2014 (7) TMI 692 - HC - Income Tax

Depreciation on sale and lease back transaction Not for sale sign affixed on assets - Financial Transaction OR sale and lease back agreement Held that - The sale was on payment of sales tax and the assessee has received the lease amount and disclosed the same as business income the Tribunal has rightly held that the assessee is the owner of the machinery and the machinery was used for its leasing business in the AY, thus, they are eligible for depreciation Relying upon Commissioner of Income-tax v. High Energy Batteries (India) Ltd. 2012 (5) TMI 287 - MADRAS HIGH COURT - there is no material produced by the Revenue to show that the transaction of sale and lease back was not genuine or was bogus thus, no substantial question of law arises for consideration Decided against Revenue.

Summary

Issues:
Challenge to order of Income Tax Appellate Tribunal regarding depreciation on sale and lease back transaction.

Analysis:
1. The appeal was filed by the Revenue challenging the order of the Income Tax Appellate Tribunal regarding the allowance of depreciation on a sale and lease back transaction with a company. The assessee, a finance company, entered into a sale and lease back agreement with a machinery manufacturer. The Assessing Officer disallowed depreciation on the machinery leased out to the manufacturer based on a Central Excise document indicating the machinery was not for sale. The Commissioner of Income Tax (Appeals) considered the nature of the agreement and allowed the depreciation claim, stating that the words "not for sale" in the document meant the machinery was not for sale to any third party. The Tribunal affirmed this view based on the ownership of the machinery and the business income received by the assessee from the lease.

2. The Commissioner of Income Tax (Appeals) and the Tribunal both held that the assessee was the owner of the machinery, eligible for depreciation, and guided by a previous decision of the Court. The Revenue challenged this decision, arguing that the sale and lease back transaction was not genuine or was bogus. However, the Court found no evidence presented by the Revenue to support this claim. The Court noted that the sale was made with payment of sales tax, and the assessee had disclosed the lease amount as business income, indicating ownership of the goods. The Court concluded that there was no substantial question of law to consider and upheld the concurrent findings of the Commissioner of Income Tax (Appeals) and the Tribunal.

3. In the absence of any material showing the transaction was not genuine or bogus, the Court dismissed the appeal, affirming the ownership of the machinery by the assessee and their eligibility for depreciation. The Court emphasized the importance of considering the actual nature of the transaction and the business income received by the assessee in determining ownership and eligibility for depreciation.