TMI Blog2021 (7) TMI 121X X X X Extracts X X X X X X X X Extracts X X X X ..... f depreciation, the import of the same term purposes of business , used in the second proviso to Section 32(1) of the Act gains significance - the interpretation of these words would not be any different from that which we ascribed to them earlier, under Section 32 (1) of the Act. Therefore, the assessee fulfills even the requirements for a claim of a higher rate of depreciation, and hence is entitled to the same. In the present case, with regard to the ownership, inspection, repossession of the equipment on default, delivery of equipment on expiry of lease and ownership at the end of the lease period, are similar and therefore, it is the assessee alone who can claim depreciation, as rightly held by the assessing officer. The clauses relating to lease have already been interpreted by the Supreme Court in the case of M/s ICDS Ltd., [ 2013 (1) TMI 344 - SUPREME COURT] and it has been held that the assessee is entitled to the benefit of depreciation on leased assets under Section 32 of the Act of 1961 and therefore, the substantial question of law involved in the present appeal is no longer res integra and is squarely covered by the decision above as well as the judgment delivere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed the depreciation on assets leased under finance lease without appreciating the facts in the light of the provisions of Section 32 of the Act of 1961 and therefore, the same has resulted in prejudicial to the interests of the revenue. 4. The assessee did file a reply to the notice issued by the Principal Commissioner of Income Tax and submitted that the order passed by the assessing authority under Section 143(3) of the Act of 1961 dated 12.10.2012 is neither erroneous nor prejudicial to the interests of the revenue as the assessing officer has examined the issue of depreciation claimed on networking equipments and audio streamlining equipments etc., leased to the customers and after being satisfied with the explanation and after conducting an enquiry, keeping in view the Circular No.2/2001 dated 9.2.2001 issued by the CBDT and also keeping in view the judgment delivered in the case of M /s ICDS Ltd., v. CIT in Civil Appeal No.3282/2008, decided on 14.1.2013 has rightly allowed the claim of depreciation on leased assets. Hence, the order passed by the assessing officer cannot be called as erroneous insofar as it is prejudicial to the interests of the revenue. The assessee f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erms of parameters of said section and as the order of assessment passed by assessing authority was erroneous and prejudicial to the interests of the Revenue as the assessing authority ignored the issue of ownership of assets to ascertain that whether assessee is eligible to claim depreciation or not? 7. Sri Aravind, learned counsel for the Income Tax Department has argued before this Court that the order passed by the Income Tax Appellate Tribunal deserves to be set aside as the Principal Commissioner of Income Tax has rightly passed the order under Section 263 of the Act of 1961 especially in the light of the fact that the assessing officer has failed to conduct required enquiries on the issue of depreciation claimed on assets leased under finance lease transactions in the light of the provisions of Section 32 of the Act of 1961. He has laid great emphasis on the fact that for invoking the provisions of Section 32 a claim has to be made only by the assessee, in case he is the owner of the assets. He has further argued that the assessing officer while passing the order of assessment dated 12.10.2012 has completely ignored the issue of ownership of assets to ascertain that whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e order of assessment has examined the witnesses as requisitioned and has gone into complete details on record including the finance lease agreement entered into by the assessee and therefore, as a detail and exhaustive enquiry was held, the question of initiating proceedings under Section 263 of the Act of 1961 does not arise. He has argued that the Income Tax Appellate Tribunal was justified in setting aside the order passed by the Principal Commissioner of Income Tax under Section 263 of the Act of 1961. 11. Learned counsel for the assessee has also drawn the attention of this Court towards the CBDT Circular No.2/2001 dated 9.2.2001, wherein it has been clarified that for the purpose of taxation there is no difference between the operating lease and finance lease to claim depreciation. He has also argued that the assessing officer has taken into account all the evidence on record while passing the assessment order, that too, after being satisfied with the explanations offered by the assessee and therefore, his prayer is that the question of interference with the order passed by the Income Tax Appellate Tribunal does not arise and the Income Tax Appellate Tribunal was justifie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hty days in that previous year, the deduction under this sub-section in respect of such asset shall be restricted to fifty per cent of the amount calculated at the percentage prescribed for an asset under clause (i) or clause (ii) or clause (iia), as the case may be : Provided also that where an asset referred to in clause (iia) or the first proviso to clause (iia), as the case may be, is acquired by the assessee during the previous year and is put to use for the purposes of business for a period of less than one hundred and eighty days in that previous year, and the deduction under this sub-section in respect of such asset is restricted to fifty per cent of the amount calculated at the percentage prescribed for an asset under clause (iia) for that previous year, then, the deduction for the balance fifty per cent of the amount calculated at the percentage prescribed for such asset under clause (iia) shall be allowed under this sub-section in the immediately succeeding previous year in respect of such asset: Provided also that where an asset being commercial vehicle is acquired by the assessee on or after the 1st day of October, 1998 but before the 1st day of April, 1999 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e number of days for which the assets were used by them. Explanation 1.