2005 (8) TMI 676 - HC - Income Tax

Tribunal Confirms Validity of Sale-Leaseback Deals; Lease Rent Deductions Allowed, Dismissing Tax Evasion Claims.

COMMISSIONER OF INCOME TAX Versus RAJASTHAN STATE ELECTRICITY BOARD

The Tribunal upheld the genuineness of the sale-cum-lease back agreements, reversing the AO's disallowance of lease rentals. It found the transactions ... Challenged the findings of Tribunal - claim of lease rentals on the transactions of sale-cum-lease back agreement - Whether the transaction of sale-cum-lease back is genuine or not and whether the lease rent should be allowed or not - HELD THAT:- The admitted facts are that assessee is a Government company and when the Tribunal found the transaction as genuine, this finding of fact in our view is not perverse and when the finding of the Tribunal is not perverse, no question of law does arise for admission of the appeal. The appeal stands dismissed at admission stage. Issues:1. Justification of Tribunal's deletion of lease rentals addition by AO.2. Permissibility of tax evasion through sale-cum-lease back agreements.Analysis:1. The first issue revolves around the Tribunal's decision to delete the additions made by the Assessing Officer (AO) concerning the disallowance of lease rentals in a sale-cum-lease back agreement. The Tribunal considered both factual aspects and legal provisions in detail. It analyzed various agreements where electrical equipment was sold to companies and then leased back by the appellant board. The AO initially deemed these agreements as sham or colorable devices for tax evasion. However, the Tribunal, after thorough examination, found that the appellant had rebutted the AO's contentions effectively. The Tribunal also noted that the board had raised substantial funds through these transactions at a lower interest rate compared to traditional borrowing methods. It referenced legal precedents to support the genuineness of the transactions and ultimately reversed the lower authorities' orders, directing the AO to allow deduction for the lease rent paid by the board.2. The second issue questions the permissibility of tax evasion through such sale-cum-lease back agreements. The Tribunal differentiated the case at hand from previous judgments by highlighting the genuine nature of the agreements entered into by the appellant board and various companies. It emphasized that the transactions were not aimed at reducing tax liability but rather at raising funds at a more favorable rate. The Tribunal rejected the notion of these transactions being sham, citing reasons such as the absence of actual execution based on agreements, lack of consideration, and proper payment records. It also referenced relevant legislative provisions, such as Explanation 4A to section 43(1) of the Act, introduced to prevent higher depreciation claims by lessors. Ultimately, the Tribunal concluded that the sale-cum-lease back agreements were valid and not sham transactions, dismissing the appeal at the admission stage due to the lack of a perverse finding by the Tribunal.In summary, the judgment delves into the intricacies of sale-cum-lease back agreements, analyzing the legality and justification of such transactions in the context of tax implications and financial dealings. The Tribunal's detailed examination of the factual and legal aspects led to the dismissal of the appeal, affirming the genuineness of the agreements and the validity of the lease rentals claimed by the appellant board.