CIT VS. HP MINERAL AND INDUSTRIAL DEVELOPMENT COOPERATION LTD:

    CIT VS. HP MINERAL AND INDUSTRIAL DEVELOPMENT COOPERATION LTD:

    FACTS OF THE CASE:

    There were two transformers, property of the H.P. State Electricity Board. The assessee paid the entire cost to the H.P. Electricity Board.  On account of some technical hitch, the title had not been transferred in the name of the assessee though the assessee had been using these transformers having installed them at Nurpur and Nalagarh.

    The assessee contended that the property within the machinery had already passed to the assessee albeit the title has not been transferred to the assessee by the HPSEB.

    Issues of the case:

    • Whether in the circumstances of ease, the Income Tax Appellate Tribunal was right in serving the law i.e. in governing the Officer to allow the investment and depreciation allowance on the cost of the two transformers which were installed at Nalagarh and Nurpur, the ownership of which lies in the hands of the H.P. Electricity Board?
    • The second question that arises is whether the Income Tax Appellate Tribunal was right in law in upholding the order of the learned Commissioner of Income Tax in allowing the deduction under section 80J on its six units without reducing the same by the number of loans raised from the head office?

    Section 256 of the income tax:

    The Commissioner or the assessee may, within sixty days of the date upon which he has served with the notice of an order under section 254, by application in the given form, accompanied where the appliance is formed by the assessee by a fee of [200 rupees], require the Appellate Tribunal to ask the Court any question of law arising out of such order and, subject to the opposite provisions contained in this section, the Appellate Tribunal shall, within 120 days of the receipt of such application, draw up a statement of the case and refer it to the High Court: Provided that the Appellate Tribunal is satisfied that the applicant was prevented due to some reason on presenting the application within the given time, allowing it to be presented within a further time not exceeding 30 days.

    If an application is made under sub-section (1), and the Appellate Tribunal refuses to state the case because no question of law has arisen, the Commissioner or the assessee, may, within the time of six months from the date on which he is served with notice of such refusal, apply to the High Court, and the Court may, if it is not satisfied, with the decision of the Appellate Tribunal, require it to state the case and to refer to it, and on getting any such order the Appellate Tribunal shall state the case and refer to it accordingly.
    Under sub-section(2), if the Appellate Tribunal refuses to state a case which is required by the assessee to state, he may, within thirty days from the date on which he received the notice of such refusal, withdraw the application and if he does so the fee shall be refunded.

    The tribunal held that the assessee was entitled to claim the depreciation and investment allowance.

    The Judgment of the case:

    The Income-tax officer as well as the Commissioner of Income Tax refused to accept the contention of the assessee and disallowed the depreciation allowance as claimed by the assessee. The tribunal held that the assessee was entitled to claim the depreciation and investment allowance. The reasoning stated by the Tribunal is as follows:

     “We have read the submissions carefully from the rival parties, as also the facts on record; the transformers had been given to the assessee and installed by it at Nalagarh and Nurpur. The entire cost of the transformers had been paid by the assessee to the H. P. State Electricity Board. Due to certain reasons, the ownership wasn’t transferred.

    As the transformers consisted of movable property which had been handed over to the assesses by recovering the whole cost, in our opinion, the transfer of products had taken place and therefore the assessee was the owner of the said transformers. Respectfully following the decision of the Calcutta High Court, the supreme court gave the decision in the case of Steelerete P. Ltd. (supra), we direct the Assessing Officer to permit depreciation and investment allowance on the value of two transformers if all other legal conditions stand fulfilled.”

    Section 9 of the income tax act:

    Section 9 of the income tax act
    Section 9 of the income tax act

    The business income of a foreign country or an NRI person is chargeable to tax only to the extent that it arises in connection through any business connection in India or from any asset or source of income generated in India Thus, only Indian income is liable to income tax in case of an NRI person. He is not liable to pay any income tax in India on his foreign income.