- Where the business or profession of the assessee is carried on in a building not owned by him but in respect of which the assessee holds a lease or other right of occupancy and any capital expenditure is incurred by the assessee for the purposes of the business or profession on the construction of any structure or doing of any work in or in relation to, and by way of renovation or extension of, or improvement to, the building, then, the provisions of this clause shall apply as if the said structure or work is a building owned by the assessee. Explanation 2.- For the purposes of this subsection written down value of the block of assets shall have the same meaning as in clause* (c) of sub-section (6) of section 43. Explanation 3.- For the purposes of this subsection, the expression assets shall mean- (a) tangible assets, being buildings, machinery, plant or furniture; (b) intangible assets, being know-how, patents, copyrights, trade marks, licences, franchises or any other business or commercial rights of similar nature. Explanation 4.- For the purposes of this subs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under the head Profits and gains of business or profession of any one previous year; (iii) in the case of any building, machinery, plant or furniture in respect of which depreciation is claimed and allowed under clause (i) and which is sold, discarded, demolished or destroyed in the previous year (other than the previous year in which it is first brought into use), the amount by which the moneys payable in respect of such building, machinery, plant or furniture, together with the amount of scrap value, if any, fall short of the written down value thereof : Provided that such deficiency is actually written off in the books of the assessee. Explanation .-For the purposes of this clause,- (1) moneys payable in respect of any building, machinery, plant or furniture includes- (a) any insurance, salvage or compensation moneys payable in respect thereof; (b) where the building, machinery, plant or furniture is sold, the price for which it is sold, so, however, that where the actual cost of a motor car is, in accordance with the proviso to clause (1) of section 43, taken to be twenty-five thousand rupees, the moneys payable in respect of such motor car ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by an order in writing, make an assessment of the total income or loss of the assessee, and determine the sum payable by him or refund of any amount due to him on the basis of such assessment: Provided that in the case of a- (a) research association referred to in clause (21) of section (b) news agency referred to in clause (22B) of section 10; (c) association or institution referred to in clause (23A) of section 10; (d) institution referred to in clause (23B) of section 10; (e) fund or institution referred to in sub-clause (iv) or trust or institution referred to in sub-clause (v) or any university or other educational institution referred to in sub-clause (vi) or any hospital or other medical institution referred to in sub-clause (via) of clause (23C) of section 10, which is required to furnish the return of income under subsection (4C) of section 139, no order making an assessment of the total income or loss of such research association, news agency, association or institution or fund or trust or university or other educational institution or any hospital or other medical institution, shall be made by the Assessing Officer, without giving effect to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder subsection (3) so as to impart greater efficiency, transparency and accountability by- (a) eliminating the interface between the Assessing Officer and the assessee in the course of proceedings to the extent technologically feasible; (b) optimising utilisation of the resources through economies of scale and functional specialisation; (c) introducing a team-based assessment with dynamic jurisdiction. (3B) The Central Government may, for the purpose of giving effect to the scheme made under sub-section (3A), by notification in the Official Gazette, direct that any of the provisions of this Act relating to assessment of total income or loss shall not apply or shall apply with such exceptions, modifications and adaptations as may be specified in the notification: Provided that no direction shall be issued after the 31st day of March, 2020. (3C) Every notification issued under sub-section (3A) and subsection (3B) shall, as soon as may be after the notification is issued, be laid before each House of Parliament. 13.3 Section 263 of the Act of 1961 reads as under; 263. (1) The Principal Commissioner or Commissioner may call for and examine the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er is passed allowing any relief without inquiring into the claim; (c) the order has not been made in accordance with any order, direction or instruction issued by the Board under section 119; or (d) the order has not been passed in accordance with any decision which is prejudicial to the assessee, rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person. (2) No order shall be made under sub-section (1) after the expiry of two years from the end of the financial year in which the order sought to be revised was passed. (3) Notwithstanding anything contained in sub-section (2), an order in revision under this section may be passed at any time in the case of an order which has been passed in consequence of, or to give effect to, any finding or direction contained in an order of the Appellate Tribunal, National Tax Tribunal, the High Court or the Supreme Court. Explanation .