TaxTMI 
TaxTMI 
2022 (6) TMI 793
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.... books of accounts for compliance with Accounting Standards and as per Accounting Standard 19, the assessee treats the containers taken on finance lease as assets in its books of account and depreciates these assets over a period of time in its books of account even though it is not the legal owner of the containers. 9. It is the further case of the assessee that Accounting Standard 19 was introduced in the year 2001 and requirement of capitalising the assets taken under Finance lease was brought in from the said year. Till then even for accounting purpose all the lease rentals were charged as revenue expenditure and the question of capitalising the assets does not arise. It was further contended that for income tax purposes, the assessee has claimed the whole lease rentals as revenue expenditure. 10. The learned counsel on the either side referred to the relevant conditions in the agreement. The learned counsel for the assessee referred to the business conditions dated 15.08.2001, more particularly, Clause 3(b), which deals with the lessee's liability to the lessor for all damage to or loss or destruction of the containers. Reference was made to Clause 6(b), ....
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....ning the effect of Accounting Standard 19 as projected by the assessee. Therefore, we are of the considered view that the matter has to be decided afresh by the Tribunal by examining the documents, effect of Accounting Standard 19 as pointed out by the assessee and then take a decision on merits and in accordance with law. 14. As we are convinced that the Tribunal did not undertake any exercise to examine the factual aspect, we are well justified in interfering with the order passed by the Tribunal and remanding the matter for fresh consideration. Having come to such a conclusion, there would be no necessity of answering the Substantial Questions framed for consideration. 15. In the results, the appeals are allowed, the order passed by the Tribunal is set aside and the matter is remitted for fresh consideration to examine all factual and legal issues and proceed in accordance with law and the substantial questions of law framed for consideration are left open." It is evident that the order of the Tribunal has been set aside and matter has been remitted back for fresh consideration to examine all factual and legal issues and proceed in accordance with the law. A....
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.... 4.1 The assessee being resident corporate assessee is stated to be engaged in leasing of marine containers. The assessee obtains the containers on lease from lessor and sub-leases the same to various customers. The lease rentals so earned by the assessee are considered as its income and the same is credited to Profit & Loss Account. The leased containers are treated as part of fixed assets in the Balance Sheet and the assessee charges depreciation on the same as per The Companies Act in the books of accounts. The lease rental payable by the assessee is shown as liabilities. The lease payments made by the assessee would have two components i.e., principal portion and finance portion. The finance portion is debited to the Profit & Loss Account which is allowed by Ld. AO and the same is not the subject matter of dispute before us. The dispute stem from the fact that in the computation of income, the assessee adds back the book depreciation and claim the gross lease rentals as deduction from the profits. The Ld. AO opined that finance lease is a lease that transfers substantially all the risks and rewards incident to the ownership of the assets. Therefore, the assessee would be ent....
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....that the resident lessor had already offered entire lease rentals as its income for Income Tax purposes. 5.2 The Ld. CIT(A) taking note of revisionary order passed u/s 263 on 19.03.2014 for AY 2009-10, concurred with the observations of revisional authority in that order. It was also noted that the assessee's challenge to the revisional proceedings stood dismissed by Tribunal. In the revisional order for AY 2009-10, the case law of Hon'ble Rajasthan High Court in Rajshree Roadways V/s Union of India (263 ITR 106), as relied upon by the assessee, was held to be adjudicated by the terms of lease agreement. However, in assessee's case, no such examination was made by Ld. AO and therefore, the regular assessment was subjected to revision. The Tribunal upheld the validity of the revisionary order. Relying upon the observations in revisional order, the stand of Ld. AO qua disallowance of container lease payment was confirmed. 5.3 The foreign exchange loss on lease rental was upheld with following observations: I have carefully considered the AO's observation mentioned above under Para 7.1 and the appellant's submissions mentioned above under para 7.2 above. 7.3.1 ....
