Commissioner Of Income Tax,Chennai v. Shriram Chits & Investments P. Ltd.,1 Club House Rd, Mount Road,Chennai-600 002

IN THE HIGH COURT OF JUDICATURE AT MADRAS CORAM THE HONOURABLE MR.JUSTICE T.S.SIVAGNANAMand THE HONOURABLE MRS.JUSTICE V.BHAVANI SUBBAROYAN Tax Case (Appeal) No.1079:- Commissioner of Income Tax,Chennai...Appellant in all -vs- Shriram Chits & Investments P. Ltd.,1 Club House Rd, Mount Road,Chennai-600 002. .. Respondent in all Tax Case (Appeal) filed under Section 260A of the Income-tax Act, 1961 against the common order of the Income TaxAppellate Tribunal Madras 'B' Bench, dated 28.09.2006 inI.T.A.No.1713/Mds/1999, ITA No.1713/MDS/2000, ITA No.480/MDS/02ITA.No.1575/MDS/2004,ITA.No.1212/MDS/1999, ITA.No.1716/MDS/2000,ITA.No.481/MDS/02 Respectively. Appeal against the order of theCommissioner of Income Tax (Appeals in ITA No.738/01-02 dated30.03.2004 against the order of the Commissioner of Income TaxAppeals in ITA.No.532/2001-02 dated 16.01.2002 against theassessment order for the year 1998-99 dated 30.03.2001 againstthe assessment order for the year 1997-98 dated 9.03.2000against the order of Commissioner of Income Tax (Appeals) inITA.165/99-2000/JCIT-SR-X dated 30.5.1999 against the Assismentorder for Asst. Year 1996-97 dated 30.03.1999. For Appellant:Mr.T.R.Senthil Kumar,Senior Standing counsel for Income Tax Department:assisted by Mr.S.Rajesh,Senior Standing counsel for Income Tax Department For Respondent : https://hcservices.ecourts.gov.in/hcservices/ COMMON JUDGMENT [Delivered by T.S.Sivagnanam, J.] These tax case appeals are directed against the common orderpassed by the Income Tax Appellate Tribunal, Madras 'B' Bench,dated 28.09.2006 in I.T.A.Nos.1173/Mds/1999, 1713/Mds/2000,1575/Mds/2004, 480/Mds/2002, 1212/Mds/1999, 1716/Mds/2000 and481/Mds/2002 . These appeals are by the Revenue and they havebeen admitted on the following substantial questions of law:- “(i) Whether, in the facts and circumstances ofthe case, the Tribunal was right in holding that theassessee is eligible for depreciation on the truckswithout any finding of fact that it is the owner ofsuch trucks? (ii) Whether, in the facts and circumstances ofthe case, the Tribunal was right in holding that thecarry forward business losses can be set off againstdividend income? (iii) Whether, in the facts and circumstances ofthe case and in view of the decision of the SupremeCourt in the case of Sriram Chits & Investments P.Ltd. vs. Union of India (AIR 1993 SC 2063) that Chitfund is not a money lending business, the Tribunalwas right in treating moneys not paid by the prizechit winners as “bad debts”? (iv) Whether there is a relationship of creditorand debtor between the assessee and the subscribersto the chit to warrant the treatment of default inpayment by them as “bad debt”?” 2.Mr.R.Sivaraman, learned counsel appearing for the assesseesubmitted that thought the above four substantial questions oflaw have been framed for consideration, all the questions do notarise in all the appeals and he has given an index to issues,which arise in respect of the appeals before us. This is notdisputed by the Revenue. For better appreciation, the same isquoted hereunder:- https://hcservices.ecourts.gov.in/hcservices/ (iv) Whether there is a relationship of creditorand debtor between the assessee and the subscribersto the chit to warrant the treatment of default inpayment by them as “bad debt”?” 2.Mr.R.Sivaraman, learned counsel appearing for the assesseesubmitted that thought the above four substantial questions oflaw have been framed for consideration, all the questions do notarise in all the appeals and he has given an index to issues,which arise in respect of the appeals before us. This is notdisputed by the Revenue. For better appreciation, the same isquoted hereunder:- https://hcservices.ecourts.gov.in/hcservices/ Question ofITAAssessmenTC(A)RemarksLawNos.t Year Nos.1173/191996-971079/2099071.Lease1997-98This issue does notPortfolio1713/201080/20arise in the TC(A)Management001998-9907Nos.1209, 1210, 1211 ofSystem2007480/2001998-991081/202071575/201082/200407This issue does notariseinTC(A)Nos.1079, 1081, 1082,2.Carry1209, 1210, 1211 offorward2007.business1713/201997-981080/20loss can be0007Coveredbythesetoffassessee's own case inagainstTC(A) Nos.2657 of 2006Dividendand 1017, 1018 of 2007IncomeagainsttheITANos.550, 551 and 552 of1997 dated 17.09.2014before the Hon'ble HighCourt of MadrasCoveredbythe1173/191996-971079/20assessee's own case in9907TC(A) Nos.1528, 1529 of3. Bad debts1997-982005 and 1142 of 20061713/201080/20dated 22.08.2012 before001998-9907the Hon'ble High Courtof Madras and in TC(A)480/2001081/20Nos.615 and 616 of 2008207dated 19.12.2012 beforethe High Court ofMadras. 