TaxTMI 
TaxTMI 
2016 (8) TMI 1093
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...., providing drivers, providing relief vehicles and emergency break-down services. Its other activities include distribution and wholesale trading in vehicles. The receipts from the principle activity of leasing and providing allied services are booked under the head of account 'lease rentals' and 'fleet maintenance charges' respectively (refer 'Statement of Facts' before the first appellate authority). The Assessing Officer (A.O.) disallowed the claim for depreciation, which though was allowed by the ld. CIT(A). The second issue is with regard to the revenue generated by way of 'fleet management charges', and qua which the assessee is in appeal. We shall take up the two in seriatim. 3. As regards depreciation, which is the subject matter of the Revenue's appeal, the same stood disallowed as the invoices and delivery notes (of the vehicles leased) are also in the name of the party using the vehicle (lessee), whose name appears on the vehicle registration certificate. Clearly, it was this party which is the owner of the vehicle, with the assessee being only a financer. Further, the assessee could produce confirmations as to non claim of depreciation by the lessees only by a few of t....
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....., the lease term varies from lessee to lessee. Further, along with the principal transaction of lease, other specified, incidental services may be provided, again, as per the requirement of the lessee. The same are clearly offered as a package, contractually, by way of value-added services, toward providing vehicle (commutation) solutions to the customers. The same though would not detract from ascertaining whether the lease under reference is an operating or a financial lease. The Revenue's concern, as we understand, is that the lessees may not, similarly, claim depreciation, contending the lease to be a financial lease, and toward which, therefore, the AO sought confirmation from the lessees in respect of non-claim of depreciation. This is as, admittedly, it is not the form but the substance (of the transaction) that matters and, further, what is relevant is the beneficial (de facto) ownership of the vehicle as against its' titular (de jure) ownership, and which, in case of a financial lease, vests with the lessee. Such confirmations could be provided, however, only by a few customers. The moot question, however, is whether such a claim by the lessee/s, assuming so, valid and, ....
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....r the Act. The insurance premium, though recovered from the lessee (as part of fleet management charges), is the obligation of the lessor, whose name is shown therein as the beneficiary. Confirmation from all major clients also stands furnished before the AO. In our view, therefore, the finding by the ld. CIT(A) of the character of the lease as an operating lease cannot, under the circumstances, be faulted, and the assessee, accordingly, entitled to it's claim for depreciation on the leased vehicles. The Revenue's appeal is accordingly dismissed. 5. We, next, take up the assessee's appeal. The assessee's claim is that the repair and maintenance costs are not period costs, but rise gradually with time, while the recovery thereof (which is along with a margin thereon) is made at a uniform rate, i.e., equally over the term of the lease. The higher (than proportionate) amount received in the initial years of the contract is to be regarded as an advance, which is appropriated to a reserve account. Recognizing revenue thus, is considered by the assessee as in agreement with AS-9 (issued by ICAI). The Revenue considers it as not proper in-asmuch as what is received does not carry any con....
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....a concomitant charge of Rs. 9,600/-. The excess Rs. 14,400/- (Rs.24,000 - Rs. 9,600) is transferred to the reserve account. In the latter years, where the normative cost is higher than the average, at Rs. 30,000 (say), the shortfall in the proportionate revenue for that year (Rs.36,000), is accounted by write back from the reserve account to that extent (Rs.12,000/-, or Rs. 36,000 - Rs. 24,000). The entire reserve created in the initial years would thus stand to be reversed in time. Further, the same would therefore stand to be provided and, thus, verified, with reference to each individual contract, i.e., qua each vehicle. We further suppose that the costs are also logged vehicle-wise, enabling verification of such 'provision', as well as it's reversal, and that the figure of Rs. 1 lac and Rs. 1.20 lacs (going by our example), being the aggregate cost and the corresponding charge respectively, are based on or approximate the amounts actually obtaining, and is demonstrable. We, accordingly, approve the accounting treatment - which forms the basis for returning income qua the said service, in principle. True, the 'excess' amount received in the initial years cannot be called or said....