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2007 (2) TMI 181 - HC - Income TaxDepreciation u/s 32 - Leasing transactions involving movables - Entitled to claim depreciation upon assets owned by it and leased in favour of educational institutions which had made interest earning deposits with the assessee? - HELD THAT:- The assessee acquires the asset in its name and leases it to the educational institution which makes an interest bearing security deposit, equal to the entire value of the asset so leased, but agrees not to receive any interest which is to be adjusted entirely towards lease rentals. There is a remote possibility of termination of the lease and refund of the security deposit. In the meanwhile the assessee claims depreciation on the asset, which the educational institution could not have claimed if it had directly acquired the asset, as it is exempt from payment of income-tax. The further fact that the assessee and the lessees are managed by the same group of individuals, as directors in the assessee-company and in other capacities, managing the lessees would leave no room for doubt that the transactions are blatantly geared to evade the tax liability. It would be extremely naive to accept the transactions as commercially accepted transactions. The same cannot be considered as being a tidy management of affairs in accordance with law. The assessee and the lessees are on the other hand, cocking a snook at the law. Though it remains true in general that the taxpayer, where he is in a position to carry through a transaction in two alternative ways, one which will result in liability to tax and the other which will not, is at liberty to choose the latter. The transaction in the case on hand is not an alternative chosen by the assessee but a mechanism devised to enable a non-tax paying entity to acquire an asset and also to claim depreciation on it. It cannot be said that the transactions are entered into with the effect of minimising the subject's burden of tax, but only in order to facilitate the benefit as aforesaid. The finding that the assessee is not entitled to claim depreciation on the assets is not on the basis of the underlying motive but the direct result of the manner these transactions are engineered. In the result, in our opinion-on a careful consideration of the contentions and the case law cited, we have no hesitation in holding that the question of law is required to be answered in the negative and in favour of the Revenue and the order of the Income-tax Appellate Tribunal is set aside.
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