TMI Blog2015 (8) TMI 168X X X X Extracts X X X X X X X X Extracts X X X X ..... see should recognize the asset in its books and should charge depreciation on the same. In the case of operating lease, the Accounting Standard provides that the lessee should recognize the lease payments as an expense in the profit and loss account and the lessor should recognize the asset given on lease and charge depreciation in respect of the same. The aforesaid distinction between finance lease and operating lease is not recognized under the Act. Under the provisions of the Act, depreciation is admissible under section 32 of the Act only to the 'owner' of the asset. Lease charges paid for the use of the asset, without acquiring any ownership rights in the same, are allowable as revenue expenditure under section 37 of the Act. Thus we hold that disallowance is not justified on facts and circumstances of the case. - Decided in favour of assessee. - ITA No.1962/Del./2012 - - - Dated:- 31-7-2015 - SHRI N.K. SAINI AND SHRI GEORGE GEORGE K, JJ. For The Assessee : Shri Rohit Jain, Advocate and Ms. Deepashree Rao, CA For The Revenue : Shri P. Dam Kanunjna, Senior DR ORDER PER GEORGE GEORGE K., JM : This appeal, at the instance of the assessee, is directe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lso found that the assessee company in its computation of income deducted a sum of ₹ 5,69,170/-, being income in respect of key man insurance policy. According to section 10 (10D), any sum received under a key man insurance policy will not be exempt from tax w.e.f, 1st October, 1996. Thus the deduction claimed by the assessee should have been disallowed and added to the total income of the assessee. It is also found that the assessee company had claimed and was allowed managerial remuneration amounting to ₹ 41,54,400/- during the previous year. This remuneration exceeds the limits prescribed in the Companies Act. Approval from the Central Government and share holders of the company was also pending. As the expenditure is not an authorized one, it should have been disallowed and added back to the total income of the assessee. I, therefore, have reason to believe that the income of ₹ 79,87,401/- has escaped assessment within the meaning of section 147 of the IT Act, 1961, due to omission on the part of the assessee to include this sum into its income for the relevant previous year. 3.2 Pursuant to the notice u/s 148 dated 19.03.2010, the reassessme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut forming a reasonable belief of escapement of income, which is sine qua non for assumption of valid jurisdiction. 1.3 That the CIT(A) erred on facts and in law in not appreciating that there being no failure on the part of appellant to disclose fully and truly all material facts necessary for assessment, the reassessment proceedings were initiated after four years from the end of the relevant assessment year were illegal and bad in law and the impugned order is, therefore, liable to be quashed. 2. That the CIT(A) erred on facts and in law in upholding the disallowance of ₹ 9,29,592 on account of lease payments made by the appellant. 4. Ld. AR reiterated the submissions made before the Income-tax authorities. Ld. DR, on the other hand, supported the order of the CIT (A). 5. We have heard the rival submissions and perused the material on record. We shall take up for consideration the issue on merits. The brief facts in relation to the disallowance are as follows. The assessee company acquired vehicles worth ₹ 27,88,776/- on financial lease. In terms of Accounting Standard 19 - Leases ( AS-19 ) issued by the Institute of Chartered Accountants of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act, depreciation is admissible under section 32 of the Act only to the 'owner' of the asset. Lease charges paid for the use of the asset, without acquiring any ownership rights in the same, are allowable as revenue expenditure under section 37 of the Act. 5.3 The Circular No.2 of 2001 dated 09.02.2001 (247 ITR (St.) 53) issued by the Central Board of Direct Taxes (CBDT) has opined that the aforesaid accounting standard issued by ICAI creating distinction between finance lease and operating lease will have no implications under the provisions of the Act. The relevant excerpt of the said Circular are reproduced herein below:- Under the Income-tax Act, in all leasing transactions, the owner of the asset is entitled to the depreciation if the same is used in the business, under section 32 of the Income-tax. The ownership of the asset is determined by the terms of the contract between the lessor and the lessee . It has come to the notice of the Board that the New Accounting Standard on 'Leases' issued by the Institute of Chartered Accountants of India require capitalization of the asset by the lessees in financial lease transaction. By itself, the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ugh the lease was categorized as finance lease. 5.7 The other relevant judgments are as follows :- (i) The decision of the Hon ble Rajasthan High Court in the case of CIT vs. Banswara Synthetic Ltd. - 216 Taxman 113, wherein the High Court while following its earlier decision in the case of Rajshree Roadways (supra) observed that lease rentals paid by an assessee in case of a finance lease is allowable as an revenue expenditure under section 37(1) of the Act. (ii) The decision of the Karnataka High Court in the case of Banashankari Medical Oncology Research Centre Ltd - [2009] 316 ITR 407 is also to the same effect. In that case, the assessee had taken certain equipments on lease for which it had paid a certain sum as deposit which was to be adjusted against the lease rentals and besides that, the assessee was also paying finance/interest charges to the owner of equipment. The entire amount of lease rentals paid during the year, was claimed by the assessee as revenue expenditure under section 37(1) of the Act, which was upheld by the High Court. (iii) The decision of the Jharkhand High Court in the case of CIT vs. Tata Robins Fraser Ltd - 253 CTR 227, wherein it was h ..... X X X X Extracts X X X X X X X X Extracts X X X X
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