TaxTMI 
TaxTMI 
2024 (2) TMI 982
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.... rental payments. The CIT(A) has conveniently ignored all the contentions raised by the Appellant and proceeded to opine on without prejudice ground raised by the Appellant without giving any reason for determining otherwise on the main ground. 1.2 The CIT(A) grossly erred, on the facts and circumstances of the case and in law, in disallowing finance lease rental payments of INR 6,47,09,747/- without appreciating the fact that the expenses incurred are in the nature of rental charges for use of the capital asset and not for 'acquisition of capital asset. 1.3 The CIT(A) grossly erred in overlooking the Circular No. 2 dated 9-2-2001 issued by the Central Board of Direct Taxes (CBDT) and disregarded the Supreme Court decision in case of I.C.D.S Ltd 29 Taxmann.com 129 (SC), wherein it has been held that the lessor is the owner of the asset. The natural corollary of the said Circular and the Supreme Court decision is that the lease rental payment made by the lessee even under finance lease is a revenue expenditure and allowable under section 37(1) of the Act. 2. Disallowance of expenses of INR 4,14,46,637/-treating the same as provisions: 2.1 The ....
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....ets as per the Companies Act. iii) Each instalment payment is split into two components for accounting purpose i.e., the principal and finance/interest charges. The finance/ interest charges are expensed out in the profit and loss account. The balance portion of the lease rentals i.e, the principal amount is deducted from the lease liability recognised at the inception of lease. 5. Accordingly, the lease rentals paid by the lessee under a finance lease is not debited to profit and loss account as per AS 19. The Assessee in its computation of income has claimed the entire lease rental as an expenditure allowable under section 37(1) and has given following treatment for tax purpose: i) Added back depreciation claimed on leased asset as per Companies Act, 1956. ii) The leased asset has not been added to tax block of assets. Hence, no depreciation is claimed on leased assets for tax purposes. iii) Lease rentals (principal amount as well as interest component) paid are claimed as revenue expenditure. Only interest component of lease rent payment is debited to profit and loss account and hence principal portion which is not debited in profit and los....
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....ave any title or right in leased asset and thus cannot be said to be owner of leased asset during the lease period. Page 47/ Para 5.2 Delivery and Installation; Maintenance and Repair; Inspection "Lessee shall make the Equipment and its related log and maintenance records available to Lessor for inspection during business hours. If the Appellant is the owner of the asset, then there should not have been any obligation on the Appellant to make available these records to lessor. Page 47/ Para 5.6 Identification "Lessee shall place and maintain permanent markings on the Equipment evidencing Lessor's ownership, security and other interests therein, as requested by Lessor and will keep the Equipment free of any other labeling which might be interpreted as a claim of ownership This clause also showcases that ownership of leased assets at all times during the lease period is with the lessor. Page 47/ Para 5.7 Alterations and Modifications "Lessee shall not make any additions, attachments, alterations or improvements to the equipment... Ownership rights is a bundled right with all other rights such as - right to modify, right to discard, alienate etc....
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....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 Act. The ownership of the asset is determined by the terms of contract between the lessor and the lessee. ..... 3. It has come to the notice of the Board that the New Accounting Standard on 'Leases' issued by the Institute of Chartered Accountants of India require capitalization of the asset by the lessees in financial lease transaction. By itself, the accounting standard will have no implication on the allowance of depreciation on assets under the provisions of the Income-tax Act" 14. The debate of determination of ownership under finance lease was put to rest by the Hon'ble Supreme Court in case of ICDS Ltd v. CIT [2013] 350 ITR 527 (SC) wherein the Hon'ble Supreme Court pointing out specific clauses in the finance lease agreement held the lessor as the owner of the leased assets. Decision of Hon'ble Supreme Courtis enclosed at page no. 140 to 167 of the paper book. 15. The below are the relevant clauses of the agreement basis which the Hon'ble Supreme Court held lessor as owner of ....
