Home Case Index All Cases Income Tax Income Tax + HC Income Tax - 2016 (2) TMI HC This
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2016 (2) TMI 1344 - HC - Income TaxDepreciation on a sale and lease back transaction relating to wind electric generators - Claim denied where the assessee itself is not the owner of the land on which the generators have been installed, and hence cannot be treated as owner of the windmills - HELD THAT:- As assessee is in the business of hire purchase finance, leasing and allied activities and it is a non-banking finance company. The owner of the land on which the windmills were erected and installed wanted to set up a wind power generation unit. The owner approached the respondent/assessee for finance. There are two options available to a finance company under such circumstances. One option is to allow the borrower to purchase the machinery and install it in his own land and pay the cost of the machinery on condition that the amount financed for the purchase of the machinery is repaid together with interest in equal monthly instalments.The second option available to a financier is to buy the plant and machinery in their own name and lease it out to the borrower. If the first option is exercised, the land owner gets title to the plant and machinery and the interest component of the equated monthly instalments is treated as revenue income for the financier. But the owner will claim depreciation on the machinery. If the second option is exercised, the financier claims depreciation, but treats the lease rentals as revenue income and pays tax. Therefore, in either of the two options the borrower and financier are placed on different sides of the same table. In such circumstances, the question of the revenue losing something does not arise. As rightly pointed out by the Commissioner of Income Tax (Appeals), the question of ownership of the land has nothing to do with the claim for depreciation. Depreciation is claimed in respect of the plant and machinery installed on the land. Unfortunately, the Assessing Officer was misguided by the fact that the Electricity Authority granted permission only to the land owner to run the windmills. It is not the case of the Department or the respondent herein that the respondent was in the business of generating power through windmills. There is no restriction by the Electricity Board that unless the applicant for the generation of wind power also owns the plant and machinery he would not be entitled to a license. Assessing Officer as well as the Tribunal misdirected themselves to the actual issue on hand, without realizing what is the income either from the land owner or from the financier depending each side of the table as per the terms of the financing agreement. The Revenue cannot claim revenue from both. Therefore, the question of law is answered against the Revenue.
|