Commissioner Of Income Tax-Ichennai v. M/S. Ashok Leyland Ltd.,19, Rajaji Salaipost Bag

IN THE HIGH COURT OF JUDICATURE AT MADRAS CORAM THE HONOURABLE MR. JUSTICE K. RAVIRAJA PANDIANANDTHE HONOURABLE MRS. JUSTICE CHITRA VENKATARAMAN ANDM.P.NO.2 OF 2007 Commissioner of Income Tax-IChennai. ... Appellant in both the Tax Cases Vs. M/s. Ashok Leyland Ltd.,19, Rajaji SalaiPost Bag No.5073Chennai – 600 001. ... Respondent in both the Tax Cases. Tax Cases (Appeals) filed under Section 260A of the Income Tax Actagainst the order of the Income Tax Appellate Tribunal Madras 'A' Benchdated 13[th] January, 2006 made in I.T.A.Nos.1774/Mds/1999 & 362/Mds/2003 forthe assessment years 1996-1997 and 1998-1999 against the (1) order of theCommissioner of Income tax(Appeals)III Chennai-34 in ITA.No.TR 139/2001-02/A-III date of order of the commissioner of Income Tax (Appelas) IIIChennai-34, in ITA.No. TR 447/2001-2002/A-III date of order 2.12.2002 (inTC 1204/04 against the (1) Order of the Deputy Commissioner of Income TaxCompany Circle -I (1) Chennai-34 in PA/GIR.No. AXI-001 date of order31.3.2003 (in TC 1203/07) (2) the order of the Joint Commissioner ofIncome Tax Special Range -II Chennai-34 in PAN.No./GIR-No AAACA 4651L/18Adate of order 29.3.2001 (in TC 1204 of 2007) For Appellant : Mr. J. Naresh KumarCOMMON JUDGMENT (Judgment of the Court was delivered by K. Raviraja Pandian, J. The relevant assessment years are 1996-1997 and 1998-1999. Thefacts of the case as culled out from the statement of facts are asfollows:- https://hcservices.ecourts.gov.in/hcservices/ The assessee was engaged in the business of manufacture of lightand heavy commercial vehicle chassis. In the assessment years 1996-1997and 1998-1999, certain vehicles claimed to have been leased out to MSRTCby the assessee were held to be actually sales. Accordingly, the AssessingOfficer disallowed the depreciation claimed by the assessee on thosevehicles and the lease rentals offered to tax were deducted from theincome. The Assessing Officer further disallowed the claim of the assesseein respect of the excise duty and saleS tax receipts which the assesseehad excluded in the total turnover for the purpose of calculation ofdeduction under Section 80HHC of the Income Tax Act, 1961. On appeal, theCommissioner of Income Tax (Appeals) disallowed the claims of the assesseeon the ground that the depreciation was not allowable on the assets leasedto MRTC. The exclusion of excise duty and sales tax from total turnoverfor 80HHC relief is not permissible. The assessee filed an appeal beforethe Income Tax Appellate Tribunal. The Tribunal held in favour of theassessee. The revenue filed an appeal aggrieved by the order of theTribunal. 2. The present appeals are filed by the Revenue by formulatingthe following Substantial Questions of Law:- i) Whether, in the facts and circumstances of the case,the Tribunal was right in holding that the assessee iseligible for benefit of depreciation on assets which weresold to the Transport Corporation though the transactionwas termed as a "lease" ?ii) Whether, in the facts and circumstances of the case,the Tribunal was right in holding that excise duty willform part of the total turnover for the purpose ofcalculation of Section 80HHC ? 3. Learned counsel for the Revenue fairly submits that the firstquestion of law formulated had been decided by the Court in favour of theassessee, in an identical set of facts in T.C.Nos.173 and 174 of 2003,dated 19.2.2007 and in the light of the said decision, the issue has tobe decided against the Revenue. 4. The said decision dated 19.2.2007 was rendered in assessee'sown case, wherein the Division Bench after taking note of the agreementobserved thus: 3. Learned counsel for the Revenue fairly submits that the firstquestion of law formulated had been decided by the Court in favour of theassessee, in an identical set of facts in T.C.Nos.173 and 174 of 2003,dated 19.2.2007 and in the light of the said decision, the issue has tobe decided against the Revenue. 