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TaxTMI 
TaxTMI 
TaxTMI 
2018 (1) TMI 327
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....file(s) perused. We heard these two cases in "D" & "C" bench on 18/12/2017 & 01/01/2018; respectively. There is no dispute that similar issues are involved in both cases. Therefore, we dispose of these appeals by the instant common order for the sake of convenience and brevity. 2. We come to the former issue of depreciation disallowance. This assessee is a company earning income from lease rent pertaining to its leased movable and immovable assets. The assessee had characterized its relevant income to be as income from other sources. It also raised its depreciation claims in the two assessment years qua the leased assets in question. The Assessing Officer went into a detailed discussion of the relevant statutory provisions enshrined in Section 32(i)& (ii) r.w.s. 57 of the Act to conclude that once the assets had been leased out and income therefrom is stated to be under other sources, it would not be held that the said assets are being used for its business purposes. He therefore disallowed assessee's above depreciation claims. 3. The CIT(A) reverses Assessing Officer's action in former assessment year as under: "5.1 Ground No. 1 to 7 (Ground No. 1 to 5 in concise ground) are i....
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....eal and lease back". Secondly, these transactions are not entitled for depreciation on assets so leased out in view of section 38 of the Act. read with section 57 (ii) of the Act. because leased assets cannot be treated as used for the purpose of appellant's business. The A.O. after rejecting detailed explanation from appellant (Already discussed at para 4A above) held that the assessee is not the real owner of the assets which has been leased out because all such assets were initially owned/ purchased by M/s AMI and M/s. AMI given finance to appellant to purchase these asset and taken back on lease in the form of transaction of "Sale & lease back". The A.O. relied on Hon'ble ITAT Mumbai order in the case of M/s. Indusind Bank Ltd (Supra) to emphasize that lessor has to provide only finance while all other things are dictated by lessee. The A.O. there after relied on Hon'ble Supreme Court case of Liquidators of Pursa Ltd. (Supra) and Hon'ble Gujarat high Court in the case of New India Industries Ltd. (Supra) to emphasize that word used in section 32 as 'used for the purpose of the business or profession' means "used for the purpose of enabling the owner to c....
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....ilable for the "Textile weaving unit". (ii) As per terms & conditions of lease deed, the deed was for 8 years for a monthly rent of Rs. 8,33,000/- per month from 01/10/2005 to 30/09/2013. But, there was a provision of "additional rent" on fulfilling certain condition of utilisation of such factory, machinery etc. As per CL. 2 of the agreement reflecting terms & conditions for lease rent, these provisions are mentioned. At cl. 2 (c) it is clarified that "It is clearly understood by both the parties that solely with a view to enable the lessor to discharge its loan repayment obligations, on a purely provisional and adhoc basis, the lessee shall release an "on account" monthly additional rent, if any, only if the preceding months utilisation of the Textile weaving unit had exceeded 84 percent usage." (iii) Appellant submitted a letter dt. 02/02/2006 from Export Import Bank of India (Ref. No. EOU:D-18:33) for sanctioning of loan (Rupee Term Loan) of Rs. 7.68 crore under Technology Upgradation Funds Scheme (TUFS) to the Serendipity Apparels Pvt. Ltd. Ahmedabad (SAPL) i.e. appellant for part financing the cost of setting up of a dedicated weaving unit for Arvind Mills Ltd., Ahmedab....
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.... was inter-alia based on the Hon'ble Supreme Court judgment in the case of Asian Brown Boveri where Hon'ble Supreme court observed that such lease first to be examined from the view point of finance lease or operation lease. In the case of fiance lease or transaction of sale & lease back, the "lessee" either having plant & machinery (assets) as ownership but for finance sold the same & take back on lease i.e. the assets are remained with "lessee" but on account of sale, finance comes into the stream. As against this, the 'lessee' who was not required the deduction of depreciation interalia pay the lease rent in the form of interest on such finance. In other such finance lease, the lessor is well sufficient of finances, transfer or sale the assets for which lease rent received till the total finance cost realized and after that such assets ownership transfer to lessee. In the case of appellant both those two types are missing. The appellant borrowed the money for purchase of assets and established the unit i.e. not having finance capacity. On the other hand M/s Arvind Mills Ltd. was not the owner of such assets but initiated certain actions, deeds and things for sett....
