Haryana Roadways Engg. Corporation Ltd. vs Commissioner of Income Tax

Ajay Kumar Mittal, J.—This order will dispose of income tax Appeal Nos. 167 and 168 of 2002, 22, 23 and 24 of 2003 as the substantial question of law is common in all these appeals. The facts have, however, been taken from income tax Appeal No. 167 of 2002. This appeal u/s 260A of the income tax Act, 1961 (for short "the Act") has been filed by the assessee against the order dated August 10, 2001, passed by the income tax Appellate Tribunal, Delhi Bench "A", New Delhi (in short "the Tribunal") in I. T. A. Nos. 114/Del/95 and 765/Del/95, in respect of the assessment year 1990-91.

The assessee has claimed the following questions for determination by this court:

Whether, under the facts and circumstances of the case and on a true interpretation of the various agreements and correspondence, the Tribunal is justified under the law to hold that the appellant-corporation is entitled to deduction of Rs. 1,000 per bus for 670 buses, amounting to Rs. 6,70,000 instead of Rs. 2,000 per bus claimed as a deduction out of the profits and gains for the assessment year 1990-91 or alternatively to that extent income in the form of sale price does not accrue and arise to the appellant ?

Whether, under the facts and circumstances of the case, the Tribunal was legally justified in not allowing an amount of Rs. 1,61,749 as a deduction of the expenses incurred wholly and exclusively for the purpose of the business though pertaining to the earlier years but having been claimed and admitted in the succeeding year under appeal ?

Whether, under the facts and circumstances of the case, the Tribunal is justified in law in holding that the income from the rent of the canteen in the factory premises is income from property and not business income and consequently it is only one-sixth of the repair is to be allowed as a deduction and not depreciation on the building ?

At the outset, it may be noticed that the learned counsel for the assessee stated that question No. 2 was not being pressed by him and so far as question No. 3 is concerned, the same does not arise from the impugned order of the Tribunal. Accordingly, both the questions are declined.

Briefly stated, the facts of the case necessary for adjudication of question No. 1 pertaining to the assessment year 1990-91 are that the assessee-company is a Government of Haryana undertaking at Gurgaon and is involved in fabricating the body of buses and bringing them in the final shape for use by Haryana Roadways. So far as the chassis of the buses are concerned, the same are being purchased from different manufacturers who guarantee them as a warranty for five years, but for bodies of the buses, there was no such written guarantee or warranty. The payment of the buses was being made in instalments spreading over a period of five years. The engineers or the technical staff of the appellant used to visit various places to remove the defects. Faced with certain practical difficulties and in view of the fact that the job of removing defects was time consuming, the board of directors of the appellant-corporation decided that Rs. 2,000 per bus was to be considered as bus maintenance charges for five years for the purpose of removing any post-manufacturing defects or for maintenance, etc. The liability to the extent of Rs. 2,000 was charged by the Transport Department and the same was withheld by the department against the sale price. The matter was ultimately considered by the Assessing Officer who, vide order dated March 30, 1995, did not accept the liability of Rs. 13,40,000 on account of supply of 670 buses during the year ending March 31, 1990, relevant to the assessment year 1990-91, at the rate of Rs. 2,000 per bus. The assessing authority, however, held that it was neither reasonable nor convincing for allowing lump sum payment of Rs. 2,000 on account of maintenance charges in one year. The assessing authority, thus, allowed the said liability to be set off, i.e., one-fifth being Rs. 2,68,000 per year and also held that Rs. 10,70,000 shall be allowed in four more years in equal instalments.

The assessee preferred an appeal before the Commissioner of income tax (Appeals), (for short "the CIT(A)"). The Commissioner of income tax (Appeals) observed that Rs. 2,000 per bus for removing the defects was excessive and consequently held that a lump sum amount of Rs. 750 per bus for five years should be allowed as deduction from the sale price and it should not be spread over a period of five years for any post-manufacturing defects immediately found out on supply. The Commissioner of income tax (Appeals), thus, restricted the deduction to Rs. 750 per bus for all the five years which, according to the appellant, amounted to enhancement of income and for which no notice had been given as required under the Act.

