TaxTMI 
TaxTMI 
2008 (5) TMI 276
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....sessment proceedings? (ii) Whether, on the facts and circumstances of the case, the Income-tax Appellate Tribunal was justified in holding that the assessee is entitled to get depreciation under section 32 on the assets claimed to be taken on lease, as owner of the assets?" 3. Appeal No.13 has been admitted on March 13, 2007, by framing the following one substantial question of law, which happens to be question No. 2 in other three appeals: "Whether, on the facts and circumstances of the case, the Income-tax Appellate Tribunal was justified in holding that the assessee is entitled to get depreciation under section 32 on the assets claimed to be taken on lease, as owner of the assets?" 4. All these four appeals relate to different assessment years. 5. Necessary facts are that the assessee Shree Rajasthan Syntex Limited had leased out certain plant and machinery to M/s. Rajasthan Texchem Limited under different agreements executed on different dates for a specified period of time at a monthly rent stipulated in the agreements. The assessee-lessor has its registered office at Udaipur, while the lessee M/s. Rajasthan Texchem Limited has its registered office at Mumbai and is asses....
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....eleted the addition made by the Assessing Officer regarding depreciation. Aggrieved of these orders of the learned Commissioner (Appeals) dated October 18, 2005, the Revenue filed appeals before the Tribunal and the learned Tribunal by common order dated July 13, 2006, while following its earlier order, upheld the order of the learned Commissioner (Appeals), in paragraph 6 of the order dated July 13, 2006. 10. This is how the four appeals come before us. 11. In the order dated December 22, 2003, the learned Tribunal has discussed both the aspects, i.e., about the sustainability of the action of the Assessing Officer in reopening the assessment for examining the question as to whether the circumstances existed authorizing the Assessing Officer to reopen the assessment and after discussing various case law of different High Courts and the hon'ble Supreme Court so also this court came to the conclusion that the learned Assessing Officer did not have any jurisdiction to review his own order and that the opinion framed by the Assessing Officer on the opinion of another Assessing Officer could not be made basis to initiate the reassessment proceedings as it was described to be a "borro....
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.... of the lease agreements to show as if the assets were acquired by the lessor and were leased out to lessee. The veil was rightly required to be pierced and has rightly been pierced by the Assessing Officer and was rightly confirmed by the learned Commissioner in appeals relating to the assessment years 1996-97 and 1997-98 by coming to the conclusion that the purported lease agreements are only financial leases and, therefore, the assessee is not entitled to any depreciation under section 32. It was contended that the learned Tribunal has not properly construed the terms and conditions of the lease agreements, rather the learned Commissioner (Appeals) had properly appreciated various clauses of the lease agreements. 14. On the other hand, learned counsel for the assessee supported the impugned judgment of the learned Tribunal on all counts. 15. We have heard learned counsel, have gone through the judgments and have considered the legal provisions and the case law as well. 16. Coming to the first question about validity of assumption of jurisdiction under sections 147 and 148 by the Assessing Officer, we may gainfully quote the provision of section 147(1), which reads as under: ....
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....Ltd. [1998] 234 ITR 170 (Delhi) the Income-tax Officer attempted to reopen an assessment because the opinion formed earlier by him, in his opinion, was found to be incorrect. It was held that reopening could not be done. In that case, it was also held that if an expenditure or deduction was wrongly allowed, while computing the taxable income of the assessee, the same could not be brought to tax by reopening the assessment merely on account of the Assessing Officer subsequently forming an opinion that earlier he had erred in allowing the expenditure or the deduction. Then, in other cases, the view has been taken that "reason to believe" is a sine qua non and such reason must be based on material while change of opinion does not satisfy the requirement of such material. 19. In our view, of course, it has been very intelligibly projected that the factum of the Assessing Officer at Mumbai having allowed depreciation allowance to the lessee did constitute a fact which came to the notice of the Assessing Officer here and that furnished reason to believe that the income of the assessee chargeable to tax had escaped assessment but then if properly appreciated all that it comes to is that ....
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....of profit so also the loan transactions were put in the form of lease transaction only to avail of tax benefits. Then, the learned Commissioner (Appeals) purportedly proceeded to consider various clauses of the lease deeds and described the above clauses to be general clauses utilized normally in preparing a lease agreement not giving clear indication about the substance of the transactions. Then, the learned Commissioner (Appeals) proceeded to take into account clauses 4, 8, 9, 10, 14, 15, 18 and 30 and on that basis concluded that it is clear that in real substance the alleged lease agreement is only a finance lease and not an operating lease and also concluded that the risks of accidents to the ownership of the assets stand substantially transferred to the lessee although apparently the title to the assets has not been so transferred and held the lease agreement being in the nature of a finance lease not a normal operating lease. 23. Clause 4 of the lease agreement stipulates about payment of rental not withstanding the fact that machinery or any of them remain out of commission or out of order due to whatever circumstances. Then, clause 8 provides for the lease being not canc....
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....ng on the business of leasing and hire purchase and that the assessee-company, during the relevant year carried out the business of leasing to more than one person. It was also found as a fact available on record that the public financial institutions like ICICI and IDBI provided financial assistance of Rs.1,500 lakhs to the assessee against security of assets for carrying the lease business. It was further found that the two companies are independent limited companies, which are listed in recognized stock exchange and are independent legal entities incorporated under the company law. It has also been found that the supplier of the equipments have supplied and delivered the assets and payment of taxes, etc., have also been made by the assessee company and insurance cover also mentions the assessee-company as the owner of equipments. Then, in the financial statements of the assessee company, the leased assets have been separately shown and the accounts are audited by the statutory auditors and the same have been approved by the board of directors. With this, the learned Tribunal again reproduced/recapitulated various clauses of the lease deed, as considered by the learned Commission....
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....arges, is entitled to claim these as revenue expenditure. The hirer has not acquired any new asset. A transaction of hire is, therefore, of bailment of the machinery. There is no extinguishment of any right of the owner in the machinery. There is merely a licence given to the hirer to use, for a temporary period, the machinery so hired. In the case of Damodar Valley Corporation v. State of Bihar [1961] 12 STC 102; AIR 1961 SC 440, this court examined the contract under which the machinery and equipment was supplied by the corporation to the contractors. The question was whether it was a mere contract of hiring or a sale or a hire purchase. The court said (page 445) : 'It is well-settled that a mere contract of hiring, without more, is a species of the contract of hiring, without more, it a species of the contract of bailment, which does not create a title in the bailee, but the law of hire purchase has undergone considerable development during the last half a century or more and has introduced a number of variations, thus leading to categories, and it becomes a question of some nicety as to which category a particular contract between the parties comes under'. We need not dwell on ....