COMMISSIONER OF INCOME TAX-II vs. GUJARAT STATE FINANCIAL SERVICES LTD

O/TAXAP/1048/2010 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL NO. 1048 of 2010 With TAX APPEAL NO. 1049 of 2010 With TAX APPEAL NO. 1068 of 2010 With TAX APPEAL NO. 1069 of 2010 With TAX APPEAL NO. 898 of 2010 With TAX APPEAL NO. 937 of 2011 With TAX APPEAL NO. 564 of 2013 With TAX APPEAL NO. 1334 of 2009

FOR APPROVAL AND SIGNATURE:

HONOURABLE MR.JUSTICE AKIL KURESHI

and HONOURABLE MS JUSTICE SONIA GOKANI ============================================================ ==== 1 Whether Reporters of Local Papers may be allowed to see the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the Constitution of India, 1950 or any order made thereunder ? 5 Whether it is to be circulated to the civil judge ? Page 1 of 8

O/TAXAP/1048/2010 JUDGMENT ================================================================ COMMISSIONER OF INCOME TAX-II....Appellant(s) Versus GUJARAT STATE FINANCIAL SERVICES LTD., WING-B, 3RD FLOOR,....Opponent(s) ================================================================ Appearance: MR MR BHATT, LD.SENIOR COUNSEL WITH MRS MAUNA M BHATT, ADVOCATE for the Appellant(s) No. 1 MR MANISH J SHAH, ADVOCATE for the Opponent(s) No. 1 ================================================================ CORAM: HONOURABLE MR.JUSTICE AKIL KURESHI and HONOURABLE MS JUSTICE SONIA GOKANI

Date : 17/02/2014

COMMON ORAL JUDGMENT (PER : HONOURABLE MS JUSTICE SONIA GOKANI) 1. Since all the Tax Appeals raise common question of law and facts, by a common judgment, they are being   decided.   However,   for   the   purpose   of adjudication, the facts contained in Tax Appeal No.1048   of   2010,   wherever   necessary   shall   be referred. 2. The   Tax   Appeals   arise   from   the   order   of   the Income­tax   Appellate   Tribunal   (hereinafter referred   to   as   ‘the   Tribunal’)   dated   September Page 2 of 8

O/TAXAP/1048/2010 JUDGMENT 11, 2009. The Revenue had raised initially two questions as substantial questions of law for our determination for the assessment year 2000­2001. However, at the time of admission, the present appeal   has   been   admitted   for   consideration   of Question ‘A’ alone, which is as follows : “(A) Whether   the   Appellate   Tribunal   is right in law and on facts in confirming the order   passed   by   CIT   (A)   in   deleting   the disallowance   of   depreciation   on   assets   of sale & lease back transaction ?” 3. Tax   Appeal   No.1048   of   2010   arises   in   the following factual background : 3.1 The   assessee­company   is   a   State   owned enterprise engaged in the business of providing financial assistance to the industrial units. For lease transactions, depreciation has been claimed by the assessee which relates to the assets   on   sale   and   lease   back   of   buses   to Gujarat   State   Road   Transport   Corporation   and plant and machinery etc. to Gujarat Electricity Board   and   other   industries.   Such   lease   back Page 3 of 8

O/TAXAP/1048/2010 JUDGMENT transactions   on   which   depreciation   has   been claimed,   as   per   the   assessee’s   case,   were arranged   in   earlier   years.   Total   sum   of depreciation claimed was Rs.6.52 crore (rounded off).   The   Assessing   Officer   found   such transaction

colourable

device

and accordingly,   disallowed   the   entire   sum   by   a detailed order. 3.2 Aggrieved   by   such   disallowance,   challenge was   taken   before   the   CIT   (Appeals).   The   CIT (Appeals)   observed   that   “The   claim   of   the appellant could not be disallowed lightly by superfluous   observation   that   expenses   and interest credits (lease rentals) would off set each other.. .. .. However, lease transactions were   there   for   several   years   and   unless   a uniform stand is taken, any disjoined attempt midway could be against the reasoning and law.” It, accordingly, directed the Assessing Officer to allow the same considering the explanation 4A to section 43(1) of the Income­tax Act, 1961 (hereinafter referred to as ‘the Act’), which Page 4 of 8

O/TAXAP/1048/2010 JUDGMENT takes   care   of   lease   transaction   with   effect from October 01, 1996. 3.3 The Revenue challenged the same before the Tribunal   and   the   Tribunal   following   its   own findings in the assessee’s own case in respect of   similar   transactions   with   identical   facts allowed the claim of the assessee by holding that the transactions of the present year were regular   transactions   from   earlier   years   and when the view on this subject has already been expressed, the judicial consistency is required to be maintained by the Revenue between itself and the tax­payer and accordingly, the present appeals raising aforementioned question of law for our consideration. 4. We   have   heard   learned   Senior   Counsel   Mr.M.R. Bhatt   appearing   with   Mrs.Mauna   Bhatt   for   the appellant­Revenue   and   learned   counsel   Mr.M.J. Shah for the respondent­assessee. 5. Mr.Bhatt has fairly submitted that the very issue in the earlier year has travelled to this Court Page 5 of 8

O/TAXAP/1048/2010 JUDGMENT in  Tax   Appeal   No.566   of   2013   in   the   case   of Commissioner  of Income­tax­II v. Gujarat  State Financial Services Ltd. This Court has upheld the version of the Tribunal relying on the decision of the Apex Court in the case of  I.C.D.S. Ltd. v.   Commissioner   of   Income­tax   and   another, reported   in   (2013)   350   ITR   527.   The   relevant portion of the order of this Court on the said issue   deserves   reproduction   which   reads   as under : “3. Though learned counsel for the Revenue pointed out that the Revenue’s appeal in the earlier   years   being   Tax   Appeal   No.937   of 2011   has   been   admitted   by   this   Court,   on similar question, we notice that the issue of claiming higher rate of depreciation on leased out assets is now finally governed by the   decision   of   the   Supreme   Court   in   the case   of  I.C.D.S.   Ltd.   vs.   Commissioner   of Income­Tax   and   another  reported   in  [2013] 350 ITR 527 (SC). 4. In that view of the matter, this question need not detain us any longer. In the said judgment,   the   Supreme   Court   held   that   for claiming higher rate of depreciation, there is no requirement under the Act of usage of Page 6 of 8

O/TAXAP/1048/2010 JUDGMENT the   assets   by   the   assessee   himself.   The vehicles were purchased by the assessee from manufacturer   and   leased   out   to   customers. Such   vehicles   were   used   in   the   course   of leasing business. The Supreme Court allowed the assessee’s appeal reversing the judgment of   the   High   Court   rejecting   the   Revenue’s argument   that   the   assessee   not   being   the owner   and   only   a   lessor   cannot   claim   the depreciation. 5. Since facts are similar in the present case,   the   said   ratio   would,   therefore, apply.   There   is   nothing   on   record   even otherwise   to   suggest   that   the   transaction itself was sham or bogus. In that view of the matter, question is not required to be considered.” 6. Without assigning any separate reasonings in the present appeals, as the substantial question of law raised is identical, these Tax Appeals also on   the   similar   line,   deserve   no   further entertainment and are, accordingly, dismissed. (AKIL KURESHI, J.) Page 7 of 8

O/TAXAP/1048/2010 JUDGMENT (MS SONIA GOKANI, J.) Aakar Page 8 of 8