Finance lease versus operating lease characterisation required fresh verification before deciding the deductibility of lease rentals.

Lease rentals paid for vehicles and computers were claimed as business expenditure, but the Tribunal found the record incomplete because the lease agreement schedules had not been produced despite directions. The allowability depended on the true character of the arrangement, including whether the assets had been reclassified as owned assets, whether a purchase option had been exercised, and whether the transaction was in substance a finance lease or an operating lease. Because the relevant documents were missing, the matter was sent back for fresh factual verification and a decision on the lease rental claim in accordance with law.

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Issues: Whether the principal portion of lease rentals paid for vehicles and computers was allowable as revenue expenditure, or whether the transaction required fresh examination to determine if it was a finance lease or an operating lease.

Analysis: The lease rentals were claimed as business expenditure, but the record before the Tribunal was incomplete because the schedules to the lease agreements were not produced despite direction. The dispute turned on the true character of the arrangement, including whether the assets had been reclassified as owned assets, whether the assessee had exercised a purchase option, and whether the lease was in substance a finance lease or an operating lease. In the absence of complete schedules and documents concerning subsequent purchase of the assets, the Tribunal found it necessary to re-examine the factual matrix and direct the Assessing Officer to verify the agreements afresh and then apply the relevant judicial principles.

Conclusion: The issue was remanded to the Assessing Officer for fresh examination, with directions to verify the lease agreements and decide the allowability of the lease rental claim in accordance with law.

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