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TMI Blog2024 (8) TMI 1026X X X X Extracts X X X X X X X X Extracts X X X X ..... ing questions of law for consideration of this Court: "a) Whether, on the facts and in the circumstances of the case and in law, the Hon'ble Tribunal was right in deleting the disallowance of Rs. 3,74,64,977/- being depreciation on leased assets ignoring the fact that the assessee does not fulfill the twin requirement of ownership and usage for business purpose to claim depreciation u/s 32 of the Act? b) Whether, on the facts and in the circumstances of the case and in law, the Hon'ble Tribunal was right in deleting the interest of Rs.3,16,716/- by holding that interest u/s. 220 (2) of the Act is chargeable upto original assessment order passed u/s. 143 (3) or 144 of the Act but not upto the order passed u/s. 143 (3) r.w.s. 254 of the Act?" 4. For the assessment year 1994-95, the assessing officer passed an order dated 31 March, 1997 under section 143 (3) of the Income-tax Act (for short "the Act") disallowing the claim of depreciation on assets given on lease by the assessee, by holding that the transactions of lease of various assets were mere financial transactions and the assessee was not entitled to depreciation under section 32 of the Act. The assessee carried the orde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xplanation as to why the assessee was eligible for depreciation on the said lease transactions. The assessee had throughout contended that the transactions of lease were not mere financial transactions and hence the assessee was entitled to depreciation allowance under section 32 of the Act. 8. We may observe that the legal issue as noted by us and raised before the Tribunal was subject matter of consideration before the Supreme Court in I.C.D.S. Ltd. vs. Commissioner of Income-tax & Anr. (2013) 350 ITR 527 (SC). In such case, the assessee had claimed depreciation relating to certain assets, which has been purchased in the name of third parties and financed by the assessee on which depreciation was disallowed by the assessing officer on the ground that the assessee has merely financed the purchase of these assets and the assessee was neither the owner nor user of these assets. The First Appellate Authority also disallowed assessee's claim for additional depreciation. The assessee hence had appealed before the Tribunal. The Tribunal confirmed the view taken by the First Appellate Authority against which the proceedings reached the Supreme Court. In such context, whether the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndate usage of the asset by the assessee itself. It was observed that as long as the asset was utilized for the purpose of business of the assessee, the requirement of Section 32 would stand satisfied, notwithstanding non-usage of the asset by the assessee itself. It was held that considering the income derived from leasing of the vehicles would be business income, or income derived during the course of business and it was so assessed, hence it fulfilled the requirement of Section 32 of the Act, namely, that the asset must be used in the course of business. The relevant observations as made by the Supreme Court read thus: "12. The provision on depreciation in the Act reads that the asset must be "owned, wholly or partly, by the assessee and used for the purposes of the business". Therefore, it imposes a twin requirement of 'ownership' and 'usage for business' for a successful claim under Section 32 of the Act. 13. The Revenue attacked both legs of this portion of the section by contending: (i) that the assessee is not the owner of the vehicles in question and (ii) that the assessee did not use these trucks in the course of its business. It was argued that depreciation ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is absent. Section 32-A (2) (b) merely describes the new plant or machinery which is covered by Section 32-A. The plant or machinery is described with reference to its purpose. For example, sub-section (2) (b) (i) prescribes "the purposes of business of generation or distribution of electricity or any other form of power". Sub-section (2) (b)(ii) refers to small-scale industrial undertakings which may use the machinery for the business or manufacture or production of any article, and sub-section (2) (b) (iii) refers to the business of construction, manufacture or production of any article or thing other than that specified in the Eleventh Schedule. Sub-section 2 (b), therefore, refers to the uses to which the machinery can be put. It does not specify that the assessee himself should use the machinery for these purposes. In the present case, the person to whom the machinery is hired does use the machinery for specified purposes under Section 32-A (2) (b) (iii). That person, however, is not the owner of the machinery. The High Courts of Karnataka and Madras have held that looking to the requirements specified in Section 32-A the assessees, in the present case, fulfil all the requirem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eing used by the assessee for its business purpose by treating the income derived by the assessee by such letting out as business income of the assessee, the development rebate must be considered as having been rightly granted. Therefore, where the business of the assessee consists of hiring out machinery and/or where the income derived by the assessee from the hiring of such machinery is business income, the assessee must be considered as having used the machinery for the purposes of its business. 