MAKING ENQUIRIES TREAT ED THE TRANSACTION AS COLOURABLE DEVICE. ONCE, LEASE RENTALS ARE ACCEPTED BY THE RE VENUE, THERE IS NO REASON TO DISALLOW THE DEPRECIATION. THIS VIEW IS ALSO SUPPORTED BY H ONBLE SUPREME COURT IN THE CASE OF CIT VS. SHAAN FINANCE PVT. LTD. (1998) 231 ITR 308 (SC), WHEREIN IT IS HELD AS UNDER: IN THE CASE OF HIRE PURCHASE AGREEMENTS, THE DEPAR TMENTS CIRCULAR NO. 9 OF 1943 DATED MARCH 23, 1943, PROVIDES, INTER ALIA, TH AT WHERE, UNDER THE TERMS OF THE AGREEMENT THE EQUIPMENT SHALL EVENTUALLY BECOME THE PROPERTY OF THE HIRER OR CONFER ON THE HIRER AN OPTION TO PURCHASE THE EQUIP MENT, THE TRANSACTION SHOULD BE REGARDED AS ONE OF HIRE PURCHASE. IN SUCH CASES, THE PERIODICAL PAYMENTS MADE BY THE HIRER SHOULD, FOR TAX PURPOSES, BE REGARDED AS MADE UP OF (1) CONSIDERATION FOR HIRE TO BE ALLOWED AS A DEDUCTION IN THE ASSESS MENT AND ; (2) PAYMENT ON ACCOUNT OF PURCHASE TO BE TREATED AS CAPITAL OUTLAY , DEPRECIATION BEING ALLOWED TO THE LESSEE ON THE INITIAL VALUE. IN THE CASE, HOWEV ER, OF HIRE OF MACHINERY, THE OWNER IS ENTITLED TO DEPRECIATION. IN THIS CONNECTION, A REFERENCE MAY ALSO BE MADE TO K. L. JOHAR AND CO. V. DEPUTY COMMERCIAL TAX OFFICER, [1965] 16 STC 213 ; AIR 196 5 SC 1082, AT PAGE 1090, WHERE THIS COURT, WHILE EXAMINING A HIRE PURCHASE A GREEMENT, POINTED OUT THAT SUCH AN AGREEMENT HAS TWO ELEMENTS ; (1) ELEMENT OF BAILMENT, AND (2) ELEMENT OF SALE IN THE SENSE THAT IT CONTEMPLATES AN EVENTUAL SALE. IN THE ABSENCE OF ANY ELEMENT OF SALE IN THE PRESENT CASE, WE DO NOT SEE ANY REASON FOR TREATING THE AGREEMENT AS TRANSFER OR DISALLOWING THE GRANT OF INVESTMENT ALLOWANCE, WHEN THE ASSESSEE COMPLIES WITH THE REQUIREMENTS OF SECT ION 32A. SECTION 32A IS A BENEFICIAL PROVISION IN A TAXING STATUTE. FULL EFFE CT, THEREFORE, REQUIRES TO BE GIVEN TO THE LANGUAGE USED IN SECTION 32A. AS OBSERVED BY THIS COURT IN C. A. ABRAHAM V. ITO [1961] 41 ITR 425, 431 ; AIR 1961 SC 609, 612, IN INTERPRETING A FISC AL STATUTE, THE COURT CANNOT PROCEED TO MAKE GOOD DEFI CIENCIES IF THERE BE ANY ; THE COURT MUST INTERPRET THE STATUTE AS IT STANDS AND I N THE CASE OF DOUBT IN A MANNER FAVOURABLE TO THE TAXPAYER. IN THE PRESENT CASE, TH E LANGUAGE OF SECTION 32A COVERS LEASING OR FINANCE COMPANIES WHICH GIVE THE MACHINERY ON HIRE AS IN THE PRESENT CASE. 7 ITA NO.390/K/2012 M/S. SHREE DURGA AGENCIES LTD. AY 1996-97 SIMILARLY, HONBLE GUJARAT HIGH COURT IN THE CASE O F CIT VS. PINNACLE FINANCE LTD. (2004) 268 ITR 395 (GUJ) HAS HELD AS UNDER: ONCE A LEASING OR FINANCE COMPANY, WHICH OWNS MACH INERY AND LEASES IT TO THIRD PARTY, IS FOUND TO HAVE SATISFIED THE OTHER REQUIRE MENTS OF THE PROVISION, IT WOULD BE ENTITLED TO THE DEDUCTION OF DEPRECIATION IN RES PECT OF SUCH MACHINERY OR PLANT. WHERE THE BUSINESS OF THE ASSESSEE CONSISTS OF HIRI NG OUT MACHINERY AND/OR WHERE THE INCOME DERIVED BY THE ASSESSEE FROM THE HIRING OF SUCH MACHINERY IS BUSINESS INCOME, THE ASSESSEE MUST BE CONSIDERED AS HAVING U SED THE MACHINERY FOR THE PURPOSE OF ITS BUSINESS. IN VIEW OF THE ABOVE FACTS OF THE CASE AND THE RATI O LAID DOWN BY HONBLE SUPREME COURT IN THE CASE OF SHAAN FINANCE LTD. LTD. (SUPRA ), THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE AND AGAINST REVENUE. HENCE, WE CONFIRM THE ORDER OF CIT(A) DELETING THE DISALLOWANCE OF DEPRECIATION. WE DISM ISS THE APPEAL OF REVENUE. 6. IN THE RESULT, APPEAL OF REVENUE IS DISMISSED. 7. ORDER IS PRONOUNCED IN THE OPEN COURT ON 11.08.2 014. SD/- SD/- , ! , (SHAMIM YAHYA ) (MAHAVIR SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 11TH AUGUST, 2014 ,- #./ 0 JD.(SR.P.S.) 1 *2 3 2%4- COPY OF THE ORDER FORWARDED TO: 1 . () / APPELLANT DCIT, CIRCLE-7, KOLKATA. 2 *+() / RESPONDENT M/S. SHREE DURGA AGENCIES LTD., SHAN TINEKATAN, 15 TH FLOOR, 8, CAMAC STREET, KOLKATA-700 017 3 . # ( )/ THE CIT(A), KOLKATA 4. 5. # / CIT KOLKATA 2:; *# / DR, KOLKATA BENCHES, KOLKATA +2 */ TRUE COPY, #