2012 (7) TMI 524 - HC - Income Tax

Rejection of application for approval u/s 10(15A) - the aircrafts for which lease Agreements were signed were not existing on the date of the agreement - Held that - On reading of Section 10 (15A) it is apparent to us that for this Section an Indian company engaged in the business of operation of aircrafts should have acquired aircraft(s) on lease under an agreement - the twin conditions; that the agreement should have been entered into on or before 1st April 2007 and there should be acquisition of aircraft under the lease before the said date have to be satisfied. If the two conditions are not satisfied benefit under the said Section cannot be granted. In the present case there was no lease but only a possibility or an expectancy as the property or goods in question were not in existence on the date of the so called agreements. The agreements cannot be treated as leases but only as agreements for leases which will/may operate in future. This will not satisfy the need and requirements of Section 10(15A). The use of the word lease is significant and signifies transfer of rights by the lessor to the lessee in praesenti i.e. on or before 1st April 2007 which is not possible unless the aircraft is in existence - A contract for a lease is to be distinguished from a lease because lease is actually a conveyance of interest in the goods/property whereas a contract for lease is merely an agreement that such conveyance shall be entered into or begin/operationalize on a future date - writ petition dismissed - against assessee.

Issues Involved:
1. Interpretation of Section 10(15A) of the Income Tax Act, 1961.
2. Validity of lease agreements for aircrafts not in existence at the time of the agreement.
3. Legislative history and amendments to Section 10(15A).
4. Legal distinction between an agreement to lease and an actual lease.
5. Application of Transfer of Property Act and Sales of Goods Act to aircraft lease agreements.

Detailed Analysis:

1. Interpretation of Section 10(15A) of the Income Tax Act, 1961:
The core issue in the writ petitions revolves around the interpretation of Section 10(15A) of the Income Tax Act, 1961. The petitioners, two companies engaged in the operation of aircrafts, challenged the rejection of their applications under this section by the Central Board of Direct Taxes. Section 10(15A) exempts payments made by an Indian company to acquire an aircraft or aircraft engine on lease from a foreign enterprise, provided the agreement was entered into before 1st April 2007. The petitioners contended that the section does not require the aircraft to be in existence at the time of the agreement.

2. Validity of Lease Agreements for Aircrafts Not in Existence:
The rejection orders stated that the lease agreements were invalid because the aircrafts were not in existence at the time the agreements were signed. The court examined whether a valid lease could exist for aircrafts that were to be manufactured and delivered in the future. The court concluded that a lease requires the transfer of interest in an existing property. Since the aircrafts were not in existence at the time of the agreements, these agreements could not be considered valid leases under Section 10(15A).

3. Legislative History and Amendments to Section 10(15A):
The court reviewed the legislative history of Section 10(15A), noting that it was initially applicable to payments for acquiring aircraft on lease and later extended to aircraft engines. The section was amended multiple times, with the final amendment stipulating that the benefit would only apply to agreements entered into on or before 1st April 2007. The court emphasized that the legislative intent was to restrict the benefit to agreements that were operational before this cut-off date.

4. Legal Distinction Between an Agreement to Lease and an Actual Lease:
The court distinguished between an agreement to lease and an actual lease. A lease involves the transfer of a right to enjoy the property, which cannot occur unless the property is in existence. Agreements for future goods, such as aircrafts to be manufactured, are considered agreements to sell or lease, not actual sales or leases. The court cited the Transfer of Property Act and the Sales of Goods Act to support this distinction, noting that future goods can only be the subject of an agreement to sell, not an actual sale.

5. Application of Transfer of Property Act and Sales of Goods Act:
The court referred to Section 5 of the Transfer of Property Act, which defines the transfer of property as an act by which a living person conveys property in present or in future. However, the property must be in existence for the transfer to occur. Similarly, Sections 4 and 6 of the Sales of Goods Act clarify that future goods can be the subject of an agreement to sell, but not an actual sale. The court concluded that since the aircrafts were future goods, the agreements in question were only agreements to lease, not actual leases.

Conclusion:
The court dismissed the writ petitions, holding that the agreements did not meet the requirements of Section 10(15A) as they were agreements to lease aircrafts that were not in existence at the time of the agreements. The benefit under Section 10(15A) applies only to agreements entered into and operational before 1st April 2007. The court emphasized that the legislative intent was to restrict the benefit to existing leases and not to agreements for future leases.

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