TMI Blog2022 (2) TMI 1315X X X X Extracts X X X X X X X X Extracts X X X X ..... o ears. In fact, it has been accepted by the department in assessment proceedings. The assessee further explained that the lessee did not claim depreciation on the leased asset. Therefore, considering over all acts of this case and also by following the ratio of the Hon ble Supreme Court in the case of ICDS [ 2013 (1) TMI 344 - SUPREME COURT] we are of the considered view that the assessee is entitled for depreciation on the leased asset as per provisions section 32(1)(ii) of the Act. The Ld CIT(A) after considering relevant facts has right ly deleted additions made by the AO towards disallowance of depreciation, hence we are inclined to uphold the findings of the Ld. CIT(A) and reject the ground taken by the revenue. - Decided in favour of assessee. - ITA Nos. 1893 & 1894/Mum/2020 - - - Dated:- 17-2-2022 - SHRI PRAMOD KUMAR, VICE PRESIDENT SHRI PAVAN KUMAR GADALE, JUDICIAL MEMBER For the Appellant : Mrs.Mamta Bansal. CIT DR For the Respondent : Mr. Nimesh Vora.C A .AR ORDER PER PAVAN KUMAR GADALE JM: These are the appeals filed by the revenue against the separate orders of Commissioner of Income Tax (Appeals)-8, Mumbai, passed u/s 143(3) and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at thane to Reliance Industries ltd (Lessee) and observed that the assessee company has added back an amount of Rs.36,36,60,304/-being finance lease receipt in computation of total income and the assessee has claimed deduction of the lease rent of Rs.16,19,38,715/.- The A.O has called for the explanations as to whether the assessee has claimed the depreciation on the plant and machinery given on lease and the lease value of the machinery was reduced from the block of assets. Whereas, the assessee has filed the details/explanations on 12.09.2016 referred at Para 6.2 of the assessment order. But, the A.O has not accepted the submissions of the assessee and dealt on the disputed issue as in the earlier A.Y 2011-12 and 2012-13 at Para 6.3 of the order. Finally the A.O has considered the written down value (WDV) of the plant and machinery as on 01.04.2012 and computed the depreciation on leased Assets provided to Reliance Industries Ltd @ 15% and made addition of depreciation on assets being financial lease and assessed the total Loss of Rs. 99,23,37,977/- and passed the order u/s 143(3) of the Act on 27.12.2016. 3. Aggrieved by the order, the assessee has filed an appeal before the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... achinery and equipment at all times remained with the assessee and the lessor only agree to transfer right to use the plant and machinery by way of lease to the assessee. A perusal of the lease agreement put on record clearly proves the ownership of the lessor and at the end of the lease period, as per clause-3 of the lease agreement, the machineries and equipment would be transferred by lessor to the lessee, therefore, till subsistence of lease period i.e. ten years, the lessor is undisputedly owner of the asset. 17. The Ld. AO has disallowed depreciation claim merely on the ground that as per AS-19 issued by ICAI, in finance lease the risk and rewards incidental to ownership to the asset transferred to the assessee. The A.O further observed that a careful reading of AS-19 reveal that in finance lease, the lease term will be for the major part of economic life of the asset even if till is not transferred and generally the leased asset is of specialized nature such this only the lessee can use it without major modifications being made, Therefore , he came to the conclusion that in finance lease whether or not the lessor claimed :depreciation on leased assets, but the lessee i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... edings in No,2748/Mum/2015, where it was observed that the ownership of the asset has not been passed on to the lessee during the period of lease. The Tribunal further observed that the assessee had also filed a copy of confirmation from the lessee wherein it has been stated that the lessee has not claimed depreciation on the leased plant and machinery and this fact has not been rebutted by the revenue. We further note that having accepted claim of depreciation in earlier years, there is no reason for the revenue to deviate from the issue for subsequent years, even though there is no change in facts for the subsequent years in case of depreciation on leased asset. Further, on a conjoint reading of section 32(1)(iii) r.w,s. 43(6)(c) of the Act makes it clear that entitlement of ass t eligible for depreciation has to be examined in year one but not in subsequent yea. Since, the Revenue has allowed depreciation claimed for earlier years, the same cannot be denied in the assessment year 2011-12 unless there is change in facts. We further noted that the assessee has Offered to tax total lease rental of Rs.36.4 crors as business income, even though, it has considered a sum of Rs.19.5 cro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... depreciation, otherwise, not. 20. In Mysore Minerals Ltd., M.G. Road, Bangalore Vs. Commissioners of Income Tax, Karnataka, Bangalore[3], this Court said thus: authorities shows that the very concept the depreciation suggests that the tax benefit on account of depreciation legitimately belongs to one who has invested in the capital asset is utilizing the capital asset and thereby losing gradually investment caused by wear and tear, and would need to replace the same by having lost its value fully over a period of time. 21. Black s Law Dictionary (6th Edn.) defines 'owner' as