13. A similar view has been taken by the Andhra Pradesh High Court in the case of CIT v. Vinod Bhargava (1988) 169 ITR 549 (AP) where Jeevan Reddy, J. (as he then was) held that where leasing of machinery is a mode of carrying on business by the assessee the assessee would be entitled to development rebate. The Court observed (p. 551): "[Once it is held that leasing out of the machinery is one mode of doing business by the assessee and the income derived from leasing out is treated as business income it would be contradictory, in terms, to say that the machinery is not used wholly for the purpose of the assessee's business." 17. Hence, the assessee meets the second requireme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t Coast Paper Mills Ltd. (Supra) which have been analyzed by the CIT (A) in his order and found to be identical to the facts of this case. In fact the order of the Tribunal in West Coast Paper Mills Ltd.(supra) was challenged in appeal being Income Tax Appeal No. 389 of 2008 filed by the Revenue in this Court. However, the same was dismissed on 16th October, 2008. Further, an SLP filed by the Revenue against the decision of this Court in West Coast Paper Mills Ltd.(supra) was also not entertained by the Apex Court by its order dated 9th October, 2009 in SLP (c) No. 26627 of 2009. Besides, in these facts we find that it is not disputed that HSEB has not claimed any depreciation and the respondent assessee had also taken loan against security of the leased assets." (emphasis supplied) 10. Apart from the aforesaid clear position in law as seen from the observations of the Tribunal, in the assessee's own case for the other years, the Tribunal had consistently followed the decision of the Supreme Court in I.C.D.S. Ltd. (supra) and in similar facts and circumstances, had allowed the assessee's claim for depreciation under section 32. The Tribunal in the order as impugned in the prese ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. of its revenue by giving wrong confirmations. So, we do not see any infirmity in the order of the FAA. Confirming his order, we decide the Ground No.11 against the AO." 6. Thus, considering the decision of Tribunal in assessee's own case on identical grounds of appeal, which was decided on the identical fact, we find that this ground of appeal is covered in favour of assessee and against the revenue. The coordinate bench decided the identical ground of appeal on the basis of decision of Apex Court in case of ICDS Ltd. (supra). Thus, respectfully following the decision of Tribunal the ground No.1 of appeal raised by assessee is allowed." (emphasis supplied) 11. Having heard learned counsel for the parties and having perused the record, in our opinion, the position in law as enunciated in the decision of the Supreme Court in I.C.D.S. (supra) would squarely be applicable in the facts of the present case. The revenue's contention on the basis of clauses of lease agreement, that the assessee although was the purchaser of the assets in question, by virtue of having made payments to the seller of the assets, and that the assessee had not acquired the risk of ownership of su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pplicable to these appeals. Hence, for such reasons, these appeals also stand rejected. No costs. Income Tax Appeal No. 412 of 2019 and Income Tax Appeal No. 673 of 2019 16. These appeals arise out of a common order passed by the Tribunal dated 19 December, 2017. By the impugned order, the Tribunal has allowed the assessee's claim of depreciation in regard to the leased assets similar to the facts which had arisen for consideration in our aforesaid judgment in Income-tax Appeal No. 1567 of 2018. 17. Income Tax Appeal No. 412 of 2019 gives rise to only one question of law, which is similar to question no.1 has fell for our consideration in the aforesaid judgment in Income Tax Appeal No. 1567 of 2018, and which has been not accepted by the Court, while upholding the impugned orders passed by the Tribunal in the said appeal. This being the only question in Income Tax Appeal No. 412 of 2019. For the reasons and conclusions as rendered in Income Tax Appeal No. 1567 of 2018, this appeal of the revenue would be required to be rejected. 18. Insofar Appeal No. 673 of 2019 is concerned, it gives rise to two questions of law, similar to the question which have fallen for consideration in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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