The Tax Publishers2013 TaxPub(DT) 1178 (Hyd-Trib) : (2013) 051 (II) ITCL 0220

INCOME TAX ACT, 1961

--Depreciation--Plant LPG cylinder--The assessee had claimed that the cylinders are 'plants' for the business of purchase and sale of LPG and the assessee is entitled to 100% depreciation on the cost of the cylinders. The assessee claimed depreciation allowance on the cylinders. The assessee had argued that its claim of 100% depreciation on the cylinders is squarely covered in its favour by the order of Special Bench of Tribunal in the case of Detective Devices (P) Ltd. v. ITO (1987) 22 ITD 9 (Hyd-Trib) : 1987 TaxPub(DT) 1487 (Hyd-Trib). Held: The cylinders clearly constitute plant having regard to the definition of term 'plant' as per the provisions of Income Tax Act. As the cylinders are property of the assessee and also plants used in the course of its own business. Further, the cylinders were used by the assessee in the course of its business by leasing it to its customers. The user of the cylinders were customers of the assessee-company and leasing of the cylinders is the business of the assessee and usage of cylinders by the assessee's customers is to be considered as usage by the assessee itself. Therefore, it could not be said that the cylinders were not used by the assessee in its business and the depreciation cannot be disallowed. The assessing officer is directed to allow depreciation at 100% on cylinders.

Income Tax Act, 1961 Section 32(1)

INCOME TAX ACT, 1961

--Business incomeChargeability Security deposits on leasing LPG cylinders to customers--The assessee was a company engaged in the business of supply of LPG to its customers. The assessee supplied the LPG cylinders to its customers on lease basis and collected security deposits. The customers can return the cylinders and take back the security deposits. It was observed by the assessing officer that the customers have returned the cylinders and taken back the security deposits. The assessee has separately collected the security deposits and the amount collected does not have any relation to the price fixed for the goods to be delivered, i.e., LPG. The amount was held by the assessee as security till the consumer returning the cylinder and it is also evident from other terms and conditions of agreement entered into by the assessee with the customers that the business connection came to end only when the consumer surrendered the cylinder. The assessee repaid the deposit of security as and when the customer returned the cylinder. The Commissioner (Appeals) also upheld the order of assessing officer. Held: Security deposits received by assessee on leasing of LPG Gas cylinders would not be business income/trading receipt chargeable to tax.

The contract has every element of contract of supply of cylinders on lease basis and amount of deposits constitutes security deposits just like borrowed funds. As far as the contention of the revenue is concerned that there was a transfer of ownership in cylinders to the customers, there was only leasing of cylinder to use the same by assessee's customers during the currency of contract and there is no absolute sale of cylinders. The consumer has no right over the cylinder and they were prohibited from alienating the right over the cylinders. The cylinder is to be returned to the assessee-company and the company has to refund the security deposit on its return. From the facts of the case, it is clear that the assessee supplied cylinders and the cylinders are the property of the assessee itself and the consumers does not have any right or interest over the cylinders. The security deposit collected by the assessee from the customers cannot be treated as received by the assessee towards sales consideration by any stretch of imagination. [Para 9] The receipts security deposits and not the income of the assessee. [Para 9] The assessing officer is directed to delete the addition of Rs. 52,06,650. [Para 9] The receipts of security deposits do not constitute sales receipts and consequently the difference between the cost price of the cylinders and security deposit received on leasing the same does not constitute as income of the assessee. Therefore, in view of the above discussion, the collection of security deposit on loaning the gas cylinder could not be treated as a sale transaction and the resultant difference is also not business profit of the assessee. [Para 11]

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