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....and clause (ii) of sub-section (1) of section 32 shall be restricted to a fair proportionate part thereof which the Assessing Officer may determine, having regard to the user of such building, machinery, plant or furniture for the purposes of the business or profession. An examination of provisions of section 56(2) (ii) show that the income from letting on hire machinery, plant or furniture which is not chargeable under the head profit and gains of business or profession shall be charged under the head income from other sources. Further, the provisions of section 57(ii) provides that in case of income referred to in 56(2)(ii), the deductions u/s. 32(1) subject to the provision of section 38 shall be allowed. Further examination of section 32(1) show that it is a deduction on account of depreciation on certain assets owned by the assessee and used for the purpose of business or profession. Section 38 restrict the depreciation, in case it is not exclusively used for the purpose of business or profession and the deduction eligible as per the provisions of section 32 shall be restricted to a fair proportionate part. Therefore, if the appellant is able to prove that the machinery is own....
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.... or leased out. The reliance placed by the appellant on the judgment of Honourable ITAT, Pune in the case of Kasat Textiles Pvt. Ltd. [61 TTJ 724] and the decision of ITAT, Chennai Bench in the J. Farm House [ITA No.310 to 313/MDS/2011] also supports the above view. Reliance is also placed on jurisdictional ITAT order dated 08/08/2012 in the case of ACIT (OSD), Circle - 4, Ahmedabad Vs. Jay Infa Trade Pvt. Ltd. Similar ratio is laid down in the cases of:- 1. CIT vs Kotak Mahindra Finance Ltd 227 CTR (Bom) 596 2. CIT vs Sundaram Finance Ltd (2012) 205 taxman 37 (Mad) In view of the above discussion, the correct interpretation of section 57(ii) would be that, to the extent, assets are leased and wholly used by the assessee, depreciation on such assets would be fully allowable and only if such assets are also partly used by the assessee for personal purposes other than the purpose of hiring, a portion of depreciation can be disallowed. Therefore, the appellant is entitled for depreciation as claimed by it. In view of these facts and respectfully following the decision of my predecessor for A. Y. 2009-10, the disallowance made by the A.O. is deleted. The grounds of appeal a....
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....llowed. 11. The main contention of the revenue in disallowing the claim of depreciation is that Section 30, 31 & 32 fall under part B of the Act which deal with the computation of income under the head "Profits and gains of business or profession". 12. We find that Under Clauses (ii) and (iii) of Section 57 in cases of income arising out of hiring of machinery, plant and furniture, the Legislature intended to confer the same benefit on the same terms as was available in respect of income under the head "Profits and gains of business or profession" on account of certain specified items of expenditure or deduction. The scheme appeared to be not to allow all deductions available for computing the income under the head "Profits and gains of business or profession" in respect of income arising out of letting out of plant, machinery and furniture but to allow deductions under certain specified heads which had a direct relationship with plant, machinery, etc. The deductions allowed were in the nature of expenditure on account of repairs, insurance and also deduction in respect of depreciation on the plant and machinery. Whether the income from such plant and machinery arose under th....
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....under the head "Income from other sources" in the light of the afore-stated discussions, in our considered opinion, the A.O. ought to have allowed depreciation as per the provisions of the law. 17. Section 32 (1) (iia) contains the provisions for the allowability of additional depreciation. As mentioned elsewhere, u/s. 57(ii) deductions are allowed as provided in Sections 30, 31 & 32 of the Act and since the legislature has not specified any provision in respect of any sub-clause in these sections, all the deductions provided in these sections have to be allowed accordingly. The ratios laid down by the Hon'ble Supreme Court mentioned elsewhere squarely apply to this issue also. We accordingly held that the assessee is entitled for additional depreciation and the A.O. is directed accordingly." Learned Departmental Representative fails to dispute all these intervening developments during the pendency of instant lis. We therefore adopt consistency to affirm CIT(A)'s findings under challenge in both these assessment years holding the assessee entitled for depreciation relating to its leased assets. The relevant issue is adjudicated in asessee's favour accordingly. Revenue's latter....