TaxTMI 
TaxTMI 
2012 (11) TMI 1275
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....e facts and circumstances of the case, the learned CIT(A) has erred in law in not concluding that the CBDT circular No.2 dated February 9, 2001 was binding on the AO in the context of the depreciation claimed by the appellant for the assets given on lease. 4. The learned CIT(A) has erred in law and on fact in not deciding on the ground pertaining to exclusion of amount of expenditure incurred in foreign currency by the appellant from the amount of 'export turnover' for the purpose of computation of relief under section 10A of the Act." 3. As regards ground No.4, the learned counsel for the assessee submitted that the alternate plea of the assessee to the above ground is covered by the decision of the Hon'ble Karnataka High Court in the case of CIT vs. Tata Elxsi Ltd. & Others (205 Taxman 321(Kar) wherein it has been held that when certain expenditure is excluded from the export turnover, then the same is also required to be excluded from total turnover for the purposes of computing deduction u/s 10A of the of the Income-tax Act, 1961 [hereinafter referred to as "the Act"]. Respectfully following the same, we direct the AO to exclude the expenditure in....
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....the equipment either during the period of lease or thereafter. He has drawn our attention to various clauses of the Lease Agreement to demonstrate that the lessee is a mere bailee of the lessor and that it does not have any proprietary right, title or interest in the equipment or any part thereof and that the lessee shall install, use and operate the equipment correctly and maintain the same in good working condition and repair it at own cost and comply with statutory operations and other requirements of law. He submitted that as per clause 11 of the Lease Agreement, the lessee shall not make any alteration, addition or improvement to the equipment or change the condition thereon without the prior consent of the lessor and that the lessee shall preserve the lessor's rights during the period of lease. He has drawn our attention to clause 18 of the Lease Agreement viz., the clause on the termination of lease which stipulates that the lessor shall be entitled to terminate the lease without any notice except as specified in clause 18.1.2 and at any time after the occurrence of such event and that as per clause 18.2 the lessor shall, without any notice, be entitled to ....
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....e Hon'ble High Court, while dealing with the allowance of investment allowance u/s 32A of the Act, has held that circular No.2 of 2001 is applicable and binding on the department. He submitted that the Special Bench of the Tribunal at Mumbai, in the case of Indus Ind Bank Ltd. vs. Addl.CIT (ITA Nos.6566/Mum/2002 & ITA No.606/Mum/2003 dated 14-3-2012) has dealt with the issue of depreciation on assets leased in the event of the transaction being held as a financial lease and submitted that the Hon'ble Special Bench has held the issue in favour of the revenue by holding that in the case of financial lease, it is the lessee who is entitled to depreciation and not the lessor. He submitted that for coming to this conclusion, the Tribunal has only followed the decision of the Hon'ble Supreme Court in the case of Asea Brown Bovery Ltd. vs. Industrial Finance Corporation of India (154 Taxman 512) but according to the learned counsel for the assessee, the Special Bench of the Tribunal has not considered the circular No.2 of 2001. Therefore, the Special Bench decision cannot be applied to the facts of the case before us. He has also drawn our attention to the Di....
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....e. The Hon'ble Supreme Court, in the case of Shaan Finance (P) Ltd., (supra) has brought out the following basic distinctions between an agreement of hire of machinery and an hire-purchase agreement: i) 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 and the owner is also entitled to depreciation on the machinery so hired out. ii) The hirer who pays hire charges is also entitled to claim it as revenue expenditure as he has no ownership on the new asset. iii) The transaction of hire is therefore a bailment of machinery. iv) There is no extinguishment of any right of the owner in the machinery but it is merely a license given to the hirer to use for a temporary period the machinery so hired. v) In contra-distinction to the above, in the case of hire-purchase agreement, the equipment shall eventually become the property of the hirer or confer on the hirer an option to purchase the equipment. vi) The periodical payments made by the hirer should, for tax purposes, be regarded as made up of (a) consider....
