2021 (2) TMI 834 - AT - Income Tax

Lease rentals income - AO held the lease transaction as operating lease and made such an addition on account of capital recovery of the assets to lease income, treating it as on operating lease - CIT-(A) held that lease transaction as finance lease and allowed the appeal of the assessee - HELD THAT - The issue that arises for our consideration in this appeal is directly and substantially dealt with and decided by a coordinate Bench of this Tribunal in assessee's own case for the assessment year 2010-11 2017 (8) TMI 417 - ITAT DELHI accepted the lease transaction of the assessee as 'finance lease' transaction and restored the matter to the Assessing Officer for verification of facts of lease charges. - Decided in favour of the assessee.

Summary

Issues:
- Determination of lease rentals income treatment as operating lease or finance lease.

Analysis:
1. The appeal pertains to an order passed by the Commissioner of Income Tax (Appeals) concerning the assessment year 2014-15 of an Indian railway finance Corporation. The Revenue challenged the order, primarily focusing on the treatment of lease rentals income amounting to a significant sum.

2. The assessee company, a Government of India Undertaking, engages in leasing and finance activities exclusively for Indian Railways. It raises funds through bonds and loans, earning income from lease rent and investments. The return of income for 2014-15 declared a substantial loss under normal provisions and a book profit under section 115JB of the Income Tax Act, 1961.

3. The main issue revolves around the characterization of lease rentals income totaling a substantial amount. The Assessing Officer treated the lease as an operating lease, adding the capital recovery of assets to lease income. In contrast, the CIT-(A) considered it a finance lease, aligning with previous tribunal decisions for the assessment year 2010-11.

4. The Tribunal examined the issue in light of previous decisions and found consistency in treating the lease as a finance lease. Reference was made to specific observations and directions from earlier tribunal orders and the Hon'ble Delhi High Court's decision for various assessment years, affirming the finance lease treatment.

5. Citing the Hon'ble Delhi High Court's rulings, the Tribunal emphasized the distinction between financial and operational leases. The High Court's findings supported the treatment of lease rentals as part of a finance lease, where the lessee acquires the asset at the lease term's end. It also addressed the disallowance of lease equalization charges.

6. Ultimately, the Tribunal upheld the CIT-(A)'s order, dismissing the Revenue's appeal and allowing the assessee's cross objection. The decision was based on the consistent view taken over the years, supported by tribunal and High Court judgments, leading to a favorable outcome for the assessee.

7. The Tribunal concluded that the issue at hand had been extensively addressed in previous decisions, both by the Tribunal and the High Court, dating back to the assessment year 2001-02. Given the lack of changes in facts or laws, the established view supporting the finance lease treatment was maintained, resulting in the appeal being allowed in favor of the assessee.