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2014 (6) TMI 247 - AT - Income TaxDisallowance of depreciation on leased assets – Finance lease or operating lease - Held that:- Following M/s. IndusInd Bank Limited Versus The Addl. Commissioner of Income-tax [2012 (3) TMI 212 - ITAT MUMBAI] - Finance lease is for a fixed period & non-cancellable - Lessee uses the asset for its entire economic life & all risks and rewards incidental to ownership are transferred to the lessee even though title may or may not be eventually transferred to him - There is a fixed obligation on the lessee for payment of lease money - the assessee’s lease agreement had all the characteristics of a finance lease - Further, RBI Circular No.FSCBC 18/24-01- 001/93-94 dated 14.02.1994 states that equipment leasing activity should be treated by banks “on par with loans and advances” - thus, the lease agreement is that of finance lease and not operating lease - only the lessee can be treated as owner of the asset in case of a finance lease - No depreciation can be allowed to the lessor in such a case of a genuine finance lease – Decided against Assessee. Addition of reworking of lease rentals – Held that:- The transactions of the assessee are finance lease transactions – thus, the assessee is not entitled for depreciation and, consequently, the entire lease income has to be considered as gross income of the assessee – the AO is directed to determine the income of the assessee in accordance with law – Decided partly in favour of Assessee. Disallowance u/s 40(a)(ia) of interest payments to HP Financial Services (P) Ltd. - TDS u/s 194A – Held that:- Following Asst. Commissioner of Income Tax Versus M/s. R. Balarami Reddy & Co. [2014 (4) TMI 904 - ITAT HYDERABAD] - the payment made by the assessee on account of hire purchase transaction and payment of finance charges/hire charges cannot be construed as interest so as to deduct TDS u/s 194A of the IT Act - the payment made to HP Financial Services Pvt. Ltd. towards hire charges cannot be considered as interest so as to disallow u/s 40(a)(ia) of the Act – Decided against Revenue.
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