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....are transferred to the lessee and therefore, the lessee would be entitled to claim depreciation and not the principal component of lease payment. 7. We find that as per Accounting Standard-19 as introduced by The Institute of Chartered Accountants of India (ICAI) in the year 2001, the lease transactions are bifurcated into two types of lease i.e., finance lease and operating lease. As noted by Coordinate bench of Delhi Tribunal in Minda Corporation Ltd. V/s DCIT (69 Taxmann.com 317), as per AS-19, finance lease is described as a lease that transfers substantially all the risks and rewards in respect of ownership of an asset and title may or may not be transferred under such lease. An operating lease, on the other hand, is described as a lease other than a finance lease. The aforesaid Accounting Standard provides that under the finance lease, the lessee should recognize the asset in its books and should charge depreciation on the same. In the case of operating lease, the Accounting Standard provides that the lessee should recognize the lease payments as an expense in the profit and loss account and the lessor should recognize the asset given on lease and charge depreciation in re....
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....yments are treated as a deductible expense and no deduction is allowed for the impairment provision. In the hands of the lessor, the entire 'lease rentals' and not merely the finance charges component thereof is taxed as income. The lessor, who is the legal owner of the asset, is entitled to claim depreciation under the provisions of the Act. 8. The Hon'ble Supreme Court in the case of ICDS Limited Vs CIT (350 ITR 527), held that as long as the assessee is entitled to retain the legal title of the asset against the rest of the world then it would be the owner of the asset in the eyes of law. In such a case, the assessee as owner lessor would alone be entitled to claim depreciation notwithstanding the fact that vehicles were registered in the name of the lessee under The Motor Vehicles Act. In this decision, Hon'ble Court referred to its earlier decision in CIT V/s Shann Finance Pvt. Ltd. (97 Taxman 435). The Hon'ble Court also took note of similar decision rendered in CIT v. A.M. Constructions [1999] 238 ITR 775 (AP); CIT v. Bansal Credits Ltd. [2003] 259 ITR 69/126 Taxman 149 (Delhi); CIT v. M.G.F. (India) Ltd. [2006] 285 ITR 142/[2007] 159 Taxman 335 (Delhi); CIT v. An....
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....at is caused by normal wear and deterioration. It was the responsibility of the lessee to maintain the containers in good repair and safe operating conditions. Further, the lessee would not have the right to assign this Agreement to any other party without the prior written consent of the Lessor. However, lessee shall have the right to sublet or rent the container on lease under this Agreement, except that any such subletting or rental shall not relieve Lessee of its obligation under the agreement. 13. Upon perusal of terms and conditions of lease agreement, it could be concluded that the ownership of the containers has never been parted with by the lessor and lessee merely pays lease rental to the lessor. In such a case, it would only be the lessor which is entitled to claim depreciation as per the cited decision of Hon'ble Supreme Court in ICDS Limited Vs CIT (supra). 14. The Ld. CIT-DR, in the written submissions and by drawing attention to assessee's financial statements, have emphasized the fact that the aforesaid lease transactions are finance lease transactions and therefore, the action of Ld. AO was to be held. We find that there is no quarrel on the proposition since....
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.... as allowed by Ld. AO shall stand reversed. The claim of foreign exchange loss on these transactions shall be re-considered / re-adjudicated by Ld. AO in the light of our above adjudication. The appeal stand partly allowed in terms of our above order. 18. In AY 2007-08, the assessee has been reassessed u/s 143(3) r.w.s. 147 of the Act on 25.03.2015. The lease rental charges have been disallowed and depreciation & finance charges have been allowed by Ld. AO. The CIT(A), relying on revisional order u/s 263 for AY 2009-10, confirmed the stand of Ld. AO. Aggrieved, the assessee is in further appeal before us. Though the assessee has raised legal grounds assailing the validity of reassessment proceeding, however, the same has not been pressed before us during hearing. Therefore, these grounds stand dismissed as not pressed. Since that fact as well as issue, on merits, are pari-materia the same as in AY 2012-13, our adjudication as above shall mutatis mutandis apply to this appeal also. In the result, the appeal stands partly allowed. 19. In AY 2008-09, the assessee has been reassessed u/s 143(3) r.w.s. 147 of the Act on 25.03.2015. The lease rental charges have been disallowed and....