Haryana Roadways Engg. Corporationlimited, Gurgaon v. Commissioner Of Income Taxrohtak

IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ---- Income Tax Appeal No. 167 of 2002Date of decision: 8.11.2010 Haryana Roadways Engg. CorporationLimited, Gurgaon --- Appellant Versus Commissioner of Income TaxRohtak --- Respondent --- CORAM:HON’BLE MR. JUSTICE ADARSH KUMAR GOELHON’BLE MR. JUSTICE AJAY KUMAR MITTAL---- PRESENT:Mr. Pankaj Jain, Advocate for the appellant. Mr. I.P. Singh, Advocatefor the respondent. ---- AJAY KUMAR MITTAL, J. This order will dispose of Income Tax Appeal Nos. 167and 168 of 2002, 22, 23 and 24 of 2003 as the substantial questionof law is common in all these appeals. The facts have, however,been taken from Income-tax Appeal No. 167 of 2002. This appeal under Section 260A of the Income-tax Act,1961 (for short “the Act’”) has been filed by the assessee against theorder dated 10.8.2001, passed by the Income Tax Appellate Tribunal,Delhi Bench “A”, New Delhi, (in short “the Tribunal”) in ITA Nos.114/DEL/95 and 765/DEL/95, in respect of the assessment year1990-91. The assessee has claimed the following questions for determination by this Court: 1.Whether under the facts and circumstances of the caseand on a true interpretation of the various agreementsand correspondence, the Tribunal is justified under thelaw to hold that the Appellant Corporation is entitled todeduction of Rs. 1000/- per bus for 670 buses, amountingto Rs. 6,70,000/- instead of Rs. 2,000/- per bus claimedas a deduction out of the profits and gains for the A.Y.1990-91 or alternatively to that extent income in the formof sale price does not accrue and arise to the appellant?and on a true interpretation of the various agreementsand correspondence, the Tribunal is justified under thelaw to hold that the Appellant Corporation is entitled todeduction of Rs. 1000/- per bus for 670 buses, amountingto Rs. 6,70,000/- instead of Rs. 2,000/- per bus claimedas a deduction out of the profits and gains for the A.Y.1990-91 or alternatively to that extent income in the formof sale price does not accrue and arise to the appellant?2.Whether under the facts and circumstances of the casethe Tribunal was legally justified in not allowing anamount of Rs. 1,61,749/- as a deduction of the expensesincurred wholly and exclusively for the purpose of thebusiness though pertaining to the earlier years but havingthe Tribunal was legally justified in not allowing anamount of Rs. 1,61,749/- as a deduction of the expensesincurred wholly and exclusively for the purpose of thebusiness though pertaining to the earlier years but having been claimed and admitted in the succeeding year under appeal? 3.Whether under the facts and circumstances of the casethe Tribunal is justified in law in holding that the incomefrom the rent of the canteen in the factory premises isincome from property and not business income andconsequently it is only 1/6[th] of the repair is to be allowedas a deduction and not depreciation on the building? At the outset, it may be noticed that the learned counsel forthe assessee stated that question No.2 was not being pressed byhim and so far as question No.3 is concerned, the same does notarise from the impugned order of the Tribunal. Accordingly, both thequestions are declined. been claimed and admitted in the succeeding year under appeal? 3.Whether under the facts and circumstances of the casethe Tribunal is justified in law in holding that the incomefrom the rent of the canteen in the factory premises isincome from property and not business income andconsequently it is only 1/6[th] of the repair is to be allowedas a deduction and not depreciation on the building? At the outset, it may be noticed that the learned counsel forthe assessee stated that question No.2 was not being pressed byhim and so far as question No.3 is concerned, the same does notarise from the impugned order of the Tribunal. Accordingly, both thequestions are declined. Briefly stated, the facts of the case necessary foradjudication of question No.1 pertaining to assessment year 1990-91are that the assessee-company is a Government of HaryanaUndertaking at Gurgaon and is involved in fabricating the body ofbuses and bringing them in the final shape for use by HaryanaRoadways. So far as the Chassis of the buses are concerned, thesame are being purchased from different manufacturers whoguarantee them as a warranty for five years, but for bodies of thebuses, there was no such written guarantee or warranty. Thepayment of the buses was being made in instalments spreading overa period of 5 years. The engineers or the technical staff of theappellant used to visit various places to remove the defects. Facedwith certain practical difficulties and in view of the fact that the job ofremoving defects was time consuming, the Board of Directors of the appellant-Corporation decided that Rs. 2,000/- per bus was to beconsidered as bus maintenance charges for five years for thepurpose of removing any post-manufacturing defects or formaintenance etc. The liability to the extent of Rs. 2,000/- wascharged by the Transport Department and the same was withheld bythe department against the sale price. The matter was ultimatelyconsidered by the assessing officer who vide order dated 30.3.1995,did not accept the liability of Rs. 13,40,000/- on account of supply of670 buses during the year ending 31.3.1990, relevant to theassessment year 1990-91, at the rate of Rs. 2,000/- per bus. Theassessing authority, however, held that it was neither reasonable norconvincing for allowing lump sum payment of Rs. 2,000/- on accountof maintenance charges in one year. The assessing authority, thus,allowed the said liability to be set off i.e. 1/5[th] being Rs. 2,68,000/-per year and also held that Rs. 10,70,000/- shall be allowed in 4more years in equal instalments. The assessee preferred appeal before the Commissionerof Income Tax (Appeals), [for short “CIT(A)”]. The CIT(A) observedthat Rs. 2,000/- per bus