    • The Supreme Court had to consider the meaning of the word “owner” concerning section 9 of the Income Tax Act, 1922, in R. B. Jodha Mal Kwthiala’s case 1971. The assessee was a registered firm deriving income from the interest on securities, property, business, and other sources. In 1946, the assessee purchased a hotel in Lahore, for which he raised a loan of Rs. 46 lakhs.
    • He raised a loan of Rs. 30 lakhs from Bharat Bank Ltd. And another Rs. 18 lakhs from Raja Jubbal. The loan was partly repaid and far as the loan was considered Raja, and the assessee came into an agreement with him, under which the Raja accepted a share in the same property instead of the loan advanced and also one-third of the outstanding advancement of the bank.
    • The arrangement came into effect in 1951, after the creation of Pakistan, Lahore became a part of Pakistan and the hotel was declared as an exile property and vested in the custodian in Pakistan. The question that was raised was that the purpose of section 9 of the INCOME TAX ACT was that the interest paid by the assessee on the loan was deductible allowance as he was not the owner of the property since it was vested in the hands of the custodian.
    • The High Court held that the assessee could not be considered to be the owner of the property and, therefore, he was not entitled to get the benefit of the deduction. The Supreme Court upheld the said decision of the High Court, but while considering the meaning of “owner”, the Supreme Court observed as follows:
    • The question that arose was who is the owner in this section? Is it the person in whom the property is vested or is it the person who is entitled to some beneficial interest in the property? It must be remembered that Section 9 of the Income Tax Act brings the tax to the income from the property and not the interest of a person in a property. A property cannot be owned by two people, each one having an independent and exclusive right over it. Hence, the owner must be that person who can exercise the rights of the owner, not on behalf of the owner but in his own right.
    • For determining the person liable to pay tax, the test laid down by the court was to find out the person entitled to that income. An attempt was made by Mr. Mahajan to distinguish this case on the ground that under the corresponding English statute the liability to tax in respect of income from the property is not laid on the owner of the property.
    • But the real question was whether that right can be considered as ownership within section 9 of the Act. As mentioned earlier the section seeks to bring to tax income of the property in the hands of the owner. Hence, the focus of that section is on the receipt of the income. The word ‘owner’ has different meanings in different contexts. The meaning that we give to the word “owner” under section 9 of the Act must not be such in making that provision capable of being made an instrument of oppression. It must comply with the principles underlying the Act.”

    Thus, the test laid down by the Supreme Court in the case is whether the person is entitled to claim the money arising out of the said property. The Court also claimed that the act should be interpreted in compliance with the given principles and should not be an instrument of oppression. 

    If those tests are applied in this case, there can be no doubt that the assessee is getting the benefit of the entire income arising out of the use of the transformers and when he is claiming depreciation on the value of the machinery, which he has shown in the balance sheet as part of his assets, the Section cannot be used an instrument of oppression, Such a claim should not be denied.

    The reasoning of the Allahabad High Court in Addl. CIT v. U. P. State Agro-Industrial Corporation Ltd. [1981] 127 ITR 97, shall apply to all of them in the present case. The property has been put into the possession of the assessee and it is being used fully by the assessee. It cannot be dealt later by the Himachal Pradesh State Electricity Board and, therefore, as per Section 32, the assessee is considered to be the owner of the machinery.

    Conclusion:

    As per section 256(2) of the Income-tax Act, the High Court may if it is not satisfied with the decision of the Appellate Tribunal may ask the Appellate Tribunal to state the case and refer to it. In the present case, one is satisfied with the decision of the Appellate Tribunal based on the reasoning given by it and on the facts of the case, in the given circumstances; one does not find any justification for directing the reference of the questions raised by the Revenue. Hence, these applications were dispersed.

    CIT VS. HP MINERAL AND INDUSTRIAL DEVELOPMENT COOPERATION LTD: Allahabad High Court in Addl. CIT v. U. P. State Agro-Industrial Corporation Ltd. The tribunal held that the assessee was entitled to claim the depreciation and investment allowance. Section 9 of the income tax act CIT VS. HP MINERAL AND INDUSTRIAL DEVELOPMENT COOPERATION LTD: Allahabad High Court in Addl. CIT v. U. P. State Agro-Industrial Corporation Ltd. The tribunal held that the assessee was entitled to claim the depreciation and investment allowance. Section 9 of the income tax act CIT VS. HP MINERAL AND INDUSTRIAL DEVELOPMENT COOPERATION LTD: Allahabad High Court in Addl. CIT v. U. P. State Agro-Industrial Corporation Ltd. The tribunal held that the assessee was entitled to claim the depreciation and investment allowance. Section 9 of the income tax act CIT VS. HP MINERAL AND INDUSTRIAL DEVELOPMENT COOPERATION LTD: Allahabad High Court in Addl. CIT v. U. P. State Agro-Industrial Corporation Ltd. The tribunal held that the assessee was entitled to claim the depreciation and investment allowance. Section 9 of the income tax actCIT VS. HP MINERAL AND INDUSTRIAL DEVELOPMENT COOPERATION LTD: Allahabad High Court in Addl. CIT v. U. P. State Agro-Industrial Corporation Ltd. The tribunal held that the assessee was entitled to claim the depreciation and investment allowance. Section 9 of the income tax act CIT VS. HP MINERAL AND INDUSTRIAL DEVELOPMENT COOPERATION LTD: Allahabad High Court in Addl. CIT v. U. P. State Agro-Industrial Corporation Ltd. The tribunal held that the assessee was entitled to claim the depreciation and investment allowance. Section 9 of the income tax act CIT VS. HP MINERAL AND INDUSTRIAL DEVELOPMENT COOPERATION LTD: Allahabad High Court in Addl. CIT v. U. P. State Agro-Industrial Corporation Ltd. The tribunal held that the assessee was entitled to claim the depreciation and investment allowance. Section 9 of the income tax act CIT VS. HP MINERAL AND INDUSTRIAL DEVELOPMENT COOPERATION LTD: Allahabad High Court in Addl. CIT v. U. P. State Agro-Industrial Corporation Ltd. The tribunal held that the assessee was entitled to claim the depreciation and investment allowance. Section 9 of the income tax act