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2020 (10) TMI 529 - AT - Income TaxDepreciation on plant and machinery claimed by the appellant given and leased various parties - HELD THAT - As in case SBI. HOME FINANCE LTD. 2005 (8) TMI 34 - CALCUTTA HIGH COURT held that the ingredients of ownership and user of the plant in business as required Under the provisions of Section 32 of the act have been fulfilled by the assessee and therefore it is entitled to depreciation available to it u/s 32 of the act. In M/S COSMO FILMS LIMITED 2011 (7) TMI 32 - DELHI HIGH COURT held that once it is established that the ownership of the said equipment is that of the assessee, then it is clear that the respondent/assessee would be entitled to claim depreciation. In the present case lease rental is received regularly and has been shown in the Profit Loss A/c. The other parties who are paying lease rentals to the assessee have shown lease rental paid to the assessee. The department has not brought a single case on record that the parties who had paid lease rental has not shown/claimed the deduction on account of lease rental but has claimed deduction of interest paid to assessee. Moreover, the assessee has produced the certificates from the lessee that they have not claimed any depreciation on these assets, which are owned by the assessee. No material contrary to the above facts was shown by the revenue. We direct the learned assessing officer to delete the disallowance of depreciation on plant and machinery as claimed by the appellant on plant and machinery given and leased various parties. - Decided in favour of assessee.
Issues Involved:
1. Disallowance of depreciation on plant and machinery given on lease. 2. Jurisdiction and adherence to binding instructions by the assessing officer. 3. Treatment of lease income as business income. 4. Ownership and control of leased assets. 5. Errors in the orders of lower authorities. Detailed Analysis: 1. Disallowance of Depreciation on Plant and Machinery Given on Lease: The primary issue revolves around the disallowance of ?259,839,987 claimed as depreciation on leased plant and machinery. The assessee argued that the conditions under Section 32 of the Income Tax Act, 1961, which mandates depreciation on tangible assets used for business, were fulfilled. The assets were shown separately in the balance sheet, and the income from lease rentals was offered to tax as business income. The appellate tribunal found that the assessee satisfied the ownership and usage conditions, thus entitling it to claim depreciation. 2. Jurisdiction and Adherence to Binding Instructions by the Assessing Officer: The assessee contended that the assessing officer did not follow the binding instructions of the ITAT, which had remanded the matter to verify if the leasing business was the primary mode of business and if the income was treated as business income. The tribunal noted that the assessing officer disallowed the depreciation without proper examination as directed by the ITAT, thus acting beyond jurisdiction. 3. Treatment of Lease Income as Business Income: The tribunal examined whether the lease income was treated as business income. The assessee had offered the lease rental income as business income, which was accepted in the assessment. The tribunal reiterated that leasing of machinery is a recognized mode of business, and if the income is treated as business income, depreciation is allowable. 4. Ownership and Control of Leased Assets: The tribunal emphasized that ownership under Section 32 requires the asset to be owned and used for business purposes. The assessee demonstrated effective control and ownership through various clauses in the lease agreements, such as the right to repossess, inspect, and maintain the equipment. The tribunal cited several judgments, including the Supreme Court's decision in Mysore Minerals Ltd. v. CIT, which established that ownership for depreciation purposes includes both legal and beneficial ownership. 5. Errors in the Orders of Lower Authorities: The tribunal found that the lower authorities erred in understanding the nature of the transaction and the applicable legal provisions. The assessing officer and CIT(A) incorrectly classified the transaction as a finance transaction rather than a lease, ignoring the evidence and the directions of the ITAT. The tribunal noted that the accounting treatment under financial standards does not determine the eligibility for depreciation under the Income Tax Act. Conclusion: The tribunal allowed the appeals for both assessment years 1999-2000 and 2000-2001, directing the assessing officer to delete the disallowance of depreciation on leased assets. The tribunal concluded that the assessee met the conditions of ownership and use for business purposes, thus entitling it to claim depreciation. The orders of the lower authorities were reversed, and the appeals were allowed in favor of the assessee.
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