THE SANDESH LTD. vs. DY.COMMISSIONER OF INCOEME-TAX(ASSESSMENT)

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TAXAP/174/2001HC GujaratGJHC24024609200118 November 2014Bench: HONOURABLE MR. JUSTICE KS JHAVERI,HONOURABLE MR. JUSTICE K.J.THAKER8 pages
AI SummaryAllowed

What did the High Court hold?

The High Court held that the ITAT's finding that the sale transaction became conditional due to subsequent payment was misconceived and not borne out by the facts. The Court found no evidence on record to suggest a conditional sale or a contingent contract. The letter written by the assessee to the AO was interpreted as an explanation for late payment, not a condition precedent for ownership. The Court reasoned that Section 32 of the Sale of Goods Act, 1930, states that payment and delivery are concurrent conditions unless otherwise agreed. Since the delivery was taken prior to 31.10.1994, the assessee was entitled to 100% depreciation for the relevant year. The substantial question of law was answered in favour of the assessee. The appeal was allowed.

What were the facts?

The appellant, The Sandesh Ltd., is a closely held company engaged in publishing a newspaper and leasing. For Assessment Year 1994-95, it filed a return declaring a total income of Rs. 4,48,123. The return was processed under Section 143(1)(a), leading to an adjusted total income of Rs. 8,56,224 and a refund. Subsequently, a notice under Section 143(2) & 142(1) was issued, and an assessment order was passed. The assessee's appeal to the CIT(A) was partly allowed, and a further appeal to the ITAT was also partly allowed. The present appeal by the assessee challenges the ITAT's order dated 22.5.2001. The core dispute revolves around the date of purchase of a machine for depreciation purposes.

What were the issues?

1. Whether, in the facts and circumstances of the case, the ITAT was right in law in holding that when the sale consideration is paid subsequently, the entire sale transaction becomes conditional and the date of such would be the date on which the said payment is made? (Question of law turning on Section 32 of the Sale of Goods Act, 1930, and provisions relating to depreciation under the Income Tax Act). Assessee's Contention: The assessee argued that delivery of the machine was taken on 28.8.1993, and payment was made on 22.2.1994. Relying on Section 32 of the Sale of Goods Act, 1930, it was contended that once delivery is effected, the purchaser becomes the owner. The ITAT erred in holding that ownership passed only upon payment, which disentitled the assessee to 100% depreciation. Revenue's Contention: The Revenue relied on Sections 12, 19, and 20 of the Sale of Goods Act, 1930. It was argued that a letter from the assessee indicated a conditional sale, where payment was made only after reviewing satisfactory working for six months. Therefore, the sale was conditional, and property passed on the date of payment.

Which sections of the Income-tax Act were involved?

Section 32,Section 12,Section 19,Section 20,Section 143(1)(a),Section 143(2),Section 142(1)

AI-generated summary — verify with the full judgment below

O/TAXAP/174/2001 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL NO. 174 of 2001

FOR APPROVAL AND SIGNATURE:

HONOURABLE MR.JUSTICE KS JHAVERI

and HONOURABLE MR.JUSTICE K.J.THAKER

================================================================ 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 ? ================================================================ THE SANDESH LTD.....Appellant(s) Versus DY.COMMISSIONER OF INCOEME-TAX(ASSESSMENT)....Opponent(s) ================================================================ Appearance: MR SN SOPARKAR, ADVOCATE for the Appellant(s) No. 1 MR NITIN K MEHTA, ADVOCATE for the Opponent(s) No. 1 ================================================================ CORAM: HONOURABLE MR.JUSTICE KS JHAVERI and HONOURABLE MR.JUSTICE K.J.THAKER Page 1 of 8

O/TAXAP/174/2001 JUDGMENT

Date : 18/11/2014

ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE KS JHAVERI) 1. By way of this appeal, the appellant has challenged the judgment and order dated 22.5.2001 passed by the Income Tax Appellate Tribunal, Ahmedabad Bench ‘A’ in ITA No. 1947/Ahd/2000 for AY 1994-95. 2. While admitting this appeal on 16.8.2001, this Court has framed the following substantial question of law: “Whether, in the facts and circumstances of the case, the ITAT was right in law in holding that when the sale consideration is paid subsequently,

the

entire

sale transaction becomes conditional and the date of such would be the date on which the said payment is made ? 3. The facts of the present case are that the assessee is a closely held company which is publishing a Gujarati Newspaper by the name “Sandesh”. Apart, from this, leasing business is also done in a separate division of the company. The appellant had filed its return of income for the AY 1994-95 declaring total Page 2 of 8

