TaxTMI 
TaxTMI 
2013 (3) TMI 127
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.... endorsed the views of the Appellate Authority. This appeal, preferred in challenge to the orders so passed by the Appellate Authority and the Tribunal, has been admitted on the following substantial question of law: "Whether in the facts and circumstances of the case the learned Tribunal was justified in dismissing the appeal of the revenue and confirming the order of the CIT(A) regarding deletion of addition of Rs.50,76,176 made by the AO on account of disallowance on lease rent ignoring the finding of the AO that lease agreement is that of a financing and not of the operational work." The facts and background aspects for the purpose of present appeal could be noticed in the following: The assessee-company derives the income from manufacture of yarn and fabric. In its return for the assessment year 2000-2001, the assessee-company, inter alia, claimed in the profit and loss account an amount of Rs.58,18,153/- towards lease rental and interest in regard to the machinery, said to have been taken on hire. The AO, upon examination of the lease agreements, formed the opinion that they were only of finance lease and not of operational lease. The AO observed that the risks incident to ....
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....y of equipment by the lessee on termination ii) Lessors right to assign the receivables etc. iii) Lessee to affix the name plate. iv) Lessee not to part with the possession v) Lessee not to have any right in equipment except bailee. vi) Lessee to ensure the equipments. vii) Lessee not to transfer or dispose off equipments for interest in the lease. viii) Lessee not to make alterations in the equipments, additions belong to lessors ix) Seizure confiscate of the equipment not to claim and relief, allowance etc. x) Sale of the equipment by the lessor, sale through the agency of the lessee and the lessees reward." The learned CIT(A) further referred to the submissions that the relevant considerations were to examine whether the lease transactions were unreal or sham or made only to evade the tax; and whether the lessor was legally the owner of assets. The CIT(A) observed that if the agreements were real and genuine, they had to be accepted as they stood. The CIT(A) further noticed the fact that the lease rentals had been allowed as business expenditure in the case of the appellant for the assessment years 1996-1997 to 19992000 but the AO deviated from the stand taken by his p....
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....of Shri Rajasthan Syntex Vs. Assistant Commissioner of Income-tax [ITAT Jodhpur Bench]. Thus, this ground also stands covered in favour of the assessee, therefore, we confirm the findings of the ld. CIT (A) and dismiss ground No. 1 of the appeal either." Questioning the orders aforesaid, it is submitted that whether a lease is a finance lease or an operational lease depends on the substance of the agreement rather than its form. According to the appellants, as per the lease agreements, the obligation to pay rental is absolute and not conditional whereas in the operational lease, the rental should be related to actual use of machinery. Then, the lessee was responsible for quality, cost, delivery, condition, durability and insurance of machinery; the fact of damage or loss to the machinery would not be affecting the payment of lease rent; and the lessee was also required to pay all rates, tax, licence, fee, registration charges and other outgoing payable in respect of equipments. It is contended that all such features establish beyond doubt that the risks incident to the ownership of the assets stood substantially transferred to the lessee even if ownership as such had not been tran....
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....rect application to the present case, as under: "Neither of these cases deals with an agreement of hire of machinery in contradistinction to an agreement of hire purchase. When the machinery is given on hire by the owner to the hirer on payment of hire charges, the income derived by the owner is business income. The owner is also entitled to depreciation on the machinery so hired out. The hirer, on the other hand, who pays hire charges, is entitled to claim these as revenue expenditure. The hirer has not acquired any new asset. A transaction of hire is, therefore, of bailment of the machinery. There is no extinguishment of any right of the owner in the machinery. There is merely a licence given to the hirer to use, for a temporary period, the machinery so hired......" (emphasis supplied) In the case of Rajshree Roadways (supra), this Court considered the matter where the lessee had the option of purchasing the trucks on payment of 1% of lease money at the end of the lease period but as regards the lease period, this Court found the lessor to be the owner of the trucks and the lessee having no right to transfer or alienate. Further, it had been agreed that the lessor would be ent....