Sale and leaseback depreciation allowed where title passed genuinely and no sham or colourable device was proved.

Depreciation on assets sold and leased back was upheld where sale deed, invoice and lease agreement showed transfer of title to the assessee and leaseback to the original owner. The court treated the contractual documents and surrounding circumstances as decisive of the parties' intention, and held that a mere tax advantage did not make the arrangement unreal. Depreciation could be denied only on proof that the transaction was sham, dubious or a colourable device; no such evidence was established. A letter suggesting the arrangement was entered into to raise finance did not bind the assessee. The transaction was therefore genuine, ownership for depreciation purposes remained with the assessee, and depreciation was allowable.

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Issues: Whether depreciation was allowable on assets sold and leased back to the transferor when the transaction was alleged to be a financing arrangement and not a genuine sale and lease back.

Analysis: The sale deed, invoice and lease agreement showed transfer of title in the equipment to the assessee, followed by a lease back to the original owner. The documents recorded the assessee as owner and the lessee acknowledged possession under the lease. The intention of the parties had to be gathered from the contractual documents and surrounding circumstances. A mere tax advantage did not render the transaction unreal. Depreciation could be denied only if the transaction were shown by evidence to be sham, dubious or a colourable device, which was not established on the record. The reliance on the letter stating that the transaction was entered into to raise finance did not bind the assessee.

Conclusion: The transaction was held to be genuine, the assessee was the owner of the equipment for depreciation purposes, and the claim of depreciation was allowable.

Ratio Decidendi: A genuine sale and lease back transaction, supported by contemporaneous documents showing transfer of title and absence of evidence of sham or colourable device, cannot be disregarded merely because it yields a tax benefit; depreciation follows ownership.

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