Lease transaction treated as a colourable device where paper sale and lease failed to show genuine transfer of ownership.

A lease transaction involving computers and accessories was treated as a colourable device where the assessee bought the assets, resold them in the same year at the same price without profit, and then shortly entered into a lease arrangement. The transaction was found to be only constructive or on paper, with no physical movement of goods and no satisfactory explanation for the sequence of dealings. The court noted that the essential elements of a valid sale, including transfer of ownership for price, were not established. On that basis, the lease was held to be not genuine and the disallowance of lease rentals was justified.

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Issues: Whether the lease transaction was a genuine business arrangement or a colourable device, and whether the disallowance of lease rentals was justified.

Analysis: The assessee purchased computers and accessories, sold them in the same year for the same price without any profit, and then entered into a lease arrangement shortly thereafter. The sale was found to be only a constructive or paper transaction, with no physical movement of goods and no satisfactory explanation for the chain of transactions. The Court also noted that the ingredients of a valid sale, involving transfer of ownership in exchange for price, were not established.

Conclusion: The lease arrangement was not genuine and was rightly treated as a device to avoid tax. The disallowance of lease rentals was justified, and the question of law was answered in favour of the Revenue.

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