under: Owner. The person in whom is vested the ownership, dominion, or title of property; proprietor. He who has dominion of a thing, real or personal, corporeal or incorporeal, which he has a right of enjoy and do with as he pleases, even to spoil or destroy it, as far as the law permits, unless he be prevented by some agreement or covenant which restrains his right. The term is, however, a nomen generalissimum, and its meaning is to be gathered from the connection in which it is used, and from the subject- matter to which it is applied. The primary meaning of the word ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he sum of moneys specified in the Schedule B hereto. All rents shall be paid at the address of the Lessor shown above or as otherwise directed by the Lessor in writing. The rent shown in Schedule B shall be paid month on 1st day of each month and the first rent shall be paid on execution thereof. 4. Ownership The assets shall at all times remain the sole and exclusive property of the lessor and the lessee shall have no right, title or interest to mortgage, hypothecate or sell the same as bailee 9. Inspection The Lessor shall have the right at all reasonable time to enter upon any premises where the assets is believed to be kept and inspect and/or test the equipment and/or observe its use. 18. Default If the lessee shall make default in payment of moneys or rent payable under the provisions of this agreement, the Lessee shall pay to the Lessor on the sum or sums in arrears compensation at the rate of 3% per month until payment thereof, such compensation to run from the day to day without prejudice to the lessor s rights under any terms, conditions and agreements herein expressed or implied. All costs incurred by the Lessor in obtaining payment of such arrears o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t was leased out. Finally, as per clause (19), on the expiry of the lease tenure, the lessee should return the vehicle to the appellant company in working order. 21. It is true that a lease of goods or rental or hiring agreement is a contract under which one party for reward allows another the use of goods. A lease may be for a specified period or in perpetuity. A lease differs from a hire purchase agreement in that lessee or hirer, is not given an option to purchase the goods. A hiring agreement or lease unlike a hire purchase agreement is a contract of bailment, plain and simple with no element of sale inherent. A bailment has been defined in S.148 of the Indian Contract Act, as the delivery of goods by one person to another for some purpose, upon a contract that they shall, when the purpose is accomplished, be returned or otherwise disposed of according to the directions of the person delivering them. 22. From the above discussion, it is clear that the transactions occurring in the business of the assessee-appellant are leases under agreement, but not hire purchase transactions. In fact, they are transactions of hire . Even viewed from the angle of the author of L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry of a general statement of law on ownership may be the Sale of Goods Act; (ii) Section 2(30) of the MV Act must be read in consonance with sub-sections (4) and (5) of Section 51 of the MV Act, which were referred to by Mr. S. Ganesh, learned senior counsel for the assessee. The provisions read as follows: - (4) No entry regarding the transfer of ownership of any motor vehicle which is held under the said agreement shall be made in the certificate of registration except with the written consent of the person whose name has been specified in the certificate of registration as the person with whom the registered owner has entered into the said agreement. (5) Where the person whose name has been specified in the certificate of registration as the person with whom the registered owner has entered into the said agreement, satisfies the registering authority that he has taken possession of the vehicle from the registered owner owing to the default of the registered owner under the provisions of the said agreement and that the registered owner refuses to deliver the certificate of registration or has absconded, such authority may, after giving the registered owner an opportu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndia) Ltd.[6]; Commissioner of Income-Tax Vs. Annamalai Finance Ltd.[7]]. In each of these cases, the leasing company was held to be the owner of the asset, and accordingly held entitled to claim depreciation and also at the higher rate applicable on the asset hired out. We are in complete agreement with these decisions on the said point. 20. The assessee has relied on the decision of ITATI Delhi in the case of Corporation Ltd. vs ACIT(2016) 69 FIVIC 317(Del Trib). We find that the Tribunal has considered identical issue in light i f AS-19 issued by ICAI and held that AS-19 on accounting of lease issued by-'.Al only applicable for the accounting lease transactions in the books of account. We further noted that it is settled law that treatment in the books of account I not determinative of liability towards income tax and the liability Under the Act is go earned by the provisions of the Act. A similar view has been considered by ITAT Delhi Bench in the case of Bharti Hexacom Ltd Vs. ACIT (2016) 68 TMC 357(DeI Trib), where it was held that merely because assessee in books of accounts had given some treatment to the transaction, the claim of the revenue expenditure are on ac ..... X X X X Extracts X X X X X X X X Extracts X X X X
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