TMI Blog2023 (11) TMI 1050X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee and treated the same as capital expenditure. We find in appeal, CIT (A) NFAC held that the assessee is the owner of the leased vehicles and computers for the year under consideration. According to him, the registered ownership, insurance and usage of leased assets are with assessee. Therefore, the transaction was in nature of finance lease and not operating lease since the assessee has reclassified the leased assets to owned assets in its financial statement as well and is the real owner of the assets. CIT (A) NFAC however, directed the AO to allow interest portion of such lease rentals and allow depreciation on the leased assets after due verification. It is the submission of assessee that merely because the assessee is registered as owner under the Motor Vehicles Act cannot be treated as the legal owner as per the provisions of u/s 2(30) of Motor Vehicle Act 1988 and the same is a deeming provision that creates a legal fiction of ownership in favour of lessee only for the purpose of Motor Vehicles Act. It is also his submission that a perusal of the lease agreement, shows that the lessor is Orix and the assessee is merely the registered owner of the vehicle. We h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o which the A.R of the assessee appeared before the Assessing Officer and filed the relevant details. 4. During the course of assessment proceedings, the Assessing Officer noted that the assessee has claimed an amount of Rs. 3,43,44,661/- as revenue expenditure which is the principal amount of lease on vehicles and computers. On being asked by the Assessing Officer to justify the same, the assessee claimed that the leases are operating leases where the lessor is the owner of the assets till the end of the lease and the company does not claim depreciation on them. 5. However, the Assessing Officer was not satisfied with the arguments advanced by the assessee. He noted that the registered ownership, insurance and usage of the assets leased in the instant case are with the assessee. He also noticed from the financials of financial year 2017-18 that the assessee has purchased and reclassified the computers and vehicles taken on lease to owned assets. Relying on various decisions and on analyzing various terms and conditions of the lease agreement, the Assessing Officer was of the opinion that the assessee is not entitled to deduction of payment of principal amount as revenue expe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted that the Tribunal, following the decision of the Hon'ble Supreme Court in the case of ICDS Ltd (Supra) allowed the lease rental paid as revenue expenditure in the hands of the lessee itself. 11. So far as the contention of the Revenue that the assessee itself has reclassified the leased assets as owned assets in the books of account is concerned, he submitted that in terms of Accounting Standard 19 Leases ( AS-19 ) issued by the Institute of Chartered Accountants of India (ICAI), the assets acquired under financial lease has to be capitalized in the books of account and consequent liability thereon was also created. Accordingly, the assessee has charged depreciation on such assets in the P L Account which was subsequently disallowed u/s 32 of the Act by the assessee while computing the taxable income as per the Act. 12. Referring to the decision of the Hon'ble Supreme Court in the case of Sutlej Cotton Mills Ltd (116 ITR 1) and Kedarnath Jute Mfg. Co. Ltd (82 ITR 363), he submitted that the entries in the books of account is not determinative of liability towards income-tax for the purpose of the Act. The liability under the Act is governed by the provisions of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted that those decisions are distinguishable and not applicable to the facts of the present case. 17. The learned DR, on the other hand, heavily relied on the order of the Assessing Officer and the learned CIT (A) NFAC. During the course of argument, the learned DR drew our attention to Page No.24 of the Paper Book wherein it is mentioned as under: During the year, the company has exercised its option to purchase assets acquired under finance lease. Accordingly, Computers and Vehicles (leased assets) having Gross Block of Rs. 13,823.604 (Accumulated Depreciation of Rs. 13,823.64) has been reclassified from Leased Assets to Owned Assets . 18. Further, the learned DR drew our attention to page 105 of the Paper Book and had also drawn our attention to page 203 with respect to the ownership of vehicles which states as under: 2.5 Ownership of the Vehicle: The parties hereby confirm that their intent is that the Vehicle shall at all times remain the property of the Lessor. For the purposes of the Motor Vehicle Act, 1988 (the Act ) and the provisions thereof, the Vehicle provided on Lease hereunder shall be registered in the name of the Lessee as Registered Owner, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessing Officer to verify whether the assessee had purchased the assets under the financial lease after the expiry of the term. On the basis of the above said facts, it was submitted that the judgment relied upon by the assessee are distinguishable as in none of the matter, these facts were under consideration. 21. We have heard the rival arguments made by both the sides, perused the orders of the AO and the learned CIT (A) NFAC and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us by both sides. We find the assessee in the instant case has paid lease rentals for certain assets i.e. vehicles and computers which were taken on lease amounting to Rs. 3,43,44,661/- and claimed the same as a revenue expenditure while computing the income under the head profit and gains from business or profession. We find the Assessing Officer held that the registered ownership, insurance and usage of the leased assets are with the assessee. Further, the assessee itself has reclassified the computers and vehicles from leased assets to owned assets as per the audited financial statement. He therefore, disallowed the lease rent claimed by t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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