9911796707
TMI Blog2013 (11) TMI 1667X X X X Extracts X X X X X X X X Extracts X X X X ..... r Section 234B is mandatory and therefore the impugned finding of Tribunal cannot be sustained. In view of the said statement, the question No.3 has to be answered in favour of Revenue and against the respondent assessee. Of course, the quantum or calculation of interest has to be made by the Assessing Officer in accordance with law as it would depend upon the total income determined after giving appeal effect. Question No. 3 is, accordingly, decided. 4. Question No.1 is also covered but against Revenue and in favour of the respondent assessee. It has been held by the Delhi High Court in CIT vs. Bansal Credits Ltd. (Delhi) 250 ITR 69 and by the Supreme Court in I.C.D.S. Ltd. vs. CIT (2013) 350 ITR 527 that the assessee engaged in the business of lease financing was entitled to higher rate of depreciation on vehicles used for hire, even when the vehicles were leased out to a third party. Question No.1 is accordingly answered against Revenue and in favour of the respondent assessee to the two assessment years. 6. Assessment Year 1996-1997 The assessee, in the return for the Assessment Year 1996-97, had claimed 100% depreciation on the purchase price of the following assets:- & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... changed the place of installation. The respondent assessee by the said transactions had managed to get benefit of depreciation and reduced their taxable income, though they were only providing finance. The Assessing Officer held that this was nothing but tax evasion and accordingly, he disallowed the entire claim of depreciation to the extent of Rs. 2,00,60,443/-. 9. The Commissioner of Income Tax (Appeals) affirmed the said finding observing that this was a case of sale-cum-lease back transaction. Lessees were obviously in need of resources for running business and required finance. In this background, the sale-cum-lease back transactions were entered into. The assets were not transferred to a third party but were leased back to the seller. Thus, the respondent assessee was only a paper owner and they did not have any right to enjoy or dispose of the assets at will. 10. We shall be referring to the order of the Tribunal, which is common to the Assessment Years 1996-97 and 1997-98, subsequently. 11. Assessment Year 1997-98 The Assessing Officer noticed that the respondent assessee was in the business of financing of vehicles and other plant and machinery. In the year in questi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gned order dated 04.05.2001 has reversed the findings recorded by the authorities. It has been observed as under:- 6.1 After hearing rival submissions and considering the material on record, we find that in this ground for both of the years, the assessee deserve to succeed. The assessee purchased Gas Cylinders from M/s Digboi Petroleum Ltd., Village Patwari, Bisrakh Rorad, Ghaziabad at a consideration of Rs. 50,30,443/-, Boilers from Dhillon Kool Drinks and Beverages Ltd, G.T. Road, Panipat for a consideration of Rs. 17 lakhs and Heating Furnace with Evaporator from M/s. Triveni Engg. Work Ltd., Khatauli, Muzaffarnagar for a consideration of Rs. 1,33,30,000/-. These articles were purchased on 25-9-1995, 23-9-1995 and 16-8-1995. The payments were made subsequently. The copies of accounts in regard to date of invoice and payments are placed in the paper book at pages 81 to 83. These articles purchased from these parties were issued back to the same parties and lease rent was shown by the assessee. The Lease Agreements were entered between the parties on 5-9-1995, 25-9-1995 and 29-9-1995. Copies of the agreements are placed in the paper book from pages 31 to 57. These agreements are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tribunal. For the sake of convenience, we are reproducing the said explanation: [Explanation 4A.-Where before the date of acquisition by the assessee (hereinafter referred to as the first mentioned person), the assets were at any time used by any other person (hereinafter referred to as the second mentioned person) for the purposes of his business or profession and depreciation allowance has been claimed in respect of such assets in the case of the second mentioned person and such person acquires on lease, hire or otherwise assets from the first mentioned person, then, notwithstanding anything contained in Explanation 3, the actual cost of the transferred assets, in the case of first mentioned person, shall be the same as the written down value of the said assets at the time of transfer thereof by the second mentioned person.] 15. The Explanation is not applicable to the factual matrix relating to the Assessment Year 1997-98 for several reasons. The assets relating to the Assessment Year 1997-98, which were the subject matter of sale and then lease, were new assets and not assets on which the seller/lessor had earlier claimed depreciation. This position stated before the assessi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reciation was admissible. The Explanation stipulates that the actual cost for the purpose of deduction of depreciation shall be taken to be the written down value at the time of transfer of the assets in the hands of the seller, who subsequently acquires the assets by way of hire, lease or otherwise. The paragraph 29.2 of the said circular specifically states that the sale or lease back made on or after 1st day of October, 1996 would be covered by Explanation 4A. In view of the clear stipulation in the circular, we are not required to examine and decide whether the said Explanation had a retrospective effect. But as far as the Assessment Year 1996-97 is concerned, the circular would not applicable as it does not apply to new assets. 