TMI Blog2014 (8) TMI 799X X X X Extracts X X X X X X X X Extracts X X X X ..... or tax purposes, be regarded as made up of consideration for hire to be allowed as a deduction in the assessment and payment on account of purchase to be treated as capital outlay, depreciation being allowed to the lessee on the initial value - the order of CIT(A) is upheld in deleting the disallowance of depreciation – Decided against Revenue. - I.T.A No. 390/Kol/2012 - - - Dated:- 11-8-2014 - Shri Mahavir Singh, JM And Shri Shamim Yahya, AM,JJ. For the Appellant: Shri Kalyan Nath, JCIT For the Respondent: Shri Subhas Agarwal, Advocate ORDER Per Shri Mahavir Singh, JM : This appeal by assessee is arising out of order of CIT(A)-VIII, Kolkata in Appeal No. 348/CIT(A)-VIII/Kol/07-08 dated 23.12.2011. Assessment was framed by DCIT, Circle-12(5), Kolkata u/s. 143(3) of the Income-tax Act, 1961 (hereinafter referred to as the Act ) for Assessment Year 1996-97 vide his order dated 05.03.1999. 2. The only issue in this appeal of revenue is against the order of CIT(A) deleting the disallowance in respect of depreciation on Solar Generating System i.e. leased asset. For this, revenue has raised following ground no.1: 1. That under the facts and in the circum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AO framed the assessment vide order dated 28.2.2006 whereby again the depreciation was disallowed by observing as under: The assessee had contended before the CIT(A) that if the A.O. had any doubt about the transactions shown by the assessee, he could have called all the parties u/s. 131 of the Act to verify the fact. In fact, the A.O. had not doubted the agreements on paper entered into by the assessee and has rather relied on the provisions of the same very agreements furnished by the assessee to come to a conclusion. It has been held by the Tribunal also in Tribunal's order dated 04.10.2004 that the purchase and lease agreements are nothing but merely the planning on paper to avoid paying tax on legitimate revenue by the assessee. To reiterate, the Tribunal has mentioned in its order dated 04.10.2004, as quoted in para (6) of this order - (i) that the facts as considered by the Assessing Officer were right and (ii) that the Assessing Officer had rightly derived the collusive transaction entered into by the three parties with the sole motive of allowing the assessee company to enjoy the benefit of depreciation. These are the conclusions on aspects of facts by the T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xecuted and registered as contemplated by the Transfer of Property Act or the Registration Act. The intention of the Legislature in enacting s.32 would be best fulfilled by allowing deduction in respect of depreciat on to the person in whom for the time be ng vests the domin on over the building and who is entitled to use it in his own right and is using the same for the purposes of his business or profession. Held accordingly, that the appellant which had made part payments for the purchase of seven low income group houses for the use of its staff and was in turn allotted houses followed by delivery of possession by the Housing Board but actual deed of conveyance had not been executed in favour of the appellant, was entitled to depreciation on the buildings-Mysore Minerals Ltd. V. CIT [1999] 239 ITR 775. The Central Board of Direct Tax, vide Circular No. 9[R.Dis.No.27(4)IT/43] dated 23-3-1943 have laid down the modalities on the basis of which depreciation is to be allowed on 'leased assets'. The Circular reads as under: Where the effect of an agreement is that the ownership of the subject is at once transferred to the lessee the transaction should be regarded as on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd. vs. Commercial Tax Officer (1985) 47 CTR 126 (SC)/(1985) 154 1TR 148 (SC) (judgment delivered on 17/4/1998), the Hon'ble Supreme Court had held that -- Tax avoidance permissible by law vis-a-vis tax evasion-Planning to avoid tax without breaking law is to be curbed and no longer approvab1e Eng1ish decision hold ng that incidence of tax could be avoided if permissible in law cannot be applied in lndian scenario and are absolute duty is cast upon the Court not to allow avoidance of tax though there is no infringement of law In another land mark judgment in C1T vs. McDowell Co. Ltd (2009] 224 CTR 27 (SC)/[2009]314 ITR 180(SC) for A.Yr, 1993-94 (judgment/order dated 08/05/2009), the Hon'ble Supreme Court has held that Tribunal and the High Court having recorded a finding that the new agreement in April 1992 was not subterfuge or clandestine device to reduce the tax liability but was an expenditure on business expediency and the decision of the parties to enter into an agreement was based on commercial consideration said finding is essentially a finding of fact based on cogent assessment of the factual scenario hence does not warrant interference . Thus, it may b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hirer an option to purchase the equipment, the transaction should be regarded as one of hire purchase. In such cases, the periodical payments made by the hirer should, for tax purposes, be regarded as made up of (1) consideration for hire to be allowed as a deduction in the assessment and ; (2) payment on account of purchase to be treated as capital outlay, depreciation being allowed to the lessee on the initial value. In the case, however, of hire of machinery, the owner is entitled to depreciation. In this connection, a reference may also be made to K. L. Johar and Co. v. Deputy Commercial Tax Officer, [1965] 16 STC 213 ; AIR 1965 SC 1082, at page 1090, where this court, while examining a hire purchase agreement, pointed out that such an agreement has two elements ; (1) element of bailment, and (2) element of sale in the sense that it contemplates an eventual sale. In the absence of any element of sale in the present case, we do not see any reason for treating the agreement as transfer or disallowing the grant of investment allowance, when the assessee complies with the requirements of section 32A. Section 32A is a beneficial provision in a taxing statute. Full effect, there ..... X X X X Extracts X X X X X X X X Extracts X X X X
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