TMI Blog2016 (8) TMI 1093X X X X Extracts X X X X X X X X Extracts X X X X ..... Confirmation from all major clients also stands furnished before the AO. In our view, therefore, the finding by the ld. CIT(A) of the character of the lease as an operating lease cannot, under the circumstances, be faulted, and the assessee, accordingly, entitled to it’s claim for depreciation on the leased vehicles. Transfer (of a part) of fleet management charges to maintenance accounts - Held that:- We observe several expenses forming part of the fleet management services, viz. providing relief vehicles, drivers, emergency breakdown services, door to door services, etc., and which are essentially period costs, so that all such costs which do not exhibit a pronounced increase with time, i.e., in relation to the age of the corresponding vehicle, would not be subject to such appropriation. The AO’s finding shall further include that in respect of reversal of the credit (on the basis of the rule being purportedly followed) as well. Reference to the said rule, we may add, is only toward the assessee following a scientific basis in allocating the revenue over the term of the lease and, accordingly would stand to be examined by the A.O., and the allowance of the assessee’s claim by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e ld. CIT(A), on perusal of the Master Lease Agreement (MLA) (which though may vary in some respects from customer to customer), as well as the operating lease agreements entered into by the assessee-company with its customers, opined the lease entered into by the assessee to be an operating lease, so that it, as a lessor, is a real owner of the vehicle leased, with the lessee being allowed only the right to user and concomitant possession. He, accordingly, directed allowance of depreciation, relying on Mysore Minerals Ltd. vs. CIT [1999] 239 ITR 775 (SC). Aggrieved, the Revenue is in appeal, raising the following Ground: 1. Whether on the facts and circumstances of the case and in law, the ld. CIT(A) was justified in allowing depreciation to the assessee on vehicles given on lease without appreciating the fact that the vehicles were not registered in the name of the assessee and the same were directly delivered to the parties using it and not to the assessee. 4. We have heard the parties, and perused the material on record. The basis of the assessee s claim, since allowed by the first appellate authority, is that the lease is a operating lease, so that the risk and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e s claim. It is the correct legal position that is relevant, and not the view that the parties may take of their rights in the matter [refer: CIT v. C. Parakh Co. (India) Ltd . [1956] 29 ITR 661 (SC); Kedarnath Jute Mfg. Co. Ltd. v. CIT [1971] 82 ITR 363 (SC)]. Notwithstanding, therefore, a claim of depreciation by the lessees/s, i.e., assuming so, there being no estoppel against law, the assessee s claim, where correct, cannot be denied. The proper course with the Revenue is to deny or, as the case may be, withdraw such a claim in the hands of the lessee/s. Rather, as the assessee contends, and which we endorse, claiming depreciation, i.e., as against lease rentals, by the lessee would be disadvantageous for it in-as-much as the latter shall exceed the former. The reason is simple; the lease rentals would include the profit element as well and, thus, be in excess of depreciation, worked out w.r.t. the cost of the asset. The law being well settled, it is the correctness of the assessee s claim on facts, on which it s claim therefore hinges. By all indica, it is an operating lease, guidance for which may be had from the Accounting Standard (AS) 19 (by ICAI). The vehicle, at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... curred, or liable to be incurred, in future, stand to increase, so be it, and which would only imply that the assessee would stand to earn a lower profit (on that account) for that year/s; each year being an independent unit of assessment. During hearing, the ld. AR was queried by the Bench that in that case an appropriation would be equally justified in respect of lease rentals, also charged uniformly, while the capital charge (for depreciation), being on WDV basis, is higher for the initial years. He conceded, would though submit that depreciation is a charge/allowance at the rates provided under the Act, so that the same, irrespective of the assessee s method of accounting in respect thereof, is to be claimed at the statutory prescribed rates. We agree. Further, the assessee s claim is, in our view, unexceptional. If the expenditure (on repairs) is the basis for the charge raised in its respect , as it indeed is, calibrating the receipt (by passing adjustment entries in the accounts) to synchronize with the costs likely to be incurred over the contract period, cannot be faulted. We make a statement in definite terms as, if the rendering of the relevant services, incurring th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s cannot be called or said to be an advance proper - which could only be so in terms of the contract, and neither the amount appropriated (to the reserve a/c) a provision . Yet, the amount so appropriated can be said as not liable to be recognized as revenue for the year of receipt, considering that the corresponding costs, which form the basis of the charge , is yet to be incurred (to that extent). In-as-much as uneven repairs and, therefore, corresponding services, are liable to be rendered over the lease term as indicated by the corresponding expenditure, the accounting treatment is in consonance with AS-9. The assessee s reliance on the decisions in Calcutta Co. Ltd. vs. CIT [1959] 37 ITR 1 (SC) and Madras Industrial Investment Corporation Ltd. vs. CIT [1997] 225 ITR 802 (SC), both advocating the matching principle, is apposite. The AO shall cause necessary verification as indicated above, subject to whose findings of fact we allow the assessee s claim. We may further add that the assessee s plea is acceptable only qua such expenditure which is subject to, in the normal course of events, an increase with time, i.e., is age (of the vehicle) related. We say so as we obs ..... X X X X Extracts X X X X X X X X Extracts X X X X
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