TMI Blog2006 (11) TMI 367X X X X Extracts X X X X X X X X Extracts X X X X ..... ransaction, as leasing transaction and thus allowing the claim of depreciation to the assessee. The brief facts are these. In the return, the assessee declared income by way of lease rentals at Rs. 34,35,462 against which depreciation in respect of the leased asset was claimed at Rs. 32,44,024. It was the assessee s case that it owned the assets and they were leased out in the course of the assessee s business and therefore, the conditions of section 32 were satisfied and it was eligible for the depreciation. The Assessing Officer negatived the claim on the ground that the assessee was actually engaged in providing finance to persons who wanted to purchase vehicles and the transaction was so documented as if the vehicles were owned by the assessee and leased out to the customers and hence it was in truth a financing transaction. According to him, the internal appraisals form which the assessee received from the customers containing columns which require the customers to show the finance required, period of loan, etc. The Assessing Officer also noted that the customers were required to place margin monies with the assessee which was nothing but the borrower s participation in the lo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourse of carrying on the business. As regards the claim of depreciation, the CIT (Appeals) held as under : "3.6 I find from the explanation submitted and the documentary evidence brought on record by the ld. Counsel that the assessee-company satisfies all the above essential conditions for claiming depreciation i.e., depreciation has been claimed on specified leased assets which are owned by the company and has been used by the company for its primary business which is leasing. Therefore, I hold that for the year under consideration the assessee-company is entitled to the depreciation on the assets leased out and claim in its P L Account/computation of taxable income in reference to the workings furnished during the course of proceedings before the Assessing Officer and is taxable in respect of the lease rentals realised on the lessees during the year under consideration as accounted for by the company in its audited accounts on record. As a result of my this finding the addition of Rs. 10,13,355 made by the Assessing Officer by dividing the lease rentals into two i.e., the principal amount and the interest and disallowing the claim of the depreciation of the leased assets sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed representative for the assessee, besides strongly relying on the order of the CIT (Appeals), submitted that the assessee remained the owner of the vehicles throughout the transactions, that the ownership was never transferred to the customer, that even in the registration certificate issued under the Motor Vehicles Act the assessee was described as the owner, that a reading of the lease document as a whole clearly indicated that the legal relationship between the assessee and its customers was that of lessor and lessee and in these circumstances, it cannot be said that the conditions of section 32 were not satisfied. He relied on the order of the Mumbai Bench of the Tribunal in the case of Dy. CIT v. Soni Capital Markets Ltd. [2004] 89 TTJ (Mum.) 10. He also filed copies of the assessment orders for the assessment years 1986-87 to 1989-90 in which the assessee s claim for depreciation has not been disallowed and pointed out that these orders were passed after scrutiny under section 143(3) of the Act. The relevant clauses of the lease document were also highlighted in the course of his argument to show that the transactions were leases and cannot be construed as money-lending ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ement of leasing" in which the usual terms of lease normally found in real lease documents were incorporated. Thus, though the intention of the parties was that it should be a finance transaction, the assessee being the lender of the money to the customer to enable the latter to acquire a vehicle and the customer being the borrower of the monies for interest, a document styled as a lease document was ultimately prepared. This is, therefore, not a case of the real intention of the parties being recorded in a formal document. What was recorded in the formal lease document was not the real intention. This case falls within the observations of the Supreme Court in the case of B.M. Kharwar ( supra ) wherein it was held that "if the parties have chosen to conceal by a device the legal relation, it is open to the taxing authority to unravel the device and to determine the true character of the relationship". This is not a case where the department is attempting to ignore the legal effect of a transaction by probing into the substance thereof. Here is a case in which the real intention of the parties is different from what is professed to be the intention in the lease document. We thus s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the stand of the assessee. No useful purpose, in our humble view, would be served by dilating on the terms of the lease document. 9. In the order of the Mumbai Bench of the Tribunal in the case of Soni Capital Markets Ltd. ( supra ) authored by one of us (the Vice President), there was no evidence to show that the real intention of the parties was to treat it as a money lending transaction. In that case, the departmental authorities attempted to displace the legal effect of the lease document by probing into the substance of the transaction, which was prohibited by the judgment of the Supreme Court in the case of B.M. Kharwar ( supra ). No evidence had been found in that case by the income-tax authorities, as had happened in the present case, to show that the real intention of the parties was to lend monies for interest. The departmental authorities in that case tried to read and interpret the lease document in favour of their stand that it was a money-lending transaction in substance. The Tribunal did not approve of the attempt. In the present case, on the other hand, there is evidence to show (which we have adverted to) that the real intention of the parties was to len ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... loss account. This ground is consequential to our decision in respect of the first ground wherein we have held that the transaction is a finance transaction and not a lease transaction. If it is a finance transaction, there is no question of allowing any depreciation. Therefore, we reverse the decision of the CIT (Appeals) and restore that of the Assessing Officer. 15. The third ground is that the CIT (Appeals) erred in holding that the assessee was entitled to depreciation of Rs. 1,31,17,203 and that the amount of only Rs. 46,96,093 which represented lease rentals was to be taken as income. It is agreed between the parties that the claim of depreciation mentioned in this ground is in respect of further vehicles acquired by the assessee during the relevant previous year on which depreciation was claimed on the footing that they were leased out to the customers under lease agreements. The nature of the transaction is the same as in the assessment year 1994-95. In a sense, this ground is related to ground No. 1. Whereas ground No. 1 is worded somewhat generally, ground No. 3 has brought out the amounts involved. Otherwise, both the grounds are in substance the same. In line with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same as a deduction. The CIT (Appeals) has examined the record and found that the expenditure was authorized by a resolution of the Board and the garments had also been sent abroad. In this situation, it is somewhat difficult to accept the contention of the learned CIT (DR) that no evidence for the purchase of the garments was available. We, therefore, uphold the decision of the CIT (Appeals) and dismiss the ground. 20. In the result, the appeal is partly allowed. 21. We now take up the appeal arising out of the order of the Assessing Officer under section 154 of the Act. The ground taken is that the CIT (Appeals) erred in cancelling the order passed under section 154 and thereby deleting the disallowance of Rs. 7,88,693 on account of right- cum -public issue expenses. The actual expenditure was Rs. 1,02,10,910 . This was treated by the Assessing Officer as capital expenditure in the assessment order. However, in the computation, the amount disallowed was only Rs. 94,22,217. By means of a rectification order under section 154, the Assessing Officer disallowed the balance of Rs. 7,88,693. The CIT (Appeals), following his decision in the appeal filed against the assessment o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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