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Issues Involved:
The judgment addresses the following issues: 1. Entitlement to claim depreciation on consumer durables leased to customers. 2. Interpretation of 'actual cost' for claiming depreciation. 3. Treatment of lease rent received in relation to the actual cost of materials leased. Issue 1 - Depreciation on Leased Consumer Durables: The assessee, a non-banking company engaged in hire purchase and leasing, claimed depreciation on consumer durables leased to customers. The assessing authority denied depreciation as the assessee was not the actual owner of the assets and did not use them for commercial purposes. The Tribunal upheld this decision, stating that the transactions were akin to sale of goods on installment basis rather than leasing. The customers became owners of the goods before the lease period ended, and the assets were not returned to the assessee. Therefore, the claim for depreciation was disallowed. Issue 2 - Interpretation of 'Actual Cost' for Depreciation: The assessee argued that as the legal owner of the leased assets, it was entitled to depreciation under section 32 of the Income-tax Act. However, the court found that the transactions were not lease agreements but installment sales, where customers became owners before the lease period ended. As the actual cost of the assets became nil in the hands of the assessee immediately after purchase, depreciation could not be claimed. Precedents cited by the assessee were deemed irrelevant as they involved different factual scenarios. Issue 3 - Treatment of Lease Rent in Relation to Actual Cost: The assessee's practice of immediately debiting customers for the entire cost of goods after purchase led to the actual cost of assets being considered nil. Under section 43(1) of the Act, actual cost is defined as the cost reduced by any portion met by another party. As the customers became indebted for the full cost along with interest, the actual cost to the assessee was deemed nil, making depreciation inapplicable. Both questions 2 and 3 were answered against the assessee and in favor of the Revenue. The judgment concludes that the assessee was not entitled to claim depreciation on consumer durables leased to customers due to the nature of the transactions resembling installment sales rather than leasing agreements. The interpretation of 'actual cost' and treatment of lease rent led to the disallowance of depreciation claims. The court's decision was based on the specific facts and circumstances of the case, affirming the rulings of the assessing authority and the Tribunal.
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