2003 (9) TMI 310 - AT - Income Tax

Soft drink bottle leasing not eligible for depreciation; Tribunal rules transactions as financing, not leases.

DEPUTY COMMISSIONER OF INCOME TAX. Versus INDIAN MANAGEMENT ADVISORS & LEASING (P) LTD.

The Tribunal concluded that the transactions involving the leasing of soft drink bottles were more akin to financing arrangements than genuine leases. As ... Depreciation Issues Involved:1. Depreciation on soft drink bottles leased to M/s Coolade Beverages (P) Ltd.2. Depreciation on soft drink bottles leased to M/s Aravali Leasing Ltd. and sub-leased to Unikol Bottlers Ltd.Issue-wise Detailed Analysis:1. Depreciation on Soft Drink Bottles Leased to M/s Coolade Beverages (P) Ltd.:The first issue pertains to the direction of the CIT(A) for allowing depreciation on soft drink bottles given on lease to M/s Coolade Beverages (P) Ltd. The assessee had purchased soft drink bottles worth Rs. 19,54,953 from M/s Glass and Ceramics Decorators, Bombay, and these were to be supplied directly to M/s Coolade as per an agreement dated 15th Feb., 1991. The AO noted that only 42,000 out of 5,46,000 bottles were received by M/s Coolade before 31st March, 1991, and disallowed depreciation on the remaining bottles, arguing they were not put to use in the relevant year. The assessee contended that for claiming depreciation under s. 32, it was sufficient that the goods were used for the assessee's business, not necessarily by the lessee. The CIT(A) directed the AO to ascertain how many bottles were dispatched before 31st March, 1991, and allow depreciation accordingly.Both the assessee and the Revenue appealed this decision. The Tribunal examined the lease agreement and the supporting documents, including invoices, railway receipts, and transporter's challans. The Tribunal found that the transaction was more akin to a financing arrangement rather than a lease, as the bottles were not returned or the lease renewed after the lease period. The Tribunal concluded that the assessee was not the absolute owner of the bottles and was not entitled to depreciation. The disallowance made by the AO was confirmed.2. Depreciation on Soft Drink Bottles Leased to M/s Aravali Leasing Ltd. and Sub-leased to Unikol Bottlers Ltd.:The second issue involves the disallowance of depreciation on soft drink bottles worth Rs. 30,17,122 leased to M/s Aravali Leasing Ltd., who sub-leased them to Unikol Bottlers Ltd. The AO noted discrepancies in the transportation and payment of charges, and the fact that M/s Aravali Leasing Ltd. entered into a sub-lease agreement before acquiring any rights in the bottles. The AO concluded that the transaction was sham and disallowed the depreciation claim.The assessee argued that the lease agreement with M/s Aravali Leasing Ltd. was executed on 15th March, 1991, and that the bottles were supplied to Unikol Bottlers Ltd. starting from 10th Dec., 1990. However, no evidence was provided to substantiate the payment of transportation charges. The CIT(A) upheld the AO's decision, finding no credible evidence to support the assessee's claims.Upon appeal to the Tribunal, it was found that the lease agreement with M/s Aravali Leasing Ltd. did not authorize sub-leasing to Unikol Bottlers Ltd. The Tribunal noted that the lease agreement was executed in a casual manner, and the terms suggested a financing arrangement rather than a lease. The Tribunal concluded that the transaction was sham and upheld the disallowance of depreciation.Conclusion:In conclusion, the Tribunal found that both transactions were not genuine leases but rather financing arrangements. The assessee was not entitled to depreciation on the soft drink bottles in either case. The appeal of the assessee was dismissed, and the Revenue's appeal was allowed.