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.... . . . . . . . . . . WHEREAS the Lessee has requested the Lessor to purchase the equipment (hereinafter referred to as 'The Equipment') more particularly described in Lease Summary Schedule hereto and Supplementary Lease Schedules attached/to be attached hereto. AND WHEREAS the Lessee has offered to take on lease the Equipment so purchased by the Lessor. AND WHEREAS the Lessor has agreed to purchase and let on lease the Equipment to the Lessee upon and subject to the following terms and conditions. NOW THIS AGREEMENT WITNESSETH AND IT IS HEREBY AGREED BY THE PARTIES HERETO AS UNDER: 1.1 The Lessor hereby agrees to let and the Lessee hereby agrees to take on lease the equipment from the Lessor upon the terms and conditions mentioned in Lease Summary Schedule hereto. As and when the Equipment is leased to the Lessee, the Lessee shall further execute from time to time Supplementary Lease Schedules in favour of Lessor pertaining to the Equipment and disbursal made by the Lessor in relation thereto. Each such Supplementary Lease Schedule shall be deemed to form an integral part of this Agreement as if the same were ....
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....p; shall not be removed or sublet or assigned there-from without the prior written consent of the Lessor. The Lessee shall not affix or cause to be affixed permanent the Equipment to any immovable property. 5. The Lessee shall affix a name plate or other mark on the Equipment identifying the sole and exclusive ownership thereof of the Lessor and not allow or permit the same to be removed or defaced. OWNERSHIP 6. The Lessee acknowledges, confirms and declares that it holds the Equipment as a mere bailee of the Lessor and that it shall not have any proprietary right, title or interest in the Equipment or any part thereof and shall at all times, protect and defend as bailee/licensee of the Equipment, the Lessor's absolute and paramount right and title thereto and shall not at any time, advance or make any claim adverse to or in derogation of the Lessor's absolute and permanent ownership right and title. 7. The lessee shall install, use and operate the Equipment carefully and maintain the same in good working condition and repair at its own Cost and expenses in conformity with the instructions or operational manuals given by the ma....
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....surance shall be applied at the option of the Lessor: (i) in making good the damage, or (ii) in replacing the Equipment to which the terms of this Lease shall apply provided that in the event of irreparable loss or damage to the equipment as a whole the Lessor shall be entitled to terminate this Lease and to retain any insurance receipts by the Lessor in respect of thereof. Without prejudice to the aforesaid rights of the Lessor in event of such termination the Lessor shall also be entitled to recover from the Lessee all sums computed in the manner set out in clause 18.2 hereof. 8.4 In the event of failure of the Lessee to insure the equipment or to pay the insurance premia as above the Lessee hereby agrees that the Lessor may insure the Equipment and/or pay the insurance premia as above and the Lessee shall forthwith on receipt of a notice of demand from the Lessor reimburse all sums so paid by them together with service charges thereon at the rate of 21% per annum from the date of such payment by the Lessor. PAYMENT OF SALES TAX RATES AND OTHER CHARGES 9.1 The Lessee shall during the perio....
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.... The Lessee shall not make any alteration, addition or 11. improvement, to the Equipment or change the condition thereof without the prior written consent (such consent not to be unreasonably withheld) of the Lessor and all such additions improvements and attachments of any nature whatsoever, when made to the Equipment by the Lessee (whether at its own cost or not and whether with or without the approval of the Lessor) shall belong to the Lessor and be deemed to be part of the Equipment and shall be subject to the terms and conditions of this Lease. 15.2 In the event that the Lessee shall refuse, fail or be unable for any reason to accept delivery and installation of the Equipment other than for reason of the manufacturer failing to supply the same in satisfactory order and condition, the Lessor shall be entitled to terminate this Lease at any time within one month thereafter, by a notice in writing to the Lessee and the Lessee shall on demand, pay to the Lessor al costs of the Equipment together with a service charge thereon at the rate of 21$ per annum and expenses incurred by the Lessor for insuring, transportation, storing and maintaining the Eq....
