Ita/1304/2009 Of The Commissioner Of Income Tax,Cochin v. M/S Nortrans Marine Services (P) Ltd

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE C.N.RAMACHANDRAN NAIR & THE HONOURABLE MR. JUSTICE P.S.GOPINATHAN FRIDAY, THE 11TH JUNE 2010 / 21ST JYAISTHA 1932 ITA.No. 1304 of 2009() ---------------------- ITA.784/COCH/2007 of I.T.A.TRIBUNAL,COCHIN BENCH .................... APPELLANT ----------------------------- THE COMMISSIONER OF INCOME TAX, COCHIN. BY ADV. SRI.P.K.R.MENON,SR.COUNSEL, GOI(TAXES) SRI.JOSE JOSEPH, SC, FOR INCOME TAX RESPONDENT: --------------- M/S.NORTRANS MARINE SERVICES (P) LTD., SEA PORT AIR PORT ROAD, KAKKANAD. ADV. SRI.R.VIJAYARAGHAVAN ADV. SRI.SAJI VARGHESE THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 11/06/2010, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: C.N.RAMACHANDRAN NAIR &P.S.GOPINATHAN, JJ. .................................................................... I.T. Appeal No.1304 of 2009 ....................................................................Dated this the 11th day of June, 2010. JUDGMENT Ramachandran Nair, J. Heard Standing Counsel for the appellant and counsel appearingfor the respondent-assessee. The sole question raised is whether theTribunal was justified in confirming respondent's eligibility fordepreciation for 250 containers purchased and said to be used inbusiness. Initially we felt that the question involved is only on findingof fact about the actual purchase and the use of the containers by theassessee before the end of the previous year to entitle them for thedepreciation claimed. However, on going through the facts in theAnnexure-D agreement between the respondent-assessee and themanufacturer located in Shanghai, China, we find that the findingsentered into by the two lower authorities are perverse and unacceptable.Respondent has no case that Annexure-D agreement produced is notthe one under which the containers were purchased. The purchaseagreement was signed by the buyer on 17.3.2004 and the manufacturer- ITA NO.1304/2009 seller has signed it on 18.3.2004. It is to be noted that under clause 1(a) the agreement is to design, manufacture, sell and deliver to buyer200 units of 20-foot Dry Cargo Containers and 50 units of 40-footHigh Cube Dry Cargo Containers. It is seen that only 13 days were leftout in the previous year from the date of agreement for manufactureand supply of 250 containers. Admittedly the assessee retained thecontainers at Shanghai Port and delivered to the lessee in theassessment year and the use is rightly taken as lease by the assessee. Itis stated in clause 1(d) of the agreement that the manufacturer wassupposed to complete the manufacture by the end of March 2004.Under clause 2(b) the scheme of payment is 20% to be paid in advanceand balance 80% to be paid before taking delivery of the containers.Admittedly 80% payment was made by the respondent-assessee ininstalments on 3.5.2004 and on 13.5.2004. It is further stated in clause2(e) that the title to the containers will be transferred from the seller tothe buyer only after full payment is made by the buyer. Further clause3(a) provides for inspection of the containers after it's making and afterseller issues 14 days' notice. It is also to be noted that the agreement in ITA NO.1304/2009 ITA NO.1304/2009 clause 3(f) provides for free storage of the containers after manufactureat the premises of the seller for a period of 90 days. So long as therespondent has no case that the terms of the agreement were notfollowed, we have to necessarily conclude that the findings of the twolower appellate authorities that the containers were inspected by theagents appointed by the respondent-assessee before the end of theprevious year and even the lease agreement was entered into on1.3.2004, are perverse and unsustainable. In our view, the agreementstated to be entered into by the assessee with the lessee company on1.3.2004 cannot be said to be a lease agreement, but can be only anagreement for lease because as on the date of agreement the containersnamely, the commodity leased, were not in existence. In fact, afterentering into an agreement for lease, the respondent-assessee enteredinto agreement for fabrication and supply of containers and going bythe payments made and the terms of the agreement, it is clear thatcontainers were fabricated and supplied to the respondent only afterMay, 2004 i.e. more than two months after the end of the previous year.Assessee's claim of purchase, taking delivery and use of the containers ITA NO.1304/2009 within twelve days from date of entering into agreement with themanufacturer at Shanghai is a bogus claim because it was not only notconceived under the terms of agreement the assessee had with thelessee, but was intrinsically impossible. We, therefore, allow theappeal filed by the department by reversing the orders of the C.I.T.(Appeals) and that of the Tribunal and restore the assessment order. C.N.RAMACHANDRAN NAIRJudge pms P.S.GOPINATHANJudge