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2008 (5) TMI 276 - HC - Income TaxClaim of Depreciation u/s 32 on leased goods reassessment - Assessing Officer had formed a particular opinion on a particular set of documents simply because the Assessing Officer at Mumbai had formed a different opinion on the same set of documents the action was sought to be initiated here for reassessment which - it was a borrowed satisfaction under the opinion of the Assessing Officer at Mumbai Held that it borrowed satisfaction is sufficient to confer power on the Assessing Officer to initiate reassessment proceedings Further lease agreement shows that the lessee shall not claim any relief by way of any deduction allowance or grant available to the lessor as owner of the equipment under the Income-tax Act 1961 or any other statute rule of regulation issued by the Government or any statutory authority the benefit of depreciation is allowed in the hands of lessor.
Issues Involved:
1. Validity of assumption of jurisdiction under sections 147 and 148 of the Income-tax Act, 1961. 2. Entitlement of the assessee to claim depreciation under section 32 on the assets claimed to be taken on lease, as owner of the assets. Detailed Analysis: Issue 1: Validity of Assumption of Jurisdiction under Sections 147 and 148 The primary issue was whether the Income-tax Appellate Tribunal (ITAT) was justified in holding that the assumption of jurisdiction under sections 147 and 148 by the Assessing Officer (AO) was bad in law, leading to the quashing of reassessment proceedings. Legal Framework and Tribunal's Findings: - Section 147(1): Stipulates that the AO must have "reason to believe" that any income chargeable to tax has escaped assessment. - Tribunal's Analysis: The Tribunal concluded that the AO did not have the jurisdiction to review his own order based on the opinion of another AO, deeming it "borrowed satisfaction." The Tribunal relied on various case laws to support its decision, including: - Joint CIT (Assessment) v. George Williamson (Assam) Ltd. [2002] 258 ITR 126 (Gauhati) - Mercury Travels Ltd. v. Deputy CIT [2002] 258 ITR 533 (Cal) - Garden Silk Mills Ltd. v. Deputy CIT (No. 2) [1996] 222 ITR 68 (Guj) - CIT v. Kelvinator of India Ltd. [2002] 256 ITR 1 (Delhi) Court's Conclusion: - The Court upheld the Tribunal's view that the reassessment proceedings were initiated based on the opinion of another AO, which is not permissible under the law. The Court agreed that the reassessment proceedings were based on a change of opinion rather than new material evidence, thus answering the question in the affirmative, i.e., in favor of the assessee and against the Revenue. Issue 2: Entitlement to Depreciation under Section 32 The second issue was whether the ITAT was justified in holding that the assessee is entitled to get depreciation under section 32 on the assets claimed to be taken on lease, as the owner of the assets. Tribunal's Findings: - The Tribunal found that the lease agreements in question were operating leases, not finance leases, and thus the lessor (assessee) remained the owner of the assets. Consequently, the assessee was entitled to claim depreciation under section 32. - Supporting Case Laws: - CIT v. Shaan Finance P. Ltd. [1998] 231 ITR 308 (SC) - CIT v. Maharashtra Apex Corporation Ltd. [2002] 254 ITR 98 (SC) - CIT v. Essan Investments Ltd. [2002] 254 ITR 83 (Mad) Court's Analysis: - The Court examined the lease agreements' clauses and found that they supported the Tribunal's conclusion that the agreements were operating leases. Clauses such as the non-cancelable nature of the lease, the lessee's obligation to maintain and insure the machinery, and the return of the machinery to the lessor at the end of the lease period indicated that the lessor retained ownership. - The Court referenced the Supreme Court's decision in CIT v. Shaan Finance P. Ltd. [1998] 231 ITR 308, which distinguished between operating leases and finance leases, affirming that the lessor in an operating lease remains the owner and is entitled to depreciation. Court's Conclusion: - The Court upheld the Tribunal's decision that the assessee is entitled to claim depreciation under section 32, answering this question in the affirmative, i.e., in favor of the assessee and against the Revenue. Final Judgment: All four appeals were dismissed, affirming the ITAT's decisions on both issues. The Court concluded that the reassessment proceedings were invalid and that the assessee was entitled to claim depreciation on the leased assets.
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