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TMI Blog2013 (3) TMI 127X X X X Extracts X X X X X X X X Extracts X X X X ..... rder dated 18.10.2005 as passed by the Commissioner of Income Tax (Appeals), Udaipur [ the CIT(A) ], who had deleted the addition made by the Assessing Officer [ the AO ] of the lease rent of the machinery, said to have been taken on hire. The AO was of the view that the lease agreement was that of financing and not of operational work and hence, the lease rent was not that of business expenditure. The Appellate Authority, however, disagreed and held that lease rentals were allowable as business expenditure in the case of assessee. The Tribunal endorsed the views of the Appellate Authority. This appeal, preferred in challenge to the orders so passed by the Appellate Authority and the Tribunal, has been admitted on the following substantial question of law: Whether in the facts and circumstances of the case the learned Tribunal was justified in dismissing the appeal of the revenue and confirming the order of the CIT(A) regarding deletion of addition of Rs.50,76,176 made by the AO on account of disallowance on lease rent ignoring the finding of the AO that lease agreement is that of a financing and not of the operational work. The facts and background aspects for the purpose ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that the lease agreement is financing one and not the operational treating the cost of the leased assets as loan amount and lease rentals as interest. The AO has allowed interest part only and disallowed the loan amount. It is seen from the submission of the appellant that the appellant has taken leased assets from M/s. Gujarat Lease Finance Ltd. and M/s ITC Classic Finance Ltd. which are reputed lease and finance companies. The fact of ownership of the lessor namely GLFL and ITCCFL is supported by following clauses of the agreement: i) Re-delivery of equipment by the lessee on termination ii) Lessors right to assign the receivables etc. iii) Lessee to affix the name plate. iv) Lessee not to part with the possession v) Lessee not to have any right in equipment except bailee. vi) Lessee to ensure the equipments. vii) Lessee not to transfer or dispose off equipments for interest in the lease. viii) Lessee not to make alterations in the equipments, additions belong to lessors ix) Seizure confiscate of the equipment not to claim and relief, allowance etc. x) Sale of the equipment by the lessor, sale through the agency of the lessee and the lessees reward. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of the revenue that the lease transactions or not real or are sham transactions. The lesser is legally owner of the assets, and lessee is the actual owner for business purposes. Therefore, the ld. CIT (A), allowed the lease rent on the force of the reasoning that the lease rentals have been allowed as business expenditure in the case of this assessee in A.Ys. 1996-97 and 1999-2000. This issue stands covered by the decision of the Hon'ble Rajasthan High Court in the case of Rajshree Roadways Vs. Union of India reported in 263 ITR 206 [Raj.] and also in the case of Shri Rajasthan Syntex Vs. Assistant Commissioner of Income-tax [ITAT Jodhpur Bench]. Thus, this ground also stands covered in favour of the assessee, therefore, we confirm the findings of the ld. CIT (A) and dismiss ground No. 1 of the appeal either. Questioning the orders aforesaid, it is submitted that whether a lease is a finance lease or an operational lease depends on the substance of the agreement rather than its form. According to the appellants, as per the lease agreements, the obligation to pay rental is absolute and not conditional whereas in the operational lease, the rental should be related to actual ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he lessee though apparently the title to the assets had not been transferred, in our view, had been of not viewing the case in its correct perspective. The CIT(A) has rightly observed that once the agreements were accepted as real and genuine, they were required to be accepted and there was no reason to treat the assessee as the owner of the machinery. For such nature agreements and their legal implication, the principles of law expounded and explained by the Hon'ble Supreme Court in CIT Vs. Shaan Finance (P.) Ltd.: (1998) 231 ITR 308 could be noticed, for being of direct application to the present case, as under: Neither of these cases deals with an agreement of hire of machinery in contradistinction to an agreement of hire purchase. When the machinery is given on hire by the owner to the hirer on payment of hire charges, the income derived by the owner is business income. The owner is also entitled to depreciation on the machinery so hired out. The hirer, on the other hand, who pays hire charges, is entitled to claim these as revenue expenditure. The hirer has not acquired any new asset. A transaction of hire is, therefore, of bailment of the machinery. There is no extingu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erty. In our view, the Tribunal has committed an error in restoring the view of the Assessing Officer. Therefore, considering the terms and conditions of the lease agreement and the fact that depreciation on these trucks has been allowed to the lessor, Key Leasing and Finance Ltd., now there is no justification to deny the claim of the assessee that his lease rent should be allowed as revenue expenditure. In our view, the Commissioner of Income-tax (Appeals) has rightly allowed the claim of the assessee. In the present case too, the assessee had no right to transfer or alienate the machinery in any form, was obliged to re-deliver the equipment upon termination of lease agreement, was not to part with possession and not to make alteration in the equipments with the stipulation that additions would belong to the lessor; and the lessor was entitled to claim depreciation during the lease period. Looking to the explicit terms and stipulations, the findings of the AO about so-called substantial transfer of ownership though apparent non-transfer of title, in our view, could not have been countenanced and have rightly been reversed by the Appellate Authority. It may also be observ ..... X X X X Extracts X X X X X X X X Extracts X X X X
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