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....sor shall in no way be liable or responsible to the Lessee for any liability, claim, loss, damage or expenses of any kind or nature whatsoever arising from the transportation and delivery of the Equipment, lease of the Equipment it storage, installation, use or operation or its failure to operate or perform or otherwise howsoever. TERMINATION 18.1. On the occurrences of any of the events specified below, the Lessor shall be entitled without prejudice to any other rights or remedies which the Lessor may have under this Lease or otherwise in law and notwithstanding any subsequent acceptance of lease rentals, to terminate this lease, without any notice except as specified in 18.1.2 hereof and at any time after the occurrence of such event. 18.1.1. If the Lessee fails to pay the lease rentals on the dates and in the manner stipulated in the Supplementary Lease Schedule(s) or other sums payable hereunder within 10 days of their becoming due, whether demanded or not. 18.1.2. If the Lessee fails or neglects to observe or perform or commits or allows to be committed a breach of any of the terms, conditions, provisions or stipulations of this Lease....
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....hich may be caused by any such detachment or removal of the Equipment. 18.2.2 Without prejudice to and in addition to the Lessor's rights provided in Clause 18.2.1 herein above, the Lessor shall also be entitled to recover from the Lessee the following amounts viz. (i) the entire amount of the lease rentals for the fixed period of the Lease computed in the manner set out in the Supplementary Lease Schedule on the footing and if the Lease had not been terminated to the end and intent that the Lessee shall pay to the Lessor not only arrears of lease rentals up to the date of termination of the Lease but also such further amount for the unexpired residue of the term which the lessee would have to pay to the Lessor the Lease continued. the cost of all repairs and maintenance of the (ii) Equipment to render and maintain it in good working order and condition and all costs, charges and expenses incurred by the Lessor in repossessing the Equipment and in endorsing its remedies however occasioned. The parties hereto agree and&n....
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....ghty three lacs four thousand six hundred and fifty nine only INR 8,304,659 Rupees Eighty three lacs four thousand six hundred and fifty nine only LEASE SUMMARY SCHEDULE 1. LESSOR Hewlette-Packard India Ltd. 2. LESSEE Pathnet India Pvt. Ltd. 3. DESCRIPTION OF EQUIPMENT Hewlettee-Packard Equipment 4. LEASE TENOR 36 months 5. LEASE VALUE Rs. 8,304,659 6. LEASE MANAGEMENT FEES 0% 7. LEASE RENTALS Rs. 806,964 12 rentals The pmpt rate indicates the total (Rs. 32.39 PMPT) rental charge per month for every Rs. 1000/- financed. The rentals are Quarterly in advance and shall commence from the date of delivery of the equipment 8. SECURITY DEPOSIT Nil 9. REPAIR AND MAINTENANCE Lessee's responsibility. Insurance INSURANCE ETC. policy to be endorsed with Hewlett-Packard India Lt., as Less payee. 10. SALES TAX ON LEASE RENTALS To be paid by the Lessee as applicable. 11 PAYMENT TERMS The Lessee shall provide post dated cheques covering the rentals payable for four quarters on an annual basis commencing from the start of the lease. Additionally the lessee shall prov....
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.... is the possessor and enjoyer of the equipment with all the rewards and risks involved therein. As observed by the Hon'ble Supreme Court in the case of Asea Brown Bovery Ltd.(supra), period of lease may extend over and covers the entire life of the property for which it remains useful divided either into one term or divided into two terms with a clause for renewal. In either case, the lease is non-cancellable. In the case before us also, the lease is not cancellable as is found from clause 15.3 wherein it is stipulated that the lessor shall not be responsible for any direct, indirect or consequential loss to the lessee or third party arising from any delay in delivery and/or installation of the equipment either by the action of the manufacturer or otherwise however or by reason of any delay in the commencement of the lease. It is also noticed that the equipment is selected by the lessee relying entirely on its own judgment and not on the statements or representations, if any, made by the lessor or its agent or servants and all the liabilities that the lessor might otherwise incur and any right or immunity, the lessor might otherwise possess or claim in respect of ....