-In computing the period of limitation for the purposes of sub-section (2), the time taken in giving an opportunity to the assessee to be reheard under the proviso to section 129 and any period during which any proceeding under this sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of lease in the case of Hewlett Packard India Sales Pvt.Ltd., (supra) in paragraphs 6, 7 and 8 has held as under; 6. We have considered the submissions made by learned counsel for the parties and have perused the record. The clauses of the agreement in the case before the Supreme Court in I.C.D.S Ltd. supra and in the case of the assessee with regard to ownership, inspection, re possession of the vehicle of the equipment on default, delivery of equipment on expiration of lease and ownership at the end of the lease period are similar. From perusal of clause 8.1 of the agreement, it is evident that the lessee has to ensure the equipment showing the assessee's name as owner and in terms of clause 11 no alteration or improvements to the equipment can be made by the lessee without prior consent from the assessee. Thus, the assessee alone can claim the depreciation allowance. The aforesaid clauses have been interpreted by the Supreme Court in I.C.D.S. Ltd. supra and it has been held that the assessee is entitled to benefit of depreciation on leased assets under Section 32 of the Act. Thus, the questions of law involved in the appeal are no longer res integra and are square ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... neral statement of law on ownership may be the Sale of Goods Act; (ii) Section 2(30) of the MV Act must be read in consonance with sub-sections (4) and (5) of Section 51 of the MV Act, which were referred to by Mr. S. Ganesh, learned senior counsel for the assessee. The provisions read as follows: - (4) No entry regarding the transfer of ownership of any motor vehicle which is held under the said agreement shall be made in the certificate of registration except with the written consent of the person whose name has been specified in the certificate of registration as the person with whom the registered owner has entered into the said agreement. (5) Where the person whose name has been specified in the certificate of registration as the person with whom the registered owner has entered into the said agreement, satisfies the registering authority that he has taken possession of the vehicle from the registered owner owing to the default of the registered owner under the provisions of the said agreement and that the registered owner refuses to deliver the certificate of registration or has absconded, such authority may, after giving the registered owner an opportunity to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in (2003) 259 ITR 69 (Del); COMMISSIONER of Income-Tax Vs. M.G.F. (India) Ltd. reported in (2006) 285 ITR 142 (Del); Commissioner of Income-Tax Vs. Annamalai Finance Ltd., reported in (2005) 275 ITR 451 (Mad)]. In each of these cases, the leasing company was held to be the owner of the asset, and accordingly held entitled to claim depreciation and also at the higher rate applicable on the asset hired out. We are in complete agreement with these decisions on the said point. 28. There was some controversy regarding the invoices issued by the manufacturer whether they were issued in the name of the lessee or the lessor. For the view we have taken above, we deem it unnecessary to go into the said question as it is of no consequence to our final opinion on the main issue. From a perusal of the lease agreement and other related factors, as discussed above, we are satisfied of the assessee s ownership of the trucks in question. 29. Therefore, in the facts of the present case, we hold that the lessor i.e. the assessee is the owner of the vehicles. As the owner, it used the assets in the course of its business, satisfying both requirements of Section 32 of the Act and hence, is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... judgment of the Karnataka High Court the decision of the Supreme Court reported in 231 ITR 308 was relied upon. Therefore we have no hesitation to hold that the appellant- company is entitled to a higher rate of depreciation at 50% on the trucks leased out by it. We therefore, reverse the orders of the CIT (Appeals) on this issue. 32. For the foregoing reasons, in our opinion, the High Court erred in law in reversing the decision of the Tribunal. Consequently, the appeals are allowed; the impugned judgments are set aside and the substantial questions of law framed by the High Court, extracted in para 7 (supra), are answered in favour of the assessee and against the Revenue. There will, however, be no order as to costs. 18. This Court has minutely scanned the entire record and the clauses of agreement in the case before the Supreme Court in M/s ICDS Ltd., (supra) as well as in the case of Hewlett Packard India Sales Pvt Ltd., (supra) and in the case of the assessee, in the present case, with regard to the ownership, inspection, repossession of the equipment on default, delivery of equipment on expiry of lease and ownership at the end of the lease period, are similar an ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