for removing the defects was excessive andconsequently held that a lump sum amount of Rs. 750/- per bus forfive years should be allowed as deduction from the sale price and itshould not be spread over a period of five years for any post-manufacturing defects immediately found out on supply. The CIT(A),thus, restricted the deduction to Rs. 750/- per bus for all the fiveyears which according to the appellant amounted to enhancement ofincome and for which no notice had been given as required under theAct. The matter did not rest here and went up in appeal beforethe Tribunal at the instance of the assessee and the Revenue. TheTribunal by the order under appeal held that looking into the wholeconspectus of the matter, one-time deduction of Rs. 1,000/- per buson an average would be a fair deduction. The assessee still feelingdissatisfied has filed the present appeal. We have heard learned counsel for the parties and haveperused the record. The matter did not rest here and went up in appeal beforethe Tribunal at the instance of the assessee and the Revenue. TheTribunal by the order under appeal held that looking into the wholeconspectus of the matter, one-time deduction of Rs. 1,000/- per buson an average would be a fair deduction. The assessee still feelingdissatisfied has filed the present appeal. We have heard learned counsel for the parties and haveperused the record. The assessee has challenged the order of the Tribunal onthe ground that the Tribunal had completely ignored that it was acontractual liability of the assessee and necessary conditions of saleand warranty for another five years were obligatory on the assesseebeing covered under the provisions of Sections 4, 12 and 41 of theSale of Goods Act. The appellant-assessee, thus, disputed therestricting of this allowance to the tune of Rs. 1,000/- per bus.Learned counsel further submitted that the Revenue did not file anyappeal against the order of the Tribunal whereby the amount ofdeduction was increased to Rs. 1,000/- per bus.. The effect of this isthat the Revenue has accepted that the assessee is entitled todeduction but the question is of the quantum of the amount to beallowed in that behalf. The point for determination in these appeals is, whetheran amount of Rs. 2,000/- per vehicle to be charged by the HaryanaRoadways for removal of any post-manufacturing defects or formaintenance of the bodies of the buses was an admissibleexpenditure relating to the assessment year in question. It may be noticed that initially agreement dated 18.10.1988 was entered between the appellant and the Governmentof Haryana i.e. the Haryana Roadways. Subsequently, agreementdated 20.3.1993 was executed as the earlier agreement dated8.2.1988 was not practicable. This agreement was effective from1.4.1989. Clause 5 of the said agreement, which is relevant for thepresent decision, reads thus:- “5) a. That the party of the second part shall give anyguarantee/warranty as per its normal conditions ofmanufacture and the expenses for its rectifications,amendments or repairs shall be borne by the secondparty. b. The delivery of vehicles shall be at respective placesas per plan and any expenses incurred in removing themanufacturing defects detected after delivery of vehiclesshall be borne by the party of the second part, or a fixedamount may be determined as per mutual consent forremoval of those defects, which shall be borne by theparty of the second part. After the manufacturing defectshave been rectified/removed, the party of the first partshall issue a certificate of fitness where after the saleshall be considered complete.” The liability on account of guarantee/warranty for partmanufacturing rectifications, amendments or repairs was to be borneby the assessee. It was open to the parties to the agreement to havefixed amount by mutual consent for removal of those defects whichwas to be borne by the assessee. It was agreed between the parties that the Government of Haryana (i.e. Haryana Roadways) shallwithhold Rs. 2,000/- as consolidated amount per vehicle on accountof said obligation of the assessee and thereafter necessary jobs ofrectification and maintenance was to be done by the Government inits own workshop. The liability on account of guarantee/warranty for partmanufacturing rectifications, amendments or repairs was to be borneby the assessee. It was open to the parties to the agreement to havefixed amount by mutual consent for removal of those defects whichwas to be borne by the assessee. It was agreed between the parties that the Government of Haryana (i.e. Haryana Roadways) shallwithhold Rs. 2,000/- as consolidated amount per vehicle on accountof said obligation of the assessee and thereafter necessary jobs ofrectification and maintenance was to be done by the Government inits own workshop. The assessing officer, however, allowed a sum of Rs.400/- per vehicle per year and balance in four more years in equalinstalments. However, in appeal a lump sum of Rs. 750/- per vehiclewas allowed by CIT(A). It was increased to Rs. 1,000/- per vehicleby the Tribunal. As observed earlier, as per amended agreementdated 20.3.1993 the liability of the assessee for post-manufacturingdefects in the body of the buses was discharged after the HaryanaRoadways had debited a sum of Rs. 2,000/- per vehicle fordischarging the assessee of its entire liability on account ofguarantee/ warranty and, therefore, the Tribunal was not justified inrestricting the amount of deduction at Rs. 1,000/- per vehicle.Moreover, there being no material before the authorities to restrict thededuction to an amount other than as claimed by the assessee, insuch circumstances, it is held that the assessee was entitled todeduction of Rs. 2,000/- per vehicle. Accordingly, the question of lawNo.1 is answered in favour of the assessee and against the Revenueand the appeals are allowed as noticed above. (AJAY KUMAR MITTAL) JUDGE (ADARSH KUMAR GOEL) November 8, 2010 JUDGE Income-tax Appeal No. 167 of 2002 8 *rkmalik*