3.The Revenue does not dispute the above submission made by the learned counsel for the assessee. Thus, we propose todecide the substantial questions of law, which arise forconsideration in each of the appeals vis-a-vis the relevantassessment years. 4.First we take up the issue with regard to “bad debts”.This issue arises in all the assessment years. 5.The learned counsel for the assessee submitted that thisissue is squarely covered in the assessee's own case inCommissioner of Income Tax vs. M/s.Shriram Chits & InvestmentsLtd. in Tax Case (Appeal) Nos.996 to 998 of 2005 dated03.04.2012. The Revenue does not dispute the said proposition.The operative portions of the judgment read as follows:-“9.In order to decide on the rival contentionsmade, it is necessary to get into the decision ofthe Apex Court reported in AIR 1993 SC 2063(Shriram Chits & Investments (P) Ltd. Vs. Union ofIndia & others), a decision which dealt with thevires of the Chit Funds Act. 4.First we take up the issue with regard to “bad debts”.This issue arises in all the assessment years. 5.The learned counsel for the assessee submitted that thisissue is squarely covered in the assessee's own case inCommissioner of Income Tax vs. M/s.Shriram Chits & InvestmentsLtd. in Tax Case (Appeal) Nos.996 to 998 of 2005 dated03.04.2012. The Revenue does not dispute the said proposition.The operative portions of the judgment read as follows:-“9.In order to decide on the rival contentionsmade, it is necessary to get into the decision ofthe Apex Court reported in AIR 1993 SC 2063(Shriram Chits & Investments (P) Ltd. Vs. Union ofIndia & others), a decision which dealt with thevires of the Chit Funds Act. 10.The present assessee company, apart fromsimilarly placed chit companies, challenged thevalidity of the Chit Funds Act, that the regulatorymeasures over the business of the chit companieswere in violation of Article 19(1) (g) of theConstitution of India. While upholding theprovision of the Chit Funds Act, in the decisionreported in AIR 1993 SC 2063 (Shriram Chits &Investments (P) Ltd. Vs. Union of India & others),the Apex Court pointed out that the dominantpurpose of the Act is to regulate the chit, controlthe activity of the foreman and protect theinterests of the subscribers. The Apex Courtfurther pointed out that the pith and substance ofthe Act was to deal with special contract andconsequently, it fell within Entry 7 of List III ofthe Third Schedule to the Constitution. Inparagraph 13 of the judgment of the Apex Court, itpointed out that Section 6 of the Act specificallyrefers to chit agreement to be entered into betweenthe subscribers and the foreman. The Act providedfor, how the contract has to be implemented andacted upon between the parties to the contract andthat it could not be treated as a money lendingbusiness. The agreement entered into as per Section6 provides for distribution of the chit amount. Theforeman brings the subscribers together. The Actprovides for payment of commission for the servicesrendered by the foreman and the foreman does notlend any money belonging to him. The foreman isresponsible for regular collection of subscriptionsfrom a widely scattered body of members. He has toconduct the draws or the auction and maintainaccounts. He is under obligation to pay the prizeamount on the due date whether or not all themembers have paid their subscriptions. In case ofdefaults, he had often to make good the deficit outof his own resources. If the prized member defaults in his instalments, litigation follows to recoverthe amount. If the defaulter is a non-prizedmember, the foreman has to find out a suitablesubstitute or, in the alternative, has to take overthe chit himself and continue the business. Notingthe obligation of the foreman, the Apex Courtpointed out, that the dominant purpose of the Actbeing to regulate the chit, control the activity ofthe foreman and protect the interest of thesubscribers, the legislature had brought in thisspecial kind of contract. Thus holding that theprovisions of the Act are regulatory in nature, theApex Court further pointed out that the Act intendsto avoid fraud played on the subscribers bydelaying the payment. Dealing with the nature ofchit agreement, the Apex Court referred to thedecision of the Kerala High Court reported in AIR1983 Ker 178 (FB) (Janardhana Mallan Vs.Gangadaran), holding that the chit transaction isnot a money lending transaction within the meaningof Money Lenders Act and there is no creditor anddebtor relationship, for the purpose of it beingtreated as a money landing transaction. 