Lease classification turns on contractual substance, not accounting treatment, so a lease remains non-financing where ownership stays with the lessor.

The real character of a lease transaction is determined by the contractual terms, not by the accounting treatment adopted by the assessee. Where the agreement shows that the lessor retains ownership, the lessee acquires only lease rights, the equipment must be returned on expiry, and the document governs rent, default, renewal and termination as a lease, the arrangement is a simple lease rather than a finance lease. Invoking Accounting Standard 19 does not alter that substance.

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Issues: Whether the transaction in question was a finance lease so as to permit taxation of only the interest component of lease rentals and denial of the assessee's claim based on Accounting Standard 19.

Analysis: The agreement was examined on its terms and showed the attributes of a plain lease rather than a financing arrangement. The lessor remained the owner, the lessee had no title beyond the lease rights, the equipment was to be returned on expiry, and the document regulated rent, default, renewal and termination as a lease. The accounting treatment adopted by the assessee could not override the substance of the contractual terms. The Court therefore rejected the contention that the arrangement was a finance lease merely because Accounting Standard 19 was invoked.

Conclusion: The transaction was held to be a simple lease and not a finance lease; the assessee's contention was rejected.

Ratio Decidendi: The real character of a lease transaction is determined by the terms of the agreement and not by the accounting treatment adopted by the assessee.

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