O/TAXAP/174/2001 JUDGMENT income of Rs. 4,48,123/- on 30.11.1994. The return was processed u/s. 143(1)(a) of the Act and following prima-facie adjustments were made to the returned income and adjusted total income of Rs. 8,56,224/- was worked out and a sum of Rs. 1,77,95,816/- including interest of Rs. 23,21,190/- was determined as refundable to the assessee as per intimation dated 5.6.1995. Out of the refund, amount of Rs. 76,416/- was adjusted with the demand for AY 1992-93 and balance was granted to the assessee. Thereafter, in response to the notice u/s. 143(2) & 142(1), necessary details and explanations were called for. After considering the material on record, the assessment order came to be passed. The assessee has challenged the assessment order before the CIT(A) which was partly allowed. Being aggrieved by the said order, the appellant has challenged the said order before the ITAT, Ahmedabad, which was also partly allowed. Being aggrieved by the said order, the appellant has preferred the present Tax Appeal before this Court. 4. Heard the learned advocates appearing for the parties and considered the submissions. Mr. SN Soparkar learned Senior Advocate has contended that the assessee has taken delivery of the machine on 28.8.1993 and the payment was made on 22.2.1994 and the insurance policy Page 3 of 8

O/TAXAP/174/2001 JUDGMENT which was taken in October was amended with effect from 1.11.1993. He has also produced on record certificate dated 15.3.2001 and has contended that in view of section 32 of the Sale of Goods Act, 1930, it is made clear that once the delivery is effected, the purchaser has became the owner of the movable property. Sec. 32 of the Sale of Goods Act, 1930, reads as under: “32. Payment and delivery are concurrent

conditions.- Unless otherwise agreed,delivery of the goods and payment of the price are concurrent conditions, that is to say, the seller shall be ready and willing to give possession of the goods to the buyer in exchange for the price, and the buyer shall be ready and willing to pay the price in exchange for possession of the goods.” 5. Mr. Soparkar learned Senior Advocate has contended that the Tribunal has seriously erred in holding that though both the sale Bill/Debit Note and Lease Agreement are dated 28.8.1993, the appellant became the owner only when the purchase price is paid i.e. on 22.2.1994. In that view of the matter, the appellant was entitled to 100% depreciation. Page 4 of 8

O/TAXAP/174/2001 JUDGMENT 6. Learned advocate Mr. Mehta for the respondent-Revenue has relied on sec. 12,19 and 20 of the Sale of Goods Act, 1930, which reads as under: “12. Condition and warranty.-(1) A stipulation in a contract of sale with reference to goods which are the subject thereof may be a condition or a warranty. (2) A condition is a stipulation essential to the main purpose of the contract, the breach of which gives rise to a right to treat the contract as repudiated. (3) A warranty is a stipulation collateral to the main purpose of the contract, the breach of which gives rise to a claim for damages but not to a right to reject the goods and treat the contract as repudiated. (4) Whether a stipulation in a contract of sale is a condition or a warranty depends in each case on the construction of the contract. A stipulation may be a condition, though called a warranty in the contract. Page 5 of 8

O/TAXAP/174/2001 JUDGMENT 19. Property passes when intended to pass.- (1) Where there is a contract for the sale of specific or ascertained goods the property in them is transferred to the buyer at such time as the parties to the contract intend it to be transferred. (2) For the purpose of ascertaining the intention of the parties regard shall be had to the terms of the contract, the conduct of the parties and the circumstances of the case. (3) Unless a different intention appears, the rules contained in sections 20 to 24 are rules for ascertaining the intention of the parties as to the time at which the property in the goods is to pass to the buyer. 20. Specific goods in a deliverable state.- Where

there

an unconditional contract for the sale of specific goods in a deliverable state, the property in the goods passes to the buyer when the contract is made, and it is immaterial whether the time of payment of the price or the time of Page 6 of 8

O/TAXAP/174/2001 JUDGMENT delivery of the goods, or both, is postponed.” 7. Learned advocate Mr. Mehta for respondent- Revenue has further contended that there was a conditional sale pursuant to the letter which is reproduced by the Tribunal at page 96. The said letter reads as under: “Regarding reason for late payment made by us for purchase of boiler. We have to state that in view of the new concept of conversation of old Boiler into FBC systems Boiler and huge amount involved to safeguard the risk. We have put the condition to make the payment of purchase of assets only after reviewing the satisfactory working for the period of six months and accordingly. We have made the payment in the month of February, 1994.” 8. There is nothing on record to show that there was any contract between the appellant and the seller, so that the same can be said to be contingent contract. No condition is produced on record whether it was a conditional sale or not. The letter written by the assessee to the AO is on record. In that Page 7 of 8

O/TAXAP/174/2001 JUDGMENT view of the matter, the contention of Mr. Mehta that it was a conditional sale is misconceived. The finding of Tribunal is not borne out from the facts and is contrary to the law of Contract and the Income-Tax Act relating to depreciation. In our view, the delivery is taken prior to 31.10.1994, the appellant-assessee is entitled for 100% depreciation for the relevant year. In that view of the matter, the question is answered in favour of the assessee and against the Revenue. The appeal is allowed accordingly. (K.S.JHAVERI, J.) (K.J.THAKER, J) mandora Page 8 of 8

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