2003 (3) TMI 50 - HC - Income Tax

Assessee had claimed lease rent as revenue expenditure - considering the terms and conditions of the lease agreement and the fact that depreciation on these trucks has been allowed to the lessor, Key Leasing and Finance Ltd., now there is no justification to deny the claim of the assessee that his lease rent should be allowed as revenue expenditure - we hold that the lease rent which has been paid by the assessee be treated as revenue expenditure.

Summary

Issues:
1. Whether lease rent can be treated as revenue expenditure.
2. Whether the appellant can be considered the owner of the trucks under the lease agreement.
3. Whether the Tribunal's decision to treat lease rent as capital expenditure was justified.

Issue 1:
The primary issue in this case revolved around whether the lease rent paid by the appellant could be considered as revenue expenditure. The Income-tax Officer contended that the trucks were not leased but sold, thus disallowing the lease amount as revenue expenditure. However, the Commissioner of Income-tax (Appeals) disagreed, stating that as per the agreement, the appellant could not be deemed the owner of the trucks, and hence, the lease money should be allowed as revenue expenditure.

Issue 2:
The question of ownership under the lease agreement was crucial. The Tribunal referenced a letter indicating that after the lease period, the vehicles were to be transferred to the appellant. The Assessing Officer and the Tribunal concluded that the lease money could not be treated as revenue expenditure based on this understanding. However, the appellant argued that the lease agreement clearly stated that the lessor retained ownership throughout the lease period, and depreciation benefits were also granted to the lessor, not the lessee.

Issue 3:
The Tribunal's decision to categorize the lease rent as capital expenditure was challenged. The Tribunal considered a clause allowing the lessee to become the owner of the trucks by paying a percentage of the lease amount at the end of the lease period. Nevertheless, the terms of the lease agreement explicitly stated that the lessor retained ownership during the lease period. The High Court held that since the lessor was recognized as the owner for depreciation purposes and had claimed such benefits, there was no justification to treat the appellant as the owner. Consequently, the lease rent was deemed allowable as revenue expenditure.

In conclusion, the High Court allowed the appeals, ruling that the lease rent paid by the appellant should be treated as revenue expenditure. The decision was based on a thorough analysis of the lease agreement terms, the intention of the parties, and the treatment of depreciation benefits under the Income-tax Act.