TaxTMI 
TaxTMI 
2022 (9) TMI 72
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....he addition of the principal portion of lease rental payments amounting to Rs.15,98,265/- on the ground that the lease is in the nature of financial lease and the principal portion of lease amounts to cost of acquisition of capital assets which is capital in nature. 2.1 The Commissioner of Income tax (Appeals) ought to have appreciated that as per the terms of lease, Lessor is the absolute and permanent owner of the asset and assessee do not have any proprietary right, title or interest in the asset. 2.2 The Commissioner of Income tax (Appeals) ought to have appreciated that notwithstanding the treatment of the lease transaction in the books of account complying with Accountant Standards for Income tax purpose the Lessor is the owner and the amounts paid by Appellant as lease rentals constitute payments for use of the assets leased and hence the entire amount is an allowable deduction. 2.3 The Commissioner of Income tax (Appeals) ought to have appreciated that the CBDT in Circular No.2 of 2001 dated 09.02.2001 has clarified that by itself the accounting standard will have no implication on allowance of depreciation under the Income tax. As a corollary par....
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....gainst the assessee. Aggrieved, the assessee is in further appeal before us. 4. We find that this issue is now covered in assessee's favour by our decision in M/s. Tristar Container Services (Asia) Private Ltd., ITA Nos. 937/Chny/2016 & ors., order dated 15.06.2022 which has been followed by us in M/s Sundaram Infotech Solutions Ltd V/s ITO (supra). Our findings in M/s. Tristar Container Services (Asia) Private Ltd. (supra) are as under: - Our findings and Adjudication 6. Upon careful consideration of material facts, we find that the basic facts are not in dispute. The assessee as a lessee takes on lease marine containers and sub-leases the same to its customers. The income thus earned by the assessee is offered to tax. The leased contained are taken under operating lease as well as under finance lease. There is no dispute with respect to tax treatment of asset taken under operating lease. The dispute is only with respect to assets taken under finance lease. The same stem from the fact the assets under finance lease are capitalized in the Balance Sheet as Fixed Asset and depreciation is claimed on the same under the Companies Act. The lease rental payable by th....
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....rights in the same, are allowable as revenue expenditure under Section 37 of the Act. Thus, what AS-19 provides is the accounting treatment to be given to the two types of leases. It is not determinative of the tax treatment of the lease which has to be computed in accordance with the provisions of the Act. It is trite law that book entries are not determinative of tax liability as per the ratio laid down in Sutlej Cotton Mills Ltd. v. CIT [1979] 116 ITR 1 (SC) as well as in Kedarnath Jute Mfg. Co. Ltd. v. CIT [1971] 82 ITR 363 (SC). The said proposition has also been reiterated in CBDT Circular No.2 of 2001 dated 09.02.2001 which state that accounting standard issued by ICAI creating distinction between finance lease and operating lease will have no implications under the provisions of the Act. The relevant excerpt read as under: - "Under the Income-tax Act, in all leasing transactions, the owner of the asset is entitled to the depreciation if the same is used in the business, under section 32 of the Income-tax. The ownership of the asset is determined by the terms of the contract between the lessor and the lessee. . . . . . . . . It has come to the noti....
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.... 9. Similar is the decision of Hon'ble Rajasthan High Court in the case of Rajshree Roadways v. Union of India [2003] 263 ITR 206/129 Taxman 663 wherein Hon'ble Court upheld the assessee's claim of allowability of lease rentals paid as lessee of the vehicles as a revenue expenditure u/s 37(1) of the Act, even though the lease was categorized as finance lease. 10. In the present case, rule of consistency also favors the case of the assessee. It is undisputed position that the aforesaid accounting / tax treatment has been accepted by the revenue in regular assessment proceedings right from AYs 1998-99 to 2010-11. Therefore, facts being pari-materia the same, the revenue is debarred from changing its stand after having accepted this position for so many years. 11. So far as the terms of lease agreement is concerned, upon perusal of sample lease agreement as placed on page nos. 55 to 64 of paper-book of this year, we find that the lease is in the nature of lease purchase. The assessee is required to pay lease rate on per day basis @USD .82 per day which includes reimbursement of domestication costs paid by the lessor. The term of lease is 5 years. On the....
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.... 15. In further support, Ld. CIT-DR has emphasized the fact that it was the lessee who was responsible to obtain insurance coverage at its own expense and therefore, the assessee was to be considered as owner of the asset. However, we find that this conclusion run contrary to the terms of the agreement as noted by us in preceding paragraphs. It has also been emphasized that in case of casualty to containers while on lease, the lease obligation terminate and the lessor would receive an equal amount to the balance of rent owed for the remainder term which would establish that the assessee was the owner of the assets. Similar plea has been raised to submit the lessee was obligated to pay customs duty, as well as bear cost of maintenance / repairs of the containers. However, there are merely the terms of the agreement and do not culminate into transfer of ownership from lessor to lessee. The terms clearly provide that the assessee was obligated to return the containers to the lessor at the end of lease term. 16. The Ld. CIT-DR has referred to various judicial decisions in support of revenue's case. The decision of Mumbai Tribunal (SB) in Indusind Bank Ltd. V/s ADIT (19 Ta....