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....ircumstances of the case and nature of infrastructure facilities provided to the assessee on lease rent, it is clear that the same have been provided through Agreement for business purpose of the assessee. Since assessee used these items wholly and exclusively for the purpose of business and was not the owner of the same, therefore, assessee rightly claimed the same as revenue expenditure and rightly claimed the deduction of the same. It is also well settled Law that the liability under the Act is governed by the provisions of the Act and not depending on the treatment also well followed for the same in the books of account. It is also well settled that whether the assessee was entitled to a particular deduction or not, would depend upon the provisions of Law relating thereto, and not on the view, which the assessee might take of his right, nor could the existence or absence of entries in the books of account by decisive or conclusive in the matter." (Emphasis supplied). • • Tristar Container Services Asia v. ACIT [2022] 143 taxmann.com 324(Chennai-Trib) where facts of the case are similar to that of the Appellant. "In said case the assessee was e....
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.... is reproduced below: "In the aforesaid case, there was a clause in the lease agreement giving an option to the lessee to buy back the asset on termination of the lease agreement. In the instant case, the assessee (lessee) falls in a better footing, in as much as there is no clause in the lease agreement, enabling the lessee to buy back the assets on termination of the lease arrangement. We find that the case law relied upon by the Learned DR on the decision of Delhi Tribunal need not be discussed as the issue is squarely covered by the High Court and Supreme Court in favour of the assessee."(Emphasis supplied). • • M/s Philips India Ltd. (formerly Philips Electronics India Ltd.) (ITA No.2489/Kol/2017) (Kolkata-Trib) "The assessee claimed lease rental paid for motor car taken on finance lease from Citi Corp. The same was treated as capital expenditure by the assessing officer based on the reliance placed in the assessee's own case for another assessment year. Consequently, the DRP upheld the proposed adjustment. However, the Tribunal ruled in favour of the assessee and held as under: "We have heard the rival submissi....
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....same as fixed assets in its balance sheet to the extent of assets value and claimed the depreciation. With regard to financial charges it has claimed it as finance expenses in its profit and loss account. However, while claiming deduction under Income Tax Act, assessee has disallowed depreciation and interest in computation and claimed the whole payment of Finance Lease as expenditure. It is relevant to note that the assessee has taken the above lease from the lessor Cisco Systems Capital (India) Private Limited and the lessor has claimed the deduction of depreciation and interest in their computation of income, when the revenue disallowed the same in their hands Hon'ble Karnataka High Court allowed the claim of lessor (Cisco Systems Capital (India) Private Limited) by observing as under:- "14. This Court has carefully gone through the assessment order passed by the assessing officer and the order passed by the Principal Commissioner of Income Tax. The order passed by the Principal Commissioner of Income Tax reveals that he has exercised jurisdiction under Section 263 of the Act of 1961 on the ground that although there was an enquiry by the assessing officer, the enquiry ....
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....ivery of equipment on expiration of lease and ownership at the end of the lease period are similar. From perusal of clause 8.1 of the agreement, it is evident that the lessee has to ensure the equipment showing the assessee's name as owner and in terms of clause 11 no alteration or improvements to the equipment can be made by the lessee without prior consent from the assessee. Thus, the assessee alone can claim the depreciation allowance. The aforesaid clauses have been interpreted by the Supreme Court in I.C.D.S. Ltd. supra and it has been held that the assessee is entitled to benefit of depreciation on leased assets under Section 32 of the Act. Thus, the questions of law involved in the appeal are no longer res integra and are squarely covered by the decision of the Supreme Court in I.C.D.S. Ltd. supra. 7. For yet another reason the substantial questions of law have to be answered in favour of the assessee. The Supreme Court in RADHASOAMI SATSANG Vs. COMMISSIONER OF INCOME-TAX' (1992) 60 TAXMAN 248 (SC) has held that even though principles of res judicata do not apply to income tax proceedings, but where a fundamental aspect permeating through the different Assessmen....
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....de in the certificate of registration except with the written consent of the person whose name has been specified in the certificate of registration as the person with whom the registered owner has entered into the said agreement. (5) Where the person whose name has been specified in the certificate of registration as the person with whom the registered owner has entered into the said agreement, satisfies the registering authority that he has taken possession of the vehicle from the registered owner owing to the default of the registered owner under the provisions of the said agreement and that the registered owner refuses to deliver the certificate of registration or has absconded, such authority may, after giving the registered owner an opportunity to make such representation as he may wish to make (by sending to him a notice by registered post acknowledgment due at his address entered in the certificate of registration) and notwithstanding that the certificate of registration is not produced before it, cancel the certificate and issue a fresh certificate of registration in the name of the person with whom the registered owner has entered into the said agreement: ....
