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Judgment
Chitra Venkataraman, J.—Following are the questions of law raised in respect of the assessment year 1993-1994:
Whether in the facts and circumstances of the case, the Appellate Tribunal was right in holding that the assessee is eligible to claim capital loss on the sale of the foreign cars.
Whether in the facts and circumstances of the case, the Tribunal was right in treating the assessee as the owner of foreign motor cars for the purpose of the allowing capital loss.
Following are the questions of law raised in respect of the assessment year 1994-1995:
Whether on the facts and in the circumstances of the case, the Income Tax Tribunal is right in law in holding that the assessee was entitled to loss claimed on sale of foreign cars was allowable?
Whether on the facts and in the circumstances of the case, the Income Tax Tribunal is right in law in rejecting the contentions of the department that the loss on sale of foreign cars which was given on lease to various lessees cannot be adjusted against the long term capital gains?
Whether on the facts and in the circumstances of the case, the Income Tax Tribunal is right in law in not considering the judgement of the Supreme Court in the case of McDowell and Co. Ltd. Vs. Commercial Tax Officer,
Whether on the facts and in the circumstances of the case, he Income Tax Tribunal is right in law in not considering the fact that artificial loss was created by the assessee without any basis for arriving at the sale value thereby reducing the taxable income by deducting the loss arrived under the head long term capital gains?
Whether on the facts and in the circumstances of the case, the Income Tax Tribunal is right in law in holding that the alleged capital gains transaction of selling the car worth Rs.4,80,000/-at Re.1/-is a colorable device and dubious method for avoiding payment of tax?
The assessee herein is a company dealing in Finance, Hire Purchase and Bill Discounting. In the previous year relevant to the assessment year under consideration, the assessee is stated to have incurred loss on the sale of imported cars which were given on lease to various parties. The Assessing Officer directed the assessee to furnish the basis on which the sale value of the imported cars was fixed for the purpose of arriving at the gain that the assessee had. The Assessing Officer pointed out that the assessee did not file a reply. Thus, the Assessing Officer drew the conclusion that the assessee had created an artificial loss without any basis for fixing sale value and thereby reduced the taxable income by deducting the loss arrived at under the head Long Term Capital Gains. The officer further pointed out that since the cars were also imported cars the assessee would not have the benefit u/s 32(1) of the Income Tax Act, 1961. As the price at which the cars leased out were sold to the lessees at an artificially reduced price, the same was used as a route to claim the depreciation indirectly which was not otherwise available.
Aggrieved by the same, the assessee went on appeal before the Commissioner of Income Tax Appeals who pointed out that in respect of the assessment year 1993-1994, the assessee had transferred 12 foreign cars after the expiry of the lease period to the lessees themselves. Some of the cars were found to have been purchased from the lessees themselves and thereafter leased out to them and some of the cars which were purchased from the sister concerns were leased out to the lessees. The Commissioner of Income Tax (Appeals) further pointed out that in some of the cases even before the expiry of the lease period, the cars were sold to the lessees. The Commissioner of Income Tax (Appeals) pointed out that the assessee had produced the invoice copies under which the assets were purchased and the lease deed under which the sale was effected ultimately. Thus, as far as the bona fides of the transactions were concerned, the assessee had produced all the materials as regards the details of the lease rental received by the assessee and the consideration. Considering the above materials, ultimately, the Commissioner of Income Tax (Appeals) recorded a finding that the transactions were genuine and in the ordinary course of the business.
To a specific claim of the Revenue that the assessee had quoted such a low price only to get over the difficulty in claiming depreciation, the Commissioner of Income Tax (Appeals) pointed out that if the assessee had been entitled to claim depreciation on the assets, then the sale proceeds would be deducted from the block of assets for depreciation without disturbing the continued deduction of depreciation. The loss had now become deductable since no depreciation was allowed to the assessee. The difference between the cost of acquisition and the consideration for transfer had to be allowed under the head short term capital loss or long term capital loss, as the case may be. Pointing out to the lease deed, the Commissioner of Income Tax (Appeals) held that the lease rentals were so fixed so as to take into consideration that no depreciation was permissible and that the capital loss would be allowed upon the eventual transfer. Considering the genuineness of the transaction, the Commissioner of Income Tax (Appeals) allowed the claim.
The Revenue went on further appeal before the Tribunal. The facts in respect of the assessment years 1993-1994 and 1994-1995 are identical. Thus, while considering the claim for the year 1994-1995 the Tribunal rejected the Revenue''s appeal, agreed with the Commissioner of Income Tax (Appeals) finding that the transactions were genuine and were not colourable. The Tribunal further pointed out that the Department had not proved in any manner or produced any material to show that the transaction was a colourable one. The fact that the lessees were in a position to sell the cars subsequently for a higher price by itself would not defeat the claim of the assessee as regards the price at which the cars were sold. Applying the said decision of the year 1994-1995 to the assessment year 1993-1994, the Tribunal thus confirmed the view of the Commissioner of Income Tax (Appeals) and thereby rejected the Revenue''s appeal. Aggrieved by this the Revenue is on appeals before this Court.
As already pointed out, it is not denied by the assessee that the cars leased out to the lessees were subsequently sold to the lessees themselves and the cars which were purchased from the sister concerns were leased out to the lessees. The Revenue does not deny the genuineness of the lease and the terms of lease. As pointed out by the Commissioner of Income Tax (Appeals), when the sale of the cars itself flow from the terms of the lease agreement and the terms of the agreement thus not questioned by the Revenue, the mere fact that the cars were sold at a price so low and that the lessees could subsequently sell the car for a higher price would not defeat the claim of the assessee for capital loss. Thus, the Tribunal and the Commissioner of Income Tax (Appeals) held that there was no material placed before the authorities concerned to question the genuineness of the transaction. Even though the Revenue claimed that the transactions were to be treated as colourable one, no materials were placed either before this Court or before any of the authorities to support their contention.
Learned counsel for the Revenue pointed to the instance where a car was sold for just Re.1/-, and the cost of the motor vehicle shown as Rs.3,75,000/-which would only reflect on the genuineness of the transaction. We do not find that the Revenue could safely fall on this sole value for the purpose of defeating the claim of the assessee. Given fact that the purchasers were lessees and when the transfers were as per the agreed terms forming part of the clauses of the lease deed, we do not find any material in the appeals filed by the Revenue to accept the case of the Revenue to hold that the transactions of sale are colourable. Consequently, confirming the order of the Income Tax Appellate Tribunal the Tax Case appeals stand dismissed. No costs.