17. The Assessing Officer has not contested the factual contention that the assets in question relating to the assessment year 1997-98 were new assets. To this extent, the assertion of the assessee before the Assessing Officer was not disputed or questioned. 18. The other question remains, whether the assessee is entitled to depreciation for the reasons set out by the Assessing Officer in the assessment order and the findings recorded by him and the F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the goods during the term of the lease including renewal thereof, remained with the lessor. Even replaced parts were immediately deemed to be parts of the goods given on lease by the lessor. In respect of the insurance, a clause stipulated that the lessee would get the items insured but in case of loss or damages, the claim would be in account of the respondent assessee. 22. The concept of financial lease was examined by the Supreme Court in Asea Brown Boveri Ltd. vs. Industrial Finance Corporation of India and Ors. 2005 (126) Compcase 332 and it has been observed as under:- What is a lease finance According to Dictionary of Accounting and Finance by R. Brockington (Pitman Publishing, Universal Book Traders, 1996 at page 136):- A Finance Lease is one where the Lessee uses the asset for substantially the whole of its useful life and the lease payments are calculated to cover the full cost together with interest charges. It is thus a disguised way of purchasing the asset with the help of a loan. SSAP 23 required that assets held under a finance lease be treated on the balance sheet in the same way, as if they had been purchased and a loan had been taken out to enable this.'' &nb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rewards incident to ownership are passed on to the lessee. The lessor only remains the legal owner of the asset. 3. Therefore, the lessee bears the risk of obsolescence. 4. The lessor is interested in his rentals and not in the asset. He must get his principal back along with interest. Therefore, the lease is non- cancelable by either party. 5. The lease period usually coincides with the economic life of the asset and may be broken into primary and secondary period. 6. The lessor enters into the transaction only as a financier. He does not bear the costs of repairs, maintenance or operation. 7. The lessor is typically a financial institution and cannot render specialized service in connection with the asset. 8. The lease is usually full-pay-out, that is, the single lease repays the cost of the asset together with the interest.'' In our opinion, financial lease is a transaction current in the commercial world, the primary purpose whereof is the financing of the purchase by the financier. The purchase of assets or equipments or machinery is by the borrower. For all practical purposes, the borrower becomes the owner of the prope ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtant. This test, it is apparent, has not been applied or even examined by the assessing officer. The lessor in this case had entered into the transaction only as a financier but did not bear the costs of repairs, maintenance or operation. The lessor was typically a financial institution and did not render service in relation to the assets. The lease usually should be for full-pay- out. Again, the word usually is significant and there is no adverse finding of the assessing officer on the said aspect. In the aforesaid exposition, the Supreme Court has pointed out that the transactions may be on account of requirements of tax laws and to avail benefits by way of tax planning to both the parties. 24. Here, it would be important to refer to the decision of the Supreme Court in I.C.D.S. Ltd. vs. CIT (supra). These were cases of finance lease of vehicles and the issue arose whether the finance companies were entitled to depreciation and the rate of depreciation. In the said case, the vehicles in question were registered in the name of lessee and not in the name of the lessor, i.e., the finance company. The Supreme Court after examining the clauses of the lease finance agreement, held th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been transferred to the respondent / assessee and that after the said transfer, the lease was entered into and the said equipment was leased back to the HSEB. It has not at all been established on the basis of evidence on record that the transaction was a colourable device entered into by and between the HSEB and the respondent / assessee. 19. We also note that a similar view has been taken by the Rajasthan High Court in the case of Commissioner of Income-tax v. Rajasthan State Electricity Board (supra) and the Gujarat High Court in the case of Commissioner of Income-tax vs. Gujarat Gas Company Ltd. (supra) which followed the decision of the Rajasthan High Court in the case of Commissioner of Income-tax v. Rajasthan State Electricity Board. (supra). 20. We find the observations of the Supreme Court in the case of Asea Brown Boveri Ltd. (supra) with regard to the nature of a financial lease are not of much use to the case of the revenue in view of the factual backdrop that, on facts, the transaction in question has been found to be genuine. Once it is established that the ownership of the said equipment is that of the assessee, then it is clear that the respondent/a ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
