TMI Blog2014 (4) TMI 215X X X X Extracts X X X X X X X X Extracts X X X X ..... hat it is only a simple lease agreement and not a finance agreement - even in the calculation of the lease rental, the monthly repayment of the rent and the number of months of the lease rent payment is also clearly stated in the agreement - there was no justifiable ground to accept the case of the assessee that based on AS19 only that the agreement in question was entered into by the assessee and it has to be treated as the finance agreement - relying upon Sundaram Finance Limited vs. State of Kerala [1965 (11) TMI 123 - SUPREME COURT OF INDIA] - the question has to be seen from the terms of the agreement entered into between the assessee, which was placed before the AO as well as before other Appellate Authorities - the contentions of the assessee's is rejected that the transaction is only a finance lease. - Decided against the assessee. - Tax Case (Appeal) Nos.124 to 130 of 2014 and M.P.No.1 of 2014 (6 M.Ps.) - - - Dated:- 21-3-2014 - Chitra Venkataraman And T. S. Sivagnanam,JJ. For the Appellant : Mr. R. Vijayaraghavan for in all TC(As). M/s. Subbaraya Aiyar For the Respondent : Mr. N. V. Balaji in all TC(As). Standing Counsel for Income Tax Department JUDGME ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any had accordingly followed the standard as mandatory under Section 211(3C) of the Companies Act,1956 and the lease was treated as current asset and not the fixed asset, hence, no depreciation was charged in the books of accounts for the financial year 2001-02. While agreeing with the assessee, that as per Accounting Standard 19 in the case of financial lease, the asset was treated as receivable amount equal to net investment in the lease, for income tax purpose in respect of lease rent also, the entire lease rent was taxed as income of the lessor. The Officer reasoned out that the computation of taxable income has to be done after taking into account the various additions and deductions in accordance with Accounting Standard 19. He further pointed out that total lease rent received and the depreciation claimed clearly tantamounted to double deduction to the assessee and the method of accounting followed by the assessee in respect of lease transaction was not giving a true and correct picture of the income of the assessee. The Assessing Officer thus ultimately came to the conclusion on scrutiny of the accounts, that the entire least rent was taxable as income of the lessor and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d be no two opinion that the transactions were pure and simple a financial lease, which is in accordance with Accounting Standard 19. The lease entered into after 01.04.2001 is shown in the balance sheet under Investments/Current Assets Loans and Advances/Net Investment on leases. Whereas the lease entered into prior to 01.04.2001 are shown as fixed assets or leased assets. 7. Learned counsel pointed out that the Tribunal ignored the fact that the transaction were nothing but financial lease transaction and it had categorised the same in its accounts too. In the circumstances, the Income Tax Appellate Tribunal committed a serious error in ignoring the requirement under Accounting Standard 19 being complied with by the assessee. He placed reliance on the decision of the Delhi High Court reported in (2012) 207 Taxman 19(Delhi) [Commissioner of Income Tax Delhi-VI vs. Instalment Supply Limited] and prayed for setting aside the order of the Tribunal. In support of his contention, learned counsel also placed before us the copy of the lease agreement etc. 8. A reading of the sample lease agreement placed before this Court with the Madras Advertising Co.Pvt.Ltd., dated 28.08.2008 sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l immediately return the said property to Lessor in as good condition and received less normal wear, tear and depreciation. Clause 34 speaks about the Modification to rental payments during lease tenor. One of the Clauses under this head reads as follows: ..................... Without prejudice to the above, it is hereby agreed that at the option of the LESSOR the Lease Agreement will be reviewed if there is any material changes in the provisions of the Income Tax Act regarding leasing transaction. This review will also include, apart from changes in the rentals, cancelling of the Lease Agreement and replacing it with Hire Purchase transaction on mutually agreed terms. It is further agreed that if the LESSOR is refused allowances or their claims are disallowed by the Income Tax Authorities on account of the failure on the part of the LESSEE to furnish any particulars/declaration required for this purpose, the LESSEE shall reimburse the LESSOR tax, interest, penalty or any outgo accruing or arising to the LESSOR on this account. 9. On a reading of the terms of the agreement, we find that the agreement is a lease agreement sample and that there is nothing in the agreement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the transaction would not be altered if the lender himself is the owner of the goods and the owner accepts the promise of the purchaser to pay the price or the balance remaining due against delivery of goods. But a hire-purchase agreement is a more complex transaction. The owner under the hire-purchase agreement enters into a transaction of hiring out goods on the terms and conditions set out in the agreement, and the option to purchase exercisable by the customer on payment of all the instalments of hire arises when the instalments are paid and not before. In such a hire-purchase agreement there is no agreement to buy goods; the hirer being under no legal obligation to buy has an option either to return the goods or to become its owner by payment in full of the stipulated hire and the price for exercising the option. This class of hire-purchase agreements must be distinguished from transactions in which the customer is the owner of the goods and with a view to finance his purchase he enters into an arrangement which is in the form of a hire-purchase agreement with the financier, but in substance evidences a loan transaction, subject to a hiring agreement under which the lender is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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