TaxTMI 
TaxTMI 
2014 (1) TMI 281
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....under the lease agreement 1.1 The ld. CIT(A) has erred o facts and in law in, alternatively not allowing the deduction of the initial payment and the instalment payment made by the assessee to DMRC under the said agreement over the period of the lease agreement.'' 2.1 The brief facts of the case are that the assessee is engaged in the business of transportation of goods and passengers. During the year under consideration, the assessee entered into a Metro Link Bus Service Lease Agreement dated 24-10-2007 with Delhi Metro Railway Corporation Ltd. (for short DMRC Ltd. ) for plying of feeder buses in Delhi to provide connectivity to Metro Stations. Alongwith Metro Link Bus Service Lease Agreement, a separate vehicle lease agreement for each ....
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....) mainly on the ground that DMRC Ltd. has already claimed depreciation on the cost of these buses. Therefore, depreciation cannot be claimed by two parties on the same assets for the same period and further the payment made by the assessee to DMRC Ltd. is an advance for acquiring the capital assets in future. Therefore, depreciation cannot be allowed on such advances as ownership of the asset was not transferred during the year under consideration. Regarding additional/ alternative claim of the assessee for allowing entire lease amount paid to DMRC Ltd., the ld. CIT(A) held that the component of the interest payment would be allowed as Revenue expenditure but the component of payment made as principal payment for acquiring the buses is an a....
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.... and tear costs. All risks and rewards incidental to the ownership vest with the assessee and not with M/s. DMRC Ltd. He has also referred the preamble of Metro Link Bus Service Lease agreement and submitted that after successful completion of the agreement and full payment of the cost of the buses, the ownership of the buses will be transferred to the operator (assessee), however till that time the ownership of the buses is not transferred in favour of the operator (assessee), M/s. DMRC Ltd. shall be the sole and absolute owner of the buses. Thus there is a mandatory provision in the agreement that on successful completion of the agreement and on full payment of the cost of the buses, the ownership of the buses will be transferred to the a....
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.... is no question of ownership to be transferred in the name of the assessee. He relied on the orders of the authorities below and submitted that when ownership of the buses was neither vested with the assessee nor to be transferred in the name of the assessee in future because of the termination of the agreement then the assessee is not entitled for depreciation. The ld. DR submitted that the decisions relied upon the assessee are not applicable in the facts of the of present case because in those cases, assets/ buses were purchased and registered in the name of the assessee whereas in the case in hand, the buses were not registered in the name of the assessee but the same were registered in the name of M/s. DMRC Ltd.. 2.6 We have considere....
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....on the question whether the agreements in question are in substance of operating lease or finance lease, various features have to be tested. The Hon'ble Supreme Court in the case of Asea Brown Boveri Ltd. (2005) 126 Comp Cas 332 (SC) and in the case of Association of Leasing and Financial Services Companies vs. Union of India (2010) 35 VST 549 has laid down various tests for determination of the real nature of the lease whether finance lease or operating lease. The broad features for a finance lease can be drawn as discussed by the Special Bench of the Tribunal in the case of Indus Bank Ltd. vs. Addl. CIT 15 (Trib) 89 (Mumbai) wherein the special Bench has discussed as under:- ''Thus it is apparent that the broader guidelines laid down by ....
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....sset. It is the lessee who pays taxes etc. in relation to such asset. The risks and rewards incidental to the ownership vest with the lessee. The features of bailment are absent in such a lease. The lessor simply holds the title of asset as his security till his investment and interest thereon is recouped. The lessor is only a symbolic owner during the period of lease and on the expiry of lease period, even such symbolic ownership comes to an end.'' 2.7 There is no dispute that in the case in hand, the so called lease in question is non- cancellable / irrevocable and there is a fixed obligation on the assessee for repayment of lease money. Further in the case of termination of premature lease, the lessor is entitled to recover his inves....