Income-tax Appeal No. 167 of 2002 1
IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH
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Income Tax Appeal No. 167 of 2002
Date of decision: 8.11.2010
Haryana Roadways Engg. Corporation
Limited, Gurgaon
--- Appellant
Versus
Commissioner of Income Tax
Rohtak
--- Respondent
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CORAM: HON'BLE MR. JUSTICE ADARSH KUMAR GOEL
HON'BLE MR. JUSTICE AJAY KUMAR MITTAL
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PRESENT: Mr. Pankaj Jain, Advocate
for the appellant.
Mr. I.P. Singh, Advocate
for the respondent.
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AJAY KUMAR MITTAL, J.
Income-tax Appeal No. 167 of 2002 2
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 under Section 260A of the Income-tax Act,
1961 (for short “the Act'”) has been filed by the assessee against the
order dated 10.8.2001, passed by the Income Tax Appellate Tribunal,
Delhi Bench “A”, New Delhi, (in short “the Tribunal”) in ITA 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:
1. 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. 1000/- 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 A.Y.
1990-91 or alternatively to that extent income in the form
of sale price does not accrue and arise to the appellant?
2. 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
Income-tax Appeal No. 167 of 2002 3been claimed and admitted in the succeeding year under
appeal?
3. 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 1/6th 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 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 5 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
Income-tax Appeal No. 167 of 2002 4
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 30.3.1995,
did not accept the liability of Rs. 13,40,000/- on account of supply of
670 buses during the year ending 31.3.1990, 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. 1/5th being Rs. 2,68,000/-
per year and also held that Rs. 10,70,000/- shall be allowed in 4
more years in equal instalments.
The assessee preferred appeal before the Commissioner
of Income Tax (Appeals), [for short “CIT(A)”]. The CIT(A) 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 CIT(A),
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.
Income-tax Appeal No. 167 of 2002 5
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.
Income-tax Appeal No. 167 of 2002 6
It may be noticed that initially agreement dated
18.10.1988 was entered between the appellant and the Government
of Haryana i.e. the Haryana Roadways. Subsequently, agreement
dated 20.3.1993 was executed as the earlier agreement dated
8.2.1988 was not practicable. This agreement was effective from
1.4.1989. Clause 5 of the said agreement, which is relevant for the
present decision, reads thus:-
“5) 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 respective places
as per 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 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
Income-tax Appeal No. 167 of 2002 7
that the Government of Haryana (i.e. Haryana Roadways) shall
withhold Rs. 2,000/- as consolidated amount per vehicle on account
of 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 CIT(A). It was increased to Rs. 1,000/- per vehicle
by the Tribunal. As observed earlier, as per amended agreement
dated 20.3.1993 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.
(AJAY KUMAR MITTAL)
JUDGE
(ADARSH KUMAR GOEL)
November 8, 2010 JUDGE
Income-tax Appeal No. 167 of 2002 8
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