11.Keeping this declaration of law, when welook into the provisions of the Chit Funds Act, onemay note the obligation of the foreman,particularly as given under Section 21. Whileenumerating the rights of the foreman, the Act alsotakes care to impose an obligation on the foremanto do all acts which may be necessary for the dueand proper conduct of the chit under sub clause (f)which empowers the foreman to substitute“subscriber” in the place of “defaultingsubscriber”. As far as the duties of the foremanas enumerated under Section 22(2) of the Act isconcerned, the Act stipulates that in the event ofdefault by a prized subscriber, in respect of theprize amount due in respect of any draw remainingunpaid until the date of the next succeedinginstallment, the foreman shall deposit the prizeamount in a separate account in an approved bankmention in the chit agreement. The Act alsoprovides that where the prize subscriber does notcollect the prize amount in respect of anyinstalment of a chit within a period of two monthsfrom the date of the draw, it shall be open to theforeman to hold another draw in respect of suchinstalment. The Section also provides that theforeman may appropriate to himself the interest accruing on the amount deposited under the secondproviso to sub-section (1), for which he isentitled. 12. As far as the balance sheet of the companyis concerned, Section 24 enumerates what isrequired to be stated in the balance sheet. TheRules therein provide for the format of the balancesheet. A reading of the schedule, as against theassets side, shows loans and advances tosubscribers as well as the liabilities as relatableto non-prized subscribers. The assets side alsocontains receipt of interest and such other amountwhich can be transferred to fall under the captionof assets. In terms of the provisions thusprescribed in Section 24, the balance sheet andprofit and loss account clearly showed the amountintimated by the company as against the defaultcommitted by the chit holders and the balance sheetwas also audited by the Chartered Accountantqualified to act as Auditor under the CompaniesAct. In the context of the payment thus made, thequestion that arises herein is as to whether theactivity of the assessee could be termed as fallingunder the status of a creditor that on the debtamount advanced, the same could be characterised asa debt for the purpose of treating it under Section36(2) of the Chit Funds Act.13. It is a settled position of law as held in[2010] 323 ITR 397 (SC) (TRF Limited vs.Commissioner of Income Tax) that after theamendment to Section 36(1)(vii) of the Income TaxAct, with effect from 01.04.1989, it is notnecessary for an assessee to establish that thedebt, in fact, has become irrecoverable and that itis enough if the bad debt is written off asirrecoverable in the accounts of the assessee. Inthe context of the different stand taken by therevenue in the year and the consideration incontradistinction to the earlier years, the termsof the claim of the assessee in earlier yearsassume significance.14. It is not denied by the Revenue that inrespect of the earlier years 1990-91 and 1991-92,the claim of the assessee for deduction as a baddebt was allowed and in the appeal preferred by theRevenue before the Tribunal, the Tribunal referredto the clarification issued by the Board inF.No.169/21/78/21/78-IT(80) dated 16[th] May 1997,which reads as follows:- “(a) If any person organises ChitFunds and for this purposes brings themembers together, administers the ChitFunds and thereby earns commission, etc.,profits made by such a person is incomefrom business and if for any specialreason there is loss then it is businessloss. Normally there should be no loss tothe organiser unless he takes over theliability of some of the members. In sucha case the unrecovered amount due fromsuch members will have to be treated asbad debts and the test to be adopted inusual business assessment for theallowance of bad debts would be applicablein such cases also. (b) In the hands of the subscribers,a few will be receiving more than whatthey have subscribed. This extra amountis in the nature of interest and as such,taxable. Members who take the moneyearlier from the chit will necessarilyhave to contribute more which means thatthey incur loss, which is nothing butinterest paid for moneys taken in advance.The claim of such a loss will have to beconsidered for the purpose of allowanceaccording to the provisions of the Actdepending upon how the money was utilisedby the subscriber.” 