Substance over form in tax law: lease deeds may be examined for real character, defeating depreciation claims on colourable arrangements.

The Tribunal's appellate power under section 254(1) extends to examining lease deeds already on record and assessing the real nature of the transaction rather than accepting form alone. The commentary notes that, where surrounding facts, timing, rental structure, delivery arrangements, party conduct and inconsistent clauses show a financing device, the arrangement may be treated as a colourable financial transaction instead of a genuine lease. On that basis, a claim for 100% depreciation on soft drink bottles would fail because the incidents of ownership and control do not correspond to a true hiring arrangement.

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Issues: (i) Whether the Appellate Tribunal could examine the lease deeds and the real nature of the transaction while hearing the appeal under section 254(1) of the Income-tax Act, 1961. (ii) Whether the arrangements relating to the soft drink bottles were genuine lease transactions entitling the assessee to 100% depreciation, or merely financial arrangements camouflaged as leases.

Issue (i): The appellate jurisdiction of the Tribunal is wide and permits it to pass such orders as it thinks fit after hearing both parties. Where the documents relied upon by the assessee are on record and are decisive for deciding the claim, the Tribunal is not bound to accept the form of the document without examining its substance. It may consider a question of law arising from the facts on record and may also entertain a ground necessary for a just decision of the case.

Conclusion: The Tribunal was competent to examine the lease deeds and determine their true legal character.

Issue (ii): The surrounding circumstances, the timing of the agreements, the rental structure, the absence of real delivery and return of the bottles, the conduct of the parties, and the inconsistent clauses in the documents showed that the so-called leases were not genuine hiring arrangements. The agreements were structured so that the assessee received return on investment with interest-like yield, while the incidents of ownership and control did not match a true lease. The transactions were therefore treated as colourable devices and financial arrangements, not leases giving rise to a claim for depreciation.

Conclusion: The assessee was not entitled to 100% depreciation on the bottles.

Final Conclusion: The impugned transactions were held to be financial arrangements disguised as leases, and the assessee's depreciation claim failed.

Ratio Decidendi: In determining tax liability, the Tribunal may look beyond the form of a document to its real substance, and a transaction that is found on the facts to be a colourable financial arrangement cannot be treated as a genuine lease for claiming depreciation.

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