2016 (2) TMI 523 - HC - Income Tax

Depreciation on assets of the Haryana State Electricity Board - whether Tribunal was correct in holding that the respondent company would be entitled to depreciation on assets of the Haryana State Electricity Board, with whom the respondent company had a sale and lease back transaction that was both in form and content a financial lease? - Held that - The Apex Court in ICDS (2013 (1) TMI 344 - SUPREME COURT ) has held that for claim of depreciation to be allowed, the condition precedent are ownership of the assets and user for purposes of business i.e. not usage of the assets by the Assessee itself but for purposes of its business of leasing. Both in ICDS (Supra) and this case, the respondent is in the business of leasing. Thus, claim of depreciation is allowable - Decided in favour of assessee

Summary

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

Analysis:
1. The appeal under Section 260A of the Income Tax Act, 1961 challenged the Tribunal's order regarding the entitlement to depreciation on assets from a sale and lease back transaction with the Haryana State Electricity Board (HSEB) for Assessment Year 1996-97.

2. The Revenue contended whether the Tribunal was correct in allowing depreciation on assets from the sale and lease back transaction, arguing it was a financial lease agreement. The Assessing Officer disallowed depreciation based on Circular No.2 of 2001, stating assets from non-existent transactions are not depreciable.

3. The Commissioner of Income Tax (Appeals) examined the transaction and found it genuine, allowing the depreciation claim. He relied on a Tribunal decision in a similar case, and the CIT(A) followed suit. The Revenue appealed to the Tribunal, which dismissed the appeal citing relevant court decisions and upholding the depreciation claim.

4. The Revenue argued against the applicability of court decisions and the CIT(A)'s reliance on the Tribunal's decision. However, the court found the Apex Court's decision and previous Tribunal rulings applicable, emphasizing the necessity of ownership and business use for depreciation claims, which were satisfied in this case.

5. The court noted the lack of challenge to the Tribunal's decision in Development Credit Bank Ltd. case, and the genuine nature of the transaction was established. Previous court decisions and dismissals of appeals further supported the allowance of depreciation on the assets.

6. Considering the precedents and facts of the case, the court concluded that the Tribunal's decision aligns with previous court rulings and the legal requirements for depreciation claims. The appeal was dismissed as it did not raise any substantial question of law for consideration.

7. The judgment reaffirmed the decision to allow depreciation on assets from the sale and lease back transaction with HSEB, based on ownership, business use, and the genuine nature of the transaction as established through examination and previous court decisions.