C I T UDAIPUR vs. SHREE RAJASTHAN SYNTEX LIMITED

ITA/23/2005HC RajasthanRJHC01016332200406 May 2008Author: KISHAN SWAROOP CHAUDHARI17 pages
AI SummaryDismissed

What did the High Court hold?

The Tribunal held that the assumption of jurisdiction under Section 147/148 was bad in law. The reasoning was that the Assessing Officer's opinion was based on the opinion of another Assessing Officer, which constituted a "borrowed satisfaction" and did not provide a valid basis for reopening assessments, as the Assessing Officer cannot review his own order. Notwithstanding this, the Tribunal also considered the merits. It found that the lease agreements were operating leases, not finance leases, and the lessor retained ownership. The lease agreements stipulated that the machinery would be returned to the lessor, the lessee would not capitalize the assets, and the lessee would not claim any relief available to the lessor as owner. Based on these terms and the judgment of the Supreme Court in CIT Vs. Shaan Finance’s case, the Tribunal held that the assessee company remained the owner of the leased assets and was entitled to depreciation under Section 32. The appeals were consequently dismissed.

What were the facts?

The assessee, Shree Rajasthan Syntex Limited, leased plant and machinery to M/s. Rajasthan Texchem Limited. For assessment years 1996-97, 1997-98, and 1998-99, the assessee claimed and was allowed depreciation under Section 32. The lessee, assessed in Mumbai, claimed lease rent as revenue expenditure but was allowed depreciation on the capital value of the plant and machinery. Upon learning this, the Assessing Officer of the lessor initiated reassessment proceedings under Section 147/148 for the years 1996-97, 1997-98, and 1998-99. For assessment year 2001-02, depreciation was not allowed in the original assessment. The CIT(Appeals) upheld additions for 1996-97 and 1997-98. The Tribunal, however, allowed the assessee's appeals for these years, deleting the additions. For 1998-99 and 2001-02, the CIT(Appeals) deleted additions following the Tribunal's order, and the revenue's appeals against these deletions were dismissed by the Tribunal.

What were the issues?

1. Whether, on the facts and circumstances of the case, the ITAT was justified in holding that the assumption of jurisdiction under Section 147/148 of the Income Tax Act is bad in law and accordingly in quashing the reassessment proceedings? (Question of law) 2. Whether on the facts and circumstances of the case the ITAT was justified in holding that the assessee is entitled to get depreciation under Section 32 on the assets claimed to be taken on lease, as owner of the assets? (Question of mixed law and fact) Assessee's contentions: Not explicitly recorded, but the Tribunal's findings suggest the assessee argued that the lease agreements were operating leases, not finance leases, and that they remained the owners of the leased assets, thus entitled to depreciation. The Tribunal's reasoning also implies the assessee argued against the reopening of assessments. Revenue's contentions: Regarding issue 1, the revenue argued that the reopening was not based on a change of opinion but on a material fact that came to the Assessing Officer's notice – that both the purported lessor and lessee had been allowed depreciation on the same assets, constituting sufficient grounds for reassessment due to escaped income. Regarding issue 2, the revenue contended that the lessor and lessee were sister concerns, and the transaction was essentially financial assistance disguised as a lease, justifying piercing the corporate veil. They argued the Assessing Officer and CIT(Appeals) had rightly concluded this.

Which sections of the Income-tax Act were involved?

Section 147,Section 148,Section 32

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[1] IN THE HIGH COURT OF JUDICATURE FOR RAJASTHAN AT JODHPUR -------------------------------------------------------- J U D G M E N T (1) INCOME TAX APPEAL No. 70 of 2005 C I T UDAIPUR V/S SHREE RAJASTHAN SYNTEX LIMITED UDAIPUR (2) INCOME TAX APPEAL No. 23 of 2005 C I T UDAIPUR V/S SHREE RAJASTHAN SYNTEX LIMITED UDAIPUR (3) INCOME TAX APPEAL No. 13 of 2005 C I T UDAIPUR V/S SHREE RAJASTHAN SYNTEX LIMITED UDAIPUR (4) INCOME TAX APPEAL No. 50 of 2005 C I T UDAIPUR V/S SHREE RAJASTHAN SYNTEX LIMITED UDAIPUR

Date of Judgment : May 6, 2008 P R E S E N T HON'BLE SHRI N P GUPTA,J. HON'BLE SHRI KISHAN SWAROOP CHAUDHARI,J. Mr. KK BISSA, for the appellant Mr. ARUN BHANSALI, for the respondent REPORTABLE BY THE COURT (PER HON'BLE GUPTA, J.):

These four appeals arise in identical circumstances, basically involving a common question, though one question as involved in three appeals is not incorporated in Appeal No.13, however, in view of the controversy involved in all the four matters, we think it appropriate to decide all these four appeals

The order continues below.

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