9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2022 (6) TMI 793 - AT - Income TaxRevision u/s 263 - Depreciation on lease payment - HELD THAT - Under the provisions of the Act, depreciation is admissible under section 32 of the Act only to the 'owner' of the asset. Lease charges paid for the use of the asset, without acquiring any ownership rights in the same, are allowable as revenue expenditure u/s 37 - Thus, what AS-19 provides is the accounting treatment to be given to the two types of leases. It is not determinative of the tax treatment of the lease which has to be computed in accordance with the provisions of the Act. It is trite law that book entries are not determinative of tax liability as per the ratio laid down in Sutlej Cotton Mills Ltd. 1978 (9) TMI 1 - SUPREME COURT as well as in Kedarnath Jute Mfg. Co. Ltd. 1971 (8) TMI 10 - SUPREME COURT - The said proposition has also been reiterated in CBDT Circular No.2 of 2001 dated 09.02.2001 which state that accounting standard issued by ICAI creating distinction between finance lease and operating lease will have no implications under the provisions of the Act. The assessee as a lessee would be entitled for deduction of gross lease rental payments. The assessee s methodology is to be accepted. The lease payments made by the assessee would be revenue expenditure for the assessee. We order so. The alternative claims as allowed by Ld. AO shall stand reversed. The claim of foreign exchange loss on these transactions shall be re-considered / re-adjudicated by Ld. AO in the light of our above adjudication. The appeal stand partly allowed in terms of our above order. Disallowance u/s 40(a)(i) for want of TDS on lease rental payments - HELD THAT - CIT(A) held the principal component of lease rental would be capital expenditure and the same is not allowable u/s 37. Therefore, the issue of disallowance u/s 40(a)(i) was held to be academic in nature. Facts being pari-materia the same as in AY 2012-13, our adjudication as contained therein shall mutatis mutandis apply to this year also. The directions of Ld. CIT(A), with respect to foreign exchange loss, stand reversed. Having said so, the issue of disallowance u/s 40(a)(i) shall be restored back to the file of Ld. AO for fresh adjudication since the expenditure has been held by us to be revenue in nature. The assessee is directed to substantiate its case in terms of the provisions of Sec.40(a)(i). The appeal stands partly allowed. Disallowance of forex losses, lease rentals - HELD THAT - Facts being pari-materia the same as in other years, the principal component of lease rental shall be allowed as revenue expenditure. The depreciation on capitalized principal portion shall stand reversed. The issue of forex loss shall stand remitted back to the file of Ld. AO for re-adjudication. The profit on sale of containers would be brought to tax. No interference is required on club expenses. The appeal stands partly allowed.
Issues Involved:
1. Classification and tax treatment of lease transactions (finance lease vs. operating lease). 2. Allowability of lease rentals as revenue expenditure. 3. Entitlement to claim depreciation. 4. Treatment of foreign exchange loss. 5. Consistency in tax treatment across assessment years. 6. Validity of reassessment proceedings. 7. Disallowance under Section 40(a)(i) for non-deduction of TDS on lease rental payments. 8. Treatment of club expenses. Detailed Analysis: 1. Classification and Tax Treatment of Lease Transactions: The primary issue revolves around whether the lease transactions should be classified as finance leases or operating leases under Accounting Standard 19 (AS-19). The Tribunal noted that AS-19, introduced by the Institute of Chartered Accountants of India (ICAI) in 2001, differentiates between finance leases and operating leases. A finance lease transfers substantially all risks and rewards of ownership to the lessee, whereas an operating lease does not. However, the Tribunal emphasized that the Income Tax Act does not differentiate between these types of leases for tax purposes. The Tribunal cited the Supreme Court decision in ICDS Limited vs. CIT, which held that only the legal owner of the asset (lessor) is entitled to claim depreciation, regardless of the lease classification under AS-19. 2. Allowability of Lease Rentals as Revenue Expenditure: The Tribunal held that lease rentals paid by the assessee under finance leases should be allowed as revenue expenditure. This conclusion was based on the principle that the Income Tax Act allows the lessee to deduct lease payments as revenue expenditure, irrespective of the lease type. The Tribunal referenced the CBDT Circular No. 2/2001, which states that AS-19's classification has no implications under the Income Tax Act. The Tribunal also highlighted that the revenue had accepted this treatment in previous assessment years (AYs 1998-99 to 2010-11), thus invoking the rule of consistency. 3. Entitlement to Claim Depreciation: The Tribunal reiterated that only the lessor, as the legal owner of the leased assets, is entitled to claim depreciation. This aligns with the Supreme Court's decision in ICDS Limited vs. CIT, which stated that the lessor retains ownership and thus the right to claim depreciation, even if the asset is registered in the lessee's name. The Tribunal rejected the assessee's claim for depreciation on leased assets, affirming that the lease payments are revenue expenditure. 4. Treatment of Foreign Exchange Loss: The Tribunal upheld the disallowance of foreign exchange loss on lease rentals, directing that the loss should be adjusted to the cost of the assets as per Section 43A of the Income Tax Act. This is consistent with the revisional order passed under Section 263 for AY 2009-10, which was upheld by the Tribunal. 5. Consistency in Tax Treatment Across Assessment Years: The Tribunal emphasized the importance of consistency, noting that the revenue had accepted the assessee's accounting and tax treatment of lease transactions in prior years. The Tribunal ruled that the revenue could not change its stand after consistently accepting the same treatment for several years. 6. Validity of Reassessment Proceedings: In AYs 2007-08 and 2008-09, the assessee challenged the validity of reassessment proceedings under Sections 143(3) and 147. However, these grounds were not pressed during the hearing, and thus, the Tribunal dismissed them as not pressed. 7. Disallowance Under Section 40(a)(i) for Non-Deduction of TDS: In AYs 2010-11 and 2011-12, the Tribunal addressed the issue of disallowance under Section 40(a)(i) for non-deduction of TDS on lease rental payments. The Tribunal held that since the lease payments are revenue expenditure, the issue of disallowance under Section 40(a)(i) should be reconsidered by the Assessing Officer (AO). The assessee was directed to substantiate its case regarding TDS compliance. 8. Treatment of Club Expenses: In AY 2014-15, the Tribunal upheld the disallowance of club expenses paid to Madras Cricket Club, ruling that these expenses were not related to the business of the assessee. Conclusion: The Tribunal partly allowed the appeals, affirming that lease rentals under finance leases should be treated as revenue expenditure and only the lessor is entitled to claim depreciation. The Tribunal also directed the AO to reconsider the issue of foreign exchange loss and disallowance under Section 40(a)(i) in light of the Tribunal's findings. The Tribunal upheld the disallowance of club expenses as not related to the business. The consistency in tax treatment across assessment years was emphasized, and the Tribunal dismissed the validity of reassessment proceedings as not pressed.
|
