2014 (2) TMI 1249 - HC - Income Tax

Disallowance of depreciation on assets of sale & lease back transaction - CIT(A) deleted the disallowance - Held that - For claiming higher rate of depreciation, there is no requirement under the Act of usage of the assets by the assessee himself. The vehicles were purchased by the assessee from manufacturer and leased out to customers. Such vehicles were used in the course of leasing business. See M/s ICDS. LTD. Versus COMMISSIONER OF INCOME TAX. MYSORE & ANR. 2013 (1) TMI 344 - SUPREME COURT - Decided in favour of assessee

Summary

Issues:
1. Common question of law and facts in Tax Appeals.
2. Disallowance of depreciation on assets in sale & lease back transaction.

Analysis:
1. The Tax Appeals before the Gujarat High Court involved a common question of law and facts arising from the order of the Income tax Appellate Tribunal (the Tribunal) dated September 11, 2009. The primary issue for consideration was whether the Appellate Tribunal was correct in confirming the order passed by the CIT (A) in deleting the disallowance of depreciation on assets in a sale & lease back transaction for the assessment year 2000-2001.

2. The factual background of Tax Appeal No.1048 of 2010 revealed that the assesseecompany, a State-owned enterprise, engaged in providing financial assistance to industrial units, claimed depreciation on assets involved in lease transactions. The Assessing Officer disallowed the claimed depreciation, considering the transactions as a colorable device. However, the CIT (Appeals) directed the Assessing Officer to allow the depreciation, citing section 43(1) of the Income tax Act, 1961, which addresses lease transactions from October 01, 1996.

3. The Revenue challenged the CIT (Appeals) decision before the Tribunal, which, based on its findings in the assessee's own case with similar transactions, allowed the depreciation claim. The Tribunal emphasized the need for judicial consistency between the Revenue and the taxpayer in such matters. During the High Court hearing, learned Senior Counsel for the Appellant Revenue referred to a previous judgment involving a similar issue, where the Court upheld the Tribunal's decision based on a Supreme Court ruling allowing higher depreciation rates on leased assets.

4. The High Court, in its judgment, highlighted the Supreme Court's decision that there is no requirement under the Act for the assessee to use the assets personally to claim higher depreciation rates. The Court emphasized that the vehicles involved in the lease transactions were used in the leasing business, and the assessee's ownership status did not bar them from claiming depreciation. Consequently, the Court dismissed the Tax Appeals, as the substantial question of law raised was identical to the previous judgment, and there was no indication that the transactions were sham or bogus.

In conclusion, the High Court's judgment upheld the principle that an assessee can claim depreciation on assets involved in lease transactions, even if they are not the end-users of those assets, as long as the assets are used in the course of the leasing business. The decision emphasized the need for consistency in judicial rulings and dismissed the Tax Appeals based on the established legal principles and previous judgments.