15. The subsequent clarification issued on25.03.1992, which had been extracted in the orderof the Tribunal relating to the assessment years1990-91 and 1991-92, merits to be extractedhereunder:- “Government of IndiaMinistry of FinanceDepartment of RevenueCentral Board of Direct Taxes 25[th] March 1992 The Chief Commissioner of Income tax IINew Delhi. Sir,Subject : CBDT Instruction No.1175dated May 16, 1973 Liability to–assessmentProfitsmadeby subscriber of chit funds – Questionregarding 1.I am directed to refer to yourLetter F.No.66(II)/HO/Proposal undersection 263/91-92/4101, dated November15, 1991 on the above mentionedsubject. 2. The issues raised by you havebeen carefully examined by the Board.In this regard, I am directed to say,that Board are of the view thatInstructionNo.1175issuedinconsultation with M.O.L. cannot bewithdrawn on the basis of decision ofPunjab & Haryana High Court in case ofsoda Silicate & Chemical Works(supra). The Board's Instructionstands. 3. Regarding proceedings underSection 263 pending before the Commissioner of Income-tax Delhi-II,New Delhi,Board cannot issue anydirections. Thanking you,Yours faithfullysd/- Under Secretary of theGovernment of India” 16. Having regard to the specific observationof treating the unrecovered amount of thesubscriber and the debts as bad debts, the Tribunalallowed the case of the assessee that the claim wasto be construed as a bad debt, allowable asdeduction under Section 36. In the background ofthe above facts, although we are inclined todismiss the Revenue's appeal, the decision taken bythe Commissioner of Income Tax (Appeals) in respectof the above-said claim merits to be noted herein. 17. A perusal of the order of the Commissionerof Income Tax (Appeals) shows as regards theresponsibility of the Foreman as listed under theChit Funds Act. It is admitted by the partiesherein that having regard to the obligation underthe Chit Funds Act, the assessee had to pump in itsown money for the purpose of ensuring that the chitcycle goes on as promised. It is an admitted factthat in respect of shortfall due to non-payment, https://hcservices.ecourts.gov.in/hcservices/ 17. A perusal of the order of the Commissionerof Income Tax (Appeals) shows as regards theresponsibility of the Foreman as listed under theChit Funds Act. It is admitted by the partiesherein that having regard to the obligation underthe Chit Funds Act, the assessee had to pump in itsown money for the purpose of ensuring that the chitcycle goes on as promised. It is an admitted factthat in respect of shortfall due to non-payment, https://hcservices.ecourts.gov.in/hcservices/ the company brought in its own money which wasutilised for running the chit business and this didnot stand in the way of the statutory obligation ofthe foreman on getting the chit cycles move on asbefore. Thus with statutory obligation imposed andwell in compliance of the said obligation, that thecompany had to pay its own money to have thesuccessful chit circulated as before, as pointedout by the Apex Court, if there is an obligationunder a special contract between the defaulted chitholder and the company, even if the amount due isnot treated as a debt within the meaning of theMoney Lenders Act, yet, the contract gives rise toa relationship of a creditor and debtor. Thus, theCommissioner of Income Tax (Appeals) having goneinto the requirement of the provisions under theChit Funds Act, held that the advancement of themoney is part and parcel of the business, thusgiving rise to a situation that when the defaulterdid not make the payment to the company, thecompany had to claim it as a bad debt for thepurpose of deduction under Section 36. 18. It may be of relevance herein to note thatwhile considering the said claim, the Commissionerof Income Tax (Appeals) pointed out that havingregard to the nature of payment made, the claim hasto be considered as intimately connected with thebusiness, resulting as a case of a bad debt.Hence, apart from Section 36, the same merited tobe considered as falling under Sections 28 and 37in the business expenditure resulting in a loss.As already pointed out, when the Revenue went onappeal as against the view of the Commissioner ofIncome Tax (Appeals) challenging that it wouldamount to a bad debt, apparently, no claim was madeon the side of the Revenue to dispute the view ofthe Commissioner of Income Tax (Appeals) that theclaim might also fall under the head of businessloss under Section 28. thus, when the Tribunalrejected the Revenue's appeal, it clearly pointedout that it confirmed the view of the Commissionerof Income Tax (Appeals) as stated above that theclaim is allowable not only as a bad debt, butcould also be considered as a case of business lossunder Section 28. The question raised before thisCourt thus is relatable to one part of theTribunal's order as to whether the defaulted amountpaid by the assessee could be treated as a baddebt. 