The matter did not rest here and went up in appeal before the Tribunal at the instance of the assessee and the Revenue. The Tribunal by the order under appeal held that looking into the whole conspectus of the matter, one-time deduction of Rs. 1,000 per bus on an average would be a fair deduction. The assessee still feeling dissatisfied has filed the present appeal.

We have heard learned counsel for the parties and have perused the record.

The assessee has challenged the order of the Tribunal on the ground that the Tribunal had completely ignored that it was a contractual liability of the assessee and necessary conditions of sale and warranty for another five years were obligatory on the assessee being covered under the provisions of sections 4, 12 and 41 of the Sale of Goods Act. The appellant-assessee, thus, disputed the restricting of this allowance to the tune of Rs. 1,000 per bus. Learned counsel further submitted that the Revenue did not file any appeal against the order of the Tribunal whereby the amount of deduction was increased to Rs. 1,000 per bus. The effect of this is that the Revenue has accepted that the assessee is entitled to deduction but the question is of the quantum of the amount to be allowed in that behalf.

The point for determination in these appeals is, whether an amount of Rs. 2,000 per vehicle to be charged by the Haryana Roadways for removal of any post-manufacturing defects or for maintenance of the bodies of the buses was an admissible expenditure relating to the assessment year in question.

It may be noticed that initially the agreement dated October 18, 1988, was entered between the appellant and the Government of Haryana, i.e., the Haryana Roadways. Subsequently, the agreement dated March 20, 1993, was executed as the earlier agreement dated February 8, 1988, was not practicable. This agreement was effective from April 1, 1989. Clause 5 of the said agreement, which is relevant for the present decision, reads thus:

(a) That the party of the second part shall give any guarantee/warranty as per its normal conditions of manufacture and the expenses for its rectifications, amendments or repairs shall be borne by the second party.

(b) The delivery of vehicles shall be at the respective places as per the plan and any expenses incurred in removing the manufacturing defects detected after delivery of vehicles shall be borne by the party of the second part, or a fixed amount may be determined as per the mutual consent for removal of those defects, which shall be borne by the party of the second part. After the manufacturing defects have been rectified/removed, the party of the first part shall issue a certificate of fitness where after the sale shall be considered complete.

The liability on account of guarantee/warranty for part manufacturing rectifications, amendments or repairs was to be borne by the assessee. It was open to the parties to the agreement to have fixed amount by mutual consent for removal of those defects which was to be borne by the assessee. It was agreed between the parties that the Government of Haryana (i.e., Haryana Roadways) shall withhold Rs. 2,000 as consolidated amount per vehicle on account of the said obligation of the assessee and thereafter necessary jobs of rectification and maintenance was to be done by the Government in its own workshop. The Assessing Officer, however, allowed a sum of Rs. 400 per vehicle per year and balance in four more years in equal instalments. However, in appeal a lump sum of Rs. 750 per vehicle was allowed by the Commissioner of income tax (Appeals). It was increased to Rs. 1,000 per vehicle by the Tribunal. As observed earlier, as per the amended agreement dated March 20, 1993, the liability of the assessee for post-manufacturing defects in the body of the buses was discharged after the Haryana Roadways had debited a sum of Rs. 2,000 per vehicle for discharging the assessee of its entire liability on account of guarantee/warranty and, therefore, the Tribunal was not justified in restricting the amount of deduction at Rs. 1,000 per vehicle. Moreover, there being no material before the authorities to restrict the deduction to an amount other than as claimed by the assessee, in such circumstances, it is held that the assessee was entitled to deduction of Rs. 2,000 per vehicle. Accordingly, the question of law No. 1 is answered in favour of the assessee and against the Revenue and the appeals are allowed as noticed above.