TMI Blog2004 (8) TMI 640X X X X Extracts X X X X X X X X Extracts X X X X ..... he Commissioner of Income-tax (Appeals) on various grounds, which are as under : "1.The ld. CIT (Appeals) erred in holding that the assessee s income was to be assessed as business income and not income from other sources without properly appreciating the material on record. He also ignored the fact that assessee s cases for assessment years 1988-89 to 1991-92 have already been reopened under section 147 by the Assessing Officer; 2.The ld. CIT (Appeals) erred in allowing depreciation on used gas cylinders which was rightly denied by the Assessing Officer by invoking the Explanation (3) to section 43(1) of the Act; 3.On the facts and circumstances of the case, the CIT (Appeals) erred in allowing the claim of irrecoverable rent and directing the Assessing Officer to tax the amount of rent when realized as per section 25-A of the Income-tax Act ignoring the fact that the rent was realized and deposited in the court as the assessee had refused to accept the rent; 4.On the facts and circumstances of the case, the CIT (Appeals) erred in allowing business expenses of Rs. 3,68,374 by holding that the assessee s income was assessable under the head income from business." 3. G ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appeal before the Commissioner of Income-tax (Appeals) and the CIT (Appeals) being convinced with the explanations of the assessee directed the Assessing Officer to allow the hundred per cent depreciation over the cylinders. 5. Now the Revenue has preferred an appeal before the Tribunal and during the course of hearing invited our attention to the lease agreements with the submission that it is not a case of ordinary lease of any machinery/equipments because the assessee has recovered the cost of the equipment along with interest within a lease period of three years. After the end of the lease, equipments were also finally sold to the lessee against a nominal amount. Though there was a clause of renewal of lease, but in none of these cases the lease was renewed. If the lease is examined properly and the transactions are minutely viewed, one would find that these are a mere financial arrangements and not a grant of lease of the gas cylinders. The learned Departmental Representative further contended that unfortunately the Assessing Officer has not examined this aspect and has invoked the provisions of section 41(1) of the Act. Once it is proved that the gas cylinders were never ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecord. Since the lease agreements are placed on record, we have to examine the nature of the lease agreement and also to find out whether there was in fact a lease of equipments or it was a financial arrangements and these documents were executed to give a colour to these transactions as lease transactions. In case of a lease, the equipments or the machineries are given by the lessor to the lessee for its use against monthly rent for a particular period and after the end of the lease period the machinery and the equipment are required to be returned back to the lessor. The lessor always keeps a control or access to the equipments or machineries. But in the instant case if we examine these lease agreements, we would find that the cylinders were delivered by the manufacturer/supplier at the location specified by the lessees and the lessor would not be liable or responsible for the damage to the equipment either before or in the process of delivery or during the process of installation. The lessee was also required to pay all charges including the transit insurance incurred by the manufacturer or supplier for delivery of the equipments. The lessee was also required to pay or cause to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e within a period of three years and ultimately the lease equipments were retained by the lessor. The facts of that case are quite similar to the present case except the nature of lease equipments. These types of situation were also dealt with by the Agra Bench of the Tribunal in the case of S.E. Investment Ltd. v. Asstt. CIT [IT Appeal Nos. 15 to 19 (Agra) of 2002] in which the Tribunal has adjudicated this nature of hire purchase agreement through which vehicles were given to the hirers and the instalments of the cost of vehicles were recovered by the assessee along with the interest. In this case the Tribunal has also examined the issue in the light of the land mark judgment of the Apex Court in the case of Sundaram Finance Ltd. v. State of Kerala AIR 1966 (SC) 1178 and K.L. Johar Co. v. Dy. CTO AIR 1965 SC 1082 and held that in fact it was not a hire purchase agreement and it was a financial arrangements and a loan was advanced on interest to the so-called hirer of the vehicle. In the case of Indian Management Advisors Leasing (P.) Ltd. ( supra ) of which facts are quite identical to that of the impugned case, we have categorically held that the authorities co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fficer. Accordingly we set aside the order of the Commissioner of Income-tax (Appeals) and restore the matter to the file of the Assessing Officer with the directions to tax only the interest income earned by the assessee during the year under account. 9. With regard to ground No. 3 it is noticed that the Assessing Officer had disallowed deduction of irrecoverable rent of Rs. 18,000 against which an appeal was filed before the Commissioner of Income-tax (Appeals) and the CIT (Appeals) following its order for the assessment year 1991-92 has directed the Assessing Officer not to include this amount in the year under account. 10. We have carefully perused the relevant provisions of the Act and we find force in the directions of the Commissioner of Income-tax (Appeals). We, therefore, confirm the order of the CIT (Appeals). 11. So far as ground No. 4 is concerned, we have carefully examined the Memorandum and Articles of Association and we find that the assessee was not engaged in the finance business. Though leasing of the equipments is permissible under the Memorandum of Associations, but when we have arrived at a conclusion in fore-going paras that it was not a leasing o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has erred in directing the Assessing Officer to allow a sum of Rs. 1,08,541 being interest paid to the bank." 14. With regard to ground Nos. 1 to 4, identical issues were examined by us in the foregoing appeals and following the reasons adopted by us, we decide ground Nos. 1 to 3 against the assessee and ground No. 4 in favour of the assessee. 15. With respect to ground No. 5, an identical issue was also examined by us in the foregoing appeals in ground No. 4 and following the decision taken therein, we decide this issue against the assessee. 16. With respect to ground No. 6 it is noticed that the Assessing Officer has disallowed the payment of interest at Rs. 1,08,541 paid to the bankers on borrowed funds obtained for the business activities. Since the income earned on advancing a loan to the so-called lessee in order to purchase the cylinders is held to be an income from other sources, no deduction of any expenditure incurred for business of the assessee company will be allowed therefrom. We, therefore, do not find any justification in the order of the Commissioner of Income-tax (Appeals) who has allowed a set off of this expenditure from the so-called income of leas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the claim of depreciation of the assessee. The claim of depreciation was examined for the first time during the assessment year 1992-93 and the Assessing Officer after making a detailed enquiry arrived at a conclusion that the assessee was not at all entitled for the depreciation. These findings of the Assessing Officer are sufficient to form a belief in the impugned assessment years that the income has escaped assessment and he accordingly re-opened the assessments as per law. We, therefore, do not agree with this finding of the CIT (Appeals) that no material was brought before the Assessing Officer to form a belief that the income has escaped assessment and it was a mere change of opinion. We, therefore, set aside the order of the CIT (Appeals) on this count and hold that the re-opening of the assessment is valid and is according to law. 19. Now the next question comes with regard to the claim of depreciation over the cylinders, which were allegedly leased out to the so-called lessee. The facts of the case in these years are also quite identical to that of the assessment year 1992-93 in which we have taken a conclusive view that the cylinders were not leased out by the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X
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