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....mplete agreement with these decisions on the said point. 28. There was some controversy regarding the invoices issued by the manufacturer - whether they were issued in the name of the lessee or the lessor. For the view we have taken above, we deem it unnecessary to go into the said question as it is of no consequence to our final opinion on the main issue. From a perusal of the lease agreement and other related factors, as discussed above, we are satisfied of the assessee's ownership of the trucks in question. 29. Therefore, in the facts of the present case, we hold that the lessor i.e. the assessee is the owner of the vehicles. As the owner, it used the assets in the course of its business, satisfying both requirements of Section 32 of the Act and hence, is entitled to claim depreciation in respect of additions made to the trucks, which were leased out. 30. With regard to the claim of the assessee for a higher rate of depreciation, the import of the same term "purposes of business", used in the second proviso to Section 32(1) of the Act gains significance. We are of the view that the interpretation of these words would not be any different from that whic....
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....he High Court erred in law in reversing the decision of the Tribunal. Consequently, the appeals are allowed; the impugned judgments are set aside and the substantial questions of law framed by the High Court, extracted in para 7 (supra), are answered in favour of the assessee and against the Revenue. There will, however, be no order as to costs. " 18. This Court has minutely scanned the entire record and the clauses of agreement in the case before the Supreme Court in M/s ICDS Ltd., (supra) as well as in the case of Hewlett Packard India Sales Pvt Ltd., (supra) and in the case of the assessee, in the present case, with regard to the ownership, inspection, repossession of the equipment on default, delivery of equipment on expiry of lease and ownership at the end of the lease period, are similar and therefore, it is the assessee alone who can claim depreciation, as rightly held by the assessing officer. The clauses relating to lease have already been interpreted by the Supreme Court in the case of M/s ICDS Ltd., (supra) and it has been held that the assessee is entitled to the benefit of depreciation on leased assets under Section 32 of the Act of 1961 and therefore, the sub....
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...., "Legal & Professional Fees" and under the head "Electricity Charges". During the assessment proceedings assessee was asked to provide the complete details and bills for these provisions and was asked to explain why these provisions should not be disallowed? In response, assessee has not submitted details of the bills and vouchers and has only stated that these provisions have been disallowed in the computation on account of non payment of TDS. It is seen that disallowance u/s 40(a)(ia) has been done @30% to the extent of Rs. 1,77,62,845. 5.3 The basic issue at hand is that the provisions are not allowable as expense under Income tax Act. Since these amounts were not the actual payments but only claimed as provisions, accordingly the same is not allowable. The Income-tax Act does not allow provisional expenses or provisions. Being a company entity, as per the provisions the assessee is required and it is following is Mercantile System of Accounting. As per the Mercantile System of Accounting, as per the Matching Principle one should record all expenses related to a revenue- generating transaction at the same time that one recognizes the revenue. This is the basic foundati....
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....ted that during the year under consideration, the assessee has rendered remote infrastructure management services to NTT Communications Corporation, a Japanese Company, and has earned income in nature of fees for technical services NTT Communications Corporation while making remittances has withheld taxes at the rate of 10% in Japan. The details of taxes paid in Japan are enclosed at page no. 266 to 272 of the paper book alongwith sample withholding tax certificates. 18. Further, Ld. AR submitted that assessee has offered income received from NTT Communications Limited in its return of income for A.Y. 2015-16 and thus income was subjected to dual taxation, once in Japan by way of withholding and then in India. Pursuant to power granted under section 90(1) of the Act, the Central Government has entered into a double tax avoidance agreement with Japan ("India- Japan tax treaty) for granting relief in respect of double taxation of income. As per section 90(2) of the Act, the assessee can take benefit of treaty provisions if it is more beneficial. 19. Article 23 "Elimination of Double Taxation of the India-Japan tax treaty reads as under: - "2. Double taxation shall be a....