19. It is not denied by the Revenue that thepayment made in the course of the business hadresulted in a loss of the chit amount which is alsoallowable under Section 28. Given the above-saidfact, we have no hesitation in rejecting theRevenue's appeal on this question. 19. It is not denied by the Revenue that thepayment made in the course of the business hadresulted in a loss of the chit amount which is alsoallowable under Section 28. Given the above-saidfact, we have no hesitation in rejecting theRevenue's appeal on this question. 20. Learned counsel appearing for the Revenuebrought to our attention the decision of the BombayHigh Court dated 28.02.2012 in T.C.No.89 of 2011,wherein, the Bombay High Court had an occasion toconsider the money paid by the stock broker on thedefault committed by its client. The Bombay HighCourt held that the liability to pay the brokeragemay arise at a point of time anterior to theliability to pay the value of the sharestransacted. Nevertheless, it would constitute partof the debt that arises on the same transactioninvolving the sale or purchase of shares. Sincethe transactions are part of the same transactionand since both form a component or part of thedebt, the requirement of Section 36(2)(i) arefulfilled and the assessee is entitled to treat itas a bad debt. Extending the same logic to thepresent case herein, going by the obligation of theforeman arising under Sections 21 and 22 of theChit Fund Act to make good the default to thesuccessful bidder on the subsequent daytransaction, the claim was rightly considered bythe Tribunal as one allowable under Section 36 ofthe Act.21. As far as the reliance placed on thedecision reported in [2010] 328 ITR 342(Commissioner of Income Tax vs. Sahib Chits (Delhi)(P) Ltd.) is concerned, we do not find that theRevenue could draw any assistance from the saiddecision, since the said decision relates to atotally different situation. A perusal of theabove judgment of the Delhi High Court shows thatit is more on the question of discount allotted tothe members of the chit in the prized chitdisbursed by the various members and the successfulbidder being given the contribution made. Thus thedistribution was not made out of any money borrowedby the assessee to result in a debt for consideringthe same as deduction at source. 22. As far as the decision reported in [1998]229 ITR 727 (Suman Saving and Investments Pvt. Ltd.vs. CIT) is concerned, the same also is not of anyrelevance to the case herein, considering theamendment to Section 36 and the nature of business of the assessee herein on the admitted positionthat when the Department had not agitated the issuefurther in respect of assessment years 1990-91 and1991-92 and the situation herein is no differentfrom that of the earlier orders, we have nohesitation in confirming the order of the Tribunal,thereby dismissing the Revenue's appeal.In the result, the Tax Case Appeals standdismissed. No costs.” 6.Accordingly, 3[rd] and 4[th] substantial questions of law,which arise in all the cases, are answered against the Revenueand in favour of the assessee. 7.The next substantial question of law, which is taken upfor consideration is whether in the facts and circumstances, theTribunal was right in holding that carry forward business lossescan be set off against dividend income? 8.As mentioned above, this issue arises only in one of theassessment years, viz., 1997-98, which is subject matter ofappeal in T.C.(A) No.1080 of 2007. 9.We have perused the order passed by the Tribunal and inparagraph 7 in page 9 of the order passed by the Income TaxAppellate Tribunal (ITAT), this issue has been considered. TheTribunal pointed out that this issue has been considered by theTribunal in the assessee's own case for the earlier years andquoted that portion of the order. However, we find that this isnot the assessee's own case, but the assessee's sister concern,viz., Shriram Investments (firm). The appeals beingI.T.A.Nos.550 to 552/Mds/1997 for the assessment years 1992-93to 1994-95. 8.As mentioned above, this issue arises only in one of theassessment years, viz., 1997-98, which is subject matter ofappeal in T.C.(A) No.1080 of 2007. 9.We have perused the order passed by the Tribunal and inparagraph 7 in page 9 of the order passed by the Income TaxAppellate Tribunal (ITAT), this issue has been considered. TheTribunal pointed out that this issue has been considered by theTribunal in the assessee's own case for the earlier years andquoted that portion of the order. However, we find that this isnot the assessee's own case, but the assessee's sister concern,viz., Shriram Investments (firm). The appeals beingI.T.A.Nos.550 to 552/Mds/1997 for the assessment years 1992-93to 1994-95. 