2012 (5) TMI 729 - AT - Income Tax

Disallowance of depreciation in respect of certain assets given under sale and lease back basis by treating the lease transactions as finance transactions - Held that - In the case of finance lease depreciation is not admissible to the lessor who is simply a nominal and symbolic owner of the asset, whereas the real owner who bears all the risks and rewards incidental to the ownership is the lessee. It has thus been held that it is only the lessee who is the actual and real owner of the asset in case of a finance lease, who is eventually entitled to depreciation and not the lessor. In view of the foregoing reasons, we are of the considered opinion that the ld. CIT(A) was justified in denying depreciation to the assessee.

Summary

Issues:
Disallowance of depreciation in sale and lease back transactions.

Analysis:
The appeals by the assessee for assessment years 1995-96, 1996-97, and 1997-98 revolve around the disallowance of depreciation in sale and lease back transactions. The common ground challenges the CIT(A)'s decision to uphold the disallowance of depreciation by treating the lease transactions as finance transactions. Both parties agree that the issue is covered by the Special Bench's order in the case of M/s. IndusInd Bank Ltd. vs. Addl. CIT. The Tribunal's order clarifies that in finance leases, depreciation is not admissible to the lessor, who is merely a nominal owner, while the lessee, the actual owner bearing all risks and rewards, is entitled to depreciation. Consequently, the CIT(A) was deemed correct in denying depreciation to the assessee.

In conclusion, all three appeals are dismissed based on the Tribunal's decision regarding the treatment of finance leases and the entitlement to depreciation. The order was pronounced on May 9, 2012, affirming the denial of depreciation to the assessee in the sale and lease back transactions.