TaxTMI 
TaxTMI 
2022 (9) TMI 57
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.... confirming the disallowance of the principal portion of lease rent as capital expenditure as against the claim of the appellant that the entire lease rental is revenue expenditure as a lessee. 3. The Commissioner of Income-tax (Appeals) ought to have found that the Assessing Officer has not considered the CBDT Circular No.2 of 2001 dated 09.02.2001 (247 ITR (St.) 53), which is binding on him, wherein it has opined that the Accounting Standard AS19 i.e. accounting for leases issued by the ICAI issued by ICAI creating distinction between finance lease and operating lease, will have no implications under the provisions of the Act. 4. The Commissioner of Income-tax (Appeals) ought to have found that the distinction between finance lease and operating lease is not recognized under the Income tax Act. 5. The Appellant relies on the following decisions (i) ITAT Delhi. Bench in M/s. Minda corporation Limited vs. DCIT ITA No.1962/ Del. /2012, (ii) Rajasthan High Court in Rajshree Roadways vs. Union of India 129 Taxman 663 (iii) Karnataka High Court in Banashankari. Medi.cat a Oncology Research Centre Ltd 316 ITR 407 As is evident, th....
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....aim gross lease rental as deduction on the plea that Income Tax Act do not differentiate between finance lease as well as operating lease. We are of the considered opinion that whatever is the nature of lease, only the lessor is entitled for depreciation as per the decision of Hon'ble Supreme Court in ICDS Limited Vs CIT (350 ITR 527). The decision of Delhi Tribunal in Minda Corporation Ltd. V/s DCIT (69 Taxmann.com 317) has also support the same view. The case of the revenue is that in case of finance lease, substantial risks and rewards of ownership 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 a....
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.... the Act." As observed by Delhi Tribunal, the CBDT's view on the treatment of finance lease is not aligned to the accountant's perspective of a finance lease. For accounting purposes, although the lessee shows the asset in his balance sheet, charges depreciation in accounts and even makes impairment provision, yet the assessee is not eligible to claim depreciation under the Act, which is to be allowed to the legal owner of the asset. Furthermore, not only the interest/ finance/ other charges component in the lease payments, but the entire lease payments 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 ass....
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.... be payable in all event unless expressly agreed. If any container is lost, damaged, stolen, destroyed etc., lessee's obligations to pay rental for that container would terminate and the lessor receives an amount equal to the balance of the rent owed for the remainder of the term. 12. As per business conditions, the lessee was required to return all the containers to lessor's depot at the designated locations. The lessee was liable to lessor for all damages to or loss or destruction of the container subsequent to delivery and prior to return to lessor except that what 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 t....