10.It is not in dispute that the transaction was identicaland the Tribunal considered the submissions and held that theassessee's plea that the investments were business investmentsand the interest on borrowings made for these investments haveto be allowed under the head 'business income'. The Tribunalwhile rendering such a finding of fact, took note of the legalprinciple laid down in (i) United Commercial Bank vs. Commissioner of Income Taxreported in 32 ITR 688;(ii) Commissioner of Income Tax vs. Cocanada Radhaswami BankLimited reported in 57 ITR 306; (iii) Assistant Commissioner of Income Tax vs. Laxmi AgentsPrivate Limited reported in 125 ITR 227; and(iv) Commissioner of Income Tax vs. Rajeeva Lochan Kanoriareported in 208 ITR 616, https://hcservices.ecourts.gov.in/hcservices/ wherein, it was held that, if in substance investments arebusiness investments, the interest on borrowings made for thoseinvestments have to be allowed irrespective of the fact thatincome from dividend has to be assessed under a separate head. 11.The Revenue did not dispute that the transaction wasidentical, neither before the Tribunal nor before us.Therefore, the case on hand stands covered by the decision ofthe Tribunal in the assessee's sister concern [ShriramInvestments (firm)]. 12.The Revenue preferred tax case (appeals) against the saidorder of the Tribunal in T.C.(A) Nos.2657 of 2006 and 1017 and1018 of 2007, which were dismissed by judgment dated 17.09.2014.Thus, the question has to be answered in favour of the assesseeand against the Revenue. Accordingly, 2[nd] substantial questionof law is answered in favour of the assessee and against theRevenue. 13.The next question to be considered is whether theTribunal was right in holding that the assessee is eligible fordepreciation on the trucks without any finding of the fact thatit is the owner of such trucks. 12.The Revenue preferred tax case (appeals) against the saidorder of the Tribunal in T.C.(A) Nos.2657 of 2006 and 1017 and1018 of 2007, which were dismissed by judgment dated 17.09.2014.Thus, the question has to be answered in favour of the assesseeand against the Revenue. Accordingly, 2[nd] substantial questionof law is answered in favour of the assessee and against theRevenue. 13.The next question to be considered is whether theTribunal was right in holding that the assessee is eligible fordepreciation on the trucks without any finding of the fact thatit is the owner of such trucks. 14.We have perused the order of the Tribunal from which, itis seen that the Tribunal has examined the factual position.After perusing the records, the Tribunal has given its findingsin paragraph 11 of the impugned order wherein, it has beenpointed out that the Tribunal has gone through the copies of thesub-lease agreement, the relevant purchase bills for thevehicles and other connected papers from which, it can be seenthat the dealers of the vehicles have sold the vehicles to theBank of Madura Ltd. only and thus, they are the absolute ownersof the vehicles. Further, the Registration Certificate not onlyshows the existence of the vehicles, but their leasing also.Thus, the Tribunal concluded that the RC books, which wereissued by the State Government, establish the existence of thevehicles and that the vehicles are registered in various Statesand therefore, held that it is wrong on the part of theAssessing Officer as well as the Commissioner of Income Tax(Appeals) to hold that no assets are involved in the leasetransaction. Thus, on appreciation of the factual position, theTribunal observed that the assets are purchased from variouscompanies and the clients are not taking the assets on leasewhereas, various individual persons or organizations haveundertaken the sub-lease from the assessee company. Afteranalyzing the factual position, the Tribunal allowed thedepreciation on Lease Port Folio Management System andaccordingly, the assessee succeeded. 15.The learned counsel appearing for the assessee submittedthat first substantial question of law, which has been framedfor consideration may be answered in favour of the assessee, asthe factual position has been clearly spelt out by the Tribunal.Apart from the said fact, in the decision of the Hon'ble SupremeCourt in the case of I.C.D.S. Ltd. vs. Commissioner of Income-tax reported in [2013] 350 ITR 527 (SC), identical facts arosefor consideration and the Court held that since the assessee isthe owner of the vehicle, it has used the asset in the course ofbusiness, thus, satisfying both the regulations and Section 32of the Act and hence, entitled to claim depreciation in respectof addition made to the trucks, which were leased out.Therefore, it is submitted that the said question of law has tobe answered in favour of the assessee. 