Taxability on account of transfer of right to use of goods

Taxability on account of transfer of right to use of goods would arise only where the effective control and possession of the goods are transferred

In the instant case, Hari Durga Travels (“the Appellant”) entered into an Agreement with Delhi Transport Corporation (“DTC”) in January, 2005 for providing buses on rental basis as per the terms and conditions mutually agreed.

The Appellant was obligated to keep the bus in neat, clean and presentable condition and for purposes of upkeep, make the necessary arrangements with service centres/dealers/repair shops, etc. on the routes. Further the Appellant was not entitled to “withdraw the bus from operation without prior written consent” of DTC nor can it use these vehicles “for any other purpose at any time”, nor “transfer or otherwise alienate (except with prior written permission of DTC) vehicles” during the period of Agreement.

The Assessing Authority treating the aforesaid transaction as Deemed sale on account of transfer of right to use the goods under the provisions of the DVAT Act.

The Hon’ble High Court of Delhi relying upon the following case laws:

• Bharat Sanchar Nigam Limited [2006 (3) TMI 1 – SC]
• Rashtriya Ispat Nigam Limited [2002 (3) TMI 705 – SC]
• International Travel House [2009 (9) TMI 879 – DELHI HIGH COURT]

held that the various terms of the Agreement make it vividly clear that the possession has always remained with the Appellant itself. Undoubtedly, it is the obligation of the Appellant to make the vehicles available, with their respective drivers, for being deployed on routes, and as per schedule, specified by DTC. However, the registration certificate and the permits continue to be in the control and possession of the Appellant who continued to be responsible for all repairs etc. Thus, the transaction has been wrongly treated as “Deemed sale of goods” by the lower authorities.

(Bimal Jain, FCA, FCS, LLB, B.Com (Hons), Email: bimaljain@hotmail.com)

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