4. The said decision dated 19.2.2007 was rendered in assessee'sown case, wherein the Division Bench after taking note of the agreementobserved thus: " .... A reading of the document would clearly show thatthe parties were clear as to what they intended to do. The factthat the lessee had paid more than 90% of the cost of leaserental by way of meeting the expenditure, 90% of the securitydeposit going in for adjustment towards lease rentals does notby itself convert otherwise a lease transaction into sale. Asrightly submitted by the learned counsel for the assessee, thelease transaction was with the Government Agency, and theregistration certificate clearly showed that the vehicles wereunder lease. Clause 3 of the agreement speaks about the title 4. The said decision dated 19.2.2007 was rendered in assessee'sown case, wherein the Division Bench after taking note of the agreementobserved thus: " .... A reading of the document would clearly show thatthe parties were clear as to what they intended to do. The factthat the lessee had paid more than 90% of the cost of leaserental by way of meeting the expenditure, 90% of the securitydeposit going in for adjustment towards lease rentals does notby itself convert otherwise a lease transaction into sale. Asrightly submitted by the learned counsel for the assessee, thelease transaction was with the Government Agency, and theregistration certificate clearly showed that the vehicles wereunder lease. Clause 3 of the agreement speaks about the title to the vehicle, which showed that the assessee/lessor hadexclusive right over the property, namely, the subject matterof lease. The lessee had also expressed that during thecurrency of the lease agreement, it would not include theleased assets as fixed assets in its books of accounts,capitalize the leased assets, since the parties agreed that theownership of the asset during the lease tenure undisputedlyrested only with the lessor/assessee. It is also seen that inthe event of total damage to the vehicles, the lessee wouldhave to forego the deposit standing to its credit with thelessor. On the termination of lease, by efflux of time at theend of 9 years, the lessee shall deliver the vehicle to thelessor, unless the parties agreed for renewal of the lease. Inthe background of these facts, and considering the fact thatthe sales tax assessment was made on the basis of deemed salein the nature of right to use the vehicles under the provisionsof the Maharashtra Sales Tax Act, we do not find anyjustification in the submission made by the learned seniorstanding counsel, that the transaction could be viewed as asale. The fact that the assessee paid 90% of the value by wayof fixed deposit is a matter of agreement between the partiesand the same cannot be read in isolation without reference tothe other clauses in the agreement. Consequently, the paymentof 90% of the value, per se, does not make the transaction asale, read in the context of the various clauses showing theeffective ownership of the assets still lying with them. Inthe context of the factual findings, we do not find any meritin the appeal preferred by the Revenue. In the circumstances,this question is answered against the Revenue." Following the same, the first question of law framed is decided againstthe Revenue. The second question of law, "whether the excise duty willform part of the total turnover for the purpose of calculation of Section80HHC" has been considered by the Supreme Court in the case reported in290 ITR 667 (Commissioner of Income Tax vs. Lakshmi Machine Works),wherein it was held that Section 80HHC of the Income-tax Act, 1961, is abeneficial section. It was intended to provide incentive to promoteexports. The intention was to exempt profits relatable to exports. Just ascommission received by the assessee is relatable to exports and yet itcannot form part of "turnover" for the purposes of section 80HHC, exciseduty and sales tax also cannot form part of "turnover". Just as interest,commission, etc., do not emanate from the "turnover" so also excise dutyand sales tax do not emanate from such turnover. Since excise duty andsales tax did not involve any such turnover such taxes had to be excluded.Commission, interest, rent, etc., do yield profits, but they do notpartake of the character of turnover and therefore they are not includiblein the "total turnover". If so, excise duty and sales tax also cannot formpart of the "total turnover" under section 80HHC(3). 5. As the questions of law have already been decided against theRevenue, and no question of law is now left out to be decided, these taxcase appeals are dismissed. Consequently, connected miscellaneous petitionis also dismissed. No costs.kb Sd/ Asst. Registrar /true copy/ Sub Asst.Registrar 1. THE ASSISTANT REGISTRARINCOME TAX APPELLANTE TRIBUNAL, MADRAS A BENCH, SHASTRI BHAVAN, MADRAS -034. 2. THE COMMISSIONER OF INCOME TAX, CHENNAI 3. THE COMMISSIONER OF INCOME TAX(APPEALS-III) CHENNAI-34. 4. TEH DEPUTY COMMISSIONER OFINCOME TAX, COMPANY CIRCLE -I(I), CHENNAI-34. 5. THE JOINT COMMISSIONER OFINCOME TAX, SPECIAL RANGE-II, CHENNAI-34. + One cc to M/s Pusya Sitaraman, Advocate sR 54914MRD (co)sg 20/9/07 T.C.(A)Nos.1203 & 1204 of 200703.09.2007