16.The learned Senior Standing Counsel appearing for theRevenue on instructions would submit that the decision in thecase of I.C.D.S. Ltd. (supra), referred by the assessee wouldsquarely cover the case of the assessee. In the said case, theassessee's company was engaged in the business of hire purchase,leasing and real estate business, etc. It had purchasedvehicles directly from the manufacturers. The assessee, as apart of its business, leased out these vehicles to its customersand thereafter, had no physical affiliation with the vehicles.In fact, lessees were registered as the owners of the vehicles,in the certificate of registration issued under the MotorVehicles Act, 1988. In the return of income, the assesseeclaimed depreciation in relation to the vehicles, which had beenfinanced by the assessee, but registered in the name of thirdparties. The assessee also claimed depreciation at a higherrate on the ground that the vehicles were used in the businessof running on hire. The Assessing Officer disallowed theclaims, both of depreciation and higher rate, on the ground thatthe assessee's use of these vehicles was only by way of leasingout to others and not was actual user of the vehicles in thebusiness of running them on hire and it had merely financed thepurchase of these assets and was neither the owner nor user ofthese assets. The Tribunal agreed with the assessee on both thecounts. The High Court held that in view of the fact that thevehicles were not registered in the name of the assessee, andthat the assessee had only financed the transaction, it couldnot be held to be the owner of the vehicles, and thus, was notentitled to claim depreciation in respect of these vehicles. 17.On appeal before the Hon'ble Supreme Court, it was heldthat Revenue argued that since the lessees were actually usingthe vehicles, they were the ones entitled to claim depreciation,and not the assessee. We are not persuaded to agree with theargument. The Section requires that the assessee must use theasset for the “purposes of business”. It does not mandate usage of the asset by the assessee itself. As long as the asset isutilized for the purpose of business of the assessee, therequirement of Section 32 will stand satisfied, notwithstandingnon-usage of the asset itself by the assessee. In the presentcase before us, the assessee is a leasing company which leasesout trucks that it purchases. Therefore, on a combined readingof Section 2(13) and Section 2(24) of the Act, the incomederived from leasing of the trucks would be business income, orincome derived in the course of business, and has been soassessed. Hence, it fulfills the aforesaid second requirementof Section 32 of the Act viz., that the asset must be used inthe course of business. 18.In the instant case, the Assessing Officer doubted thevery genuineness of the transaction and also as to whether thevehicles were in existence and the assessee had acted only as afinancier. However, for the subsequent year, the details wereverified and it was recorded by the tribunal that the vehicleswere registered in various States and it is wrong on the part ofthe Assessing Officer as well as the Commissioner of Income Tax(Appeals) to hold that no assets are involved in the leasetransaction. We find from the order passed by the Tribunalthat, the Tribunal had gone through the copies of the sub-leaseagreement, the relevant purchase bills for the vehicles andother connected papers including bank documents and registrationcertificate, etc., and rendered such finding. Thus, the issuehas been factually concluded by the tribunal and the case of theassessee is also fully supported by the decision in the case ofI.C.D.S. Ltd. (supra), which decision the Revenue does notdispute. 19.Accordingly, the first substantial question of law isanswered in favour of the assessee and against the Revenue. 20.Thus, for the above reasons, the appeals, filed by theRevenue, are dismissed. No costs. Sd/- Assistant Registrar(CS) //True Copy// Sub Assistant Registrar abr https://hcservices.ecourts.gov.in/hcservices/ To 1.The Commissioner of Income Tax, Chennai. Chennai. 2.The Income Tax Appellate Tribunal Madras 'B' Bench. Madras 'B' Bench. 3.The Commissioner of Income Tax (Appeals)-IV, Chennai. Chennai. + 1 cc to Mr. T.R. Senthilkumar, Advocate Sr.43875+ 1 cc to Mr.S. Rajesh, Advocate Sr.43930+ 1 cc to Mr.R. Siva Raman, Advocate sr.43584 T.C.(A) Nos.1079 to 1082 of 2007and 1209 to 1211 of 2007 KS(CO)EU(30/07/2018)