Finance lease depreciation and reassessment: double claim of depreciation can justify reopening, while lease-rental deduction may need fresh review.

Depreciation under section 32 on finance-lease assets depends on the contractual ownership position and business use; where the assessee is only a lessee and the lessor has the relevant ownership interest, the depreciation claim is not allowable, and double depreciation is not permitted. Reassessment under sections 147 and 148 is valid where tangible material shows a double claim of depreciation on the same assets, and a change-of-opinion challenge fails. Where the depreciation claim is rejected, an alternative claim for deduction of lease rentals as revenue expenditure may require separate examination on its own merits and can be remitted for fresh consideration.

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Issues: (i) Whether depreciation under section 32 was allowable to the assessee on assets taken on finance lease when the lessor had also claimed depreciation; (ii) whether reassessment under sections 147 and 148 was valid on the basis of information regarding double claim of depreciation; (iii) whether, upon rejection of the depreciation claim, the assessee's alternative claim for deduction of lease rentals required reconsideration.

Issue (i): Whether depreciation under section 32 was allowable to the assessee on assets taken on finance lease when the lessor had also claimed depreciation.

Analysis: The allowance of depreciation depends on ownership and use for business. In a finance lease, ownership is determined from the contractual terms, and the assessee must establish that it is the owner entitled to depreciation. On the facts found, the assessee was only a lessee, while the lessor retained the relevant ownership interest for the purpose of section 32. The Tribunal also relied on the principle that double depreciation cannot be permitted merely because the asset is used in the assessee's business.

Conclusion: The depreciation claim on the leased assets was not allowable to the assessee and the disallowance was upheld in favour of Revenue.

Issue (ii): Whether reassessment under sections 147 and 148 was valid on the basis of information regarding double claim of depreciation.

Analysis: Reassessment is valid where the Assessing Officer has reasons to believe that income has escaped assessment. The information that both the assessee and the lessor had claimed depreciation on the same leased assets furnished tangible material for reopening, and the reassessment was also within four years. The challenge based on change of opinion was not accepted.

Conclusion: The reassessment was held to be valid and the assessee's objection on jurisdiction failed.

Issue (iii): Whether, upon rejection of the depreciation claim, the assessee's alternative claim for deduction of lease rentals required reconsideration.

Analysis: The alternative claim for deduction of lease rentals as revenue expenditure had not been examined by the lower authorities. Since the depreciation claim was rejected, the Tribunal found that the alternative plea required adjudication on its own merits after providing opportunity to the assessee.

Conclusion: The issue was remitted to the first appellate authority for fresh consideration and was allowed for statistical purposes.

Final Conclusion: The challenge to the depreciation claim and the reassessment failed, while the alternate claim for lease-rental deduction was sent back for fresh examination, resulting in a mixed outcome with principal relief going to Revenue.

Ratio Decidendi: In a finance lease, depreciation under section 32 is allowable only to the party shown by the contractual terms to be the entitled owner for tax purposes, and reassessment is valid where escapement is supported by tangible material indicating a double claim of depreciation.

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