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TMI Blog2013 (11) TMI 1667X X X X Extracts X X X X X X X X Extracts X X X X ..... s for which the Assessing Officer had treated the transaction as that of finance and not of leasing 3. Whether the Tribunal was correct in law in cancelling the interest charged under Section 234B of the Income-tax Act, 1961 3. Learned counsel for the respondent assessee concedes that interest under Section 234B is mandatory and therefore the impugned finding of Tribunal cannot be sustained. In view of the said statement, the question No.3 has to be answered in favour of Revenue and against the respondent assessee. Of course, the quantum or calculation of interest has to be made by the Assessing Officer in accordance with law as it would depend upon the total income determined after giving appeal effect. Question No. 3 is, accordingly, decided. 4. Question No.1 is also covered but against Revenue and in favour of the respondent assessee. It has been held by the Delhi High Court in CIT vs. Bansal Credits Ltd. (Delhi) 250 ITR 69 and by the Supreme Court in I.C.D.S. Ltd. vs. CIT (2013) 350 ITR 527 that the assessee engaged in the business of lease financing was entitled to higher rate of depreciation on vehicles used for hire, even when the vehicles were leased out to a thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... him defeated the purpose of law and showed collusion between the assessee and the seller/lessee. He also referred to the term ownership and concept of user for the purpose of Section 32 and observed that in the present case, the lessees were in need of finance and the assets had remained with the lessees, who never changed the place of installation. The respondent assessee by the said transactions had managed to get benefit of depreciation and reduced their taxable income, though they were only providing finance. The Assessing Officer held that this was nothing but tax evasion and accordingly, he disallowed the entire claim of depreciation to the extent of ₹ 2,00,60,443/-. 9. The Commissioner of Income Tax (Appeals) affirmed the said finding observing that this was a case of sale-cum-lease back transaction. Lessees were obviously in need of resources for running business and required finance. In this background, the sale-cum-lease back transactions were entered into. The assets were not transferred to a third party but were leased back to the seller. Thus, the respondent assessee was only a paper owner and they did not have any right to enjoy or dispose of the assets at w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, the assessee was an owner to the extent of ₹ 3,00,00,000/- and it was not clear to what extent Soda Lime Glass Furnace belonged to the assessee. In the absence of the identification of the portion which belonged to the assessee, the stipulations in the lease were meaningless. FINDINGS OF THE TRIBUNAL:- 13. The Tribunal by the impugned order dated 04.05.2001 has reversed the findings recorded by the authorities. It has been observed as under:- 6.1 After hearing rival submissions and considering the material on record, we find that in this ground for both of the years, the assessee deserve to succeed. The assessee purchased Gas Cylinders from M/s Digboi Petroleum Ltd., Village Patwari, Bisrakh Rorad, Ghaziabad at a consideration of ₹ 50,30,443/-, Boilers from Dhillon Kool Drinks and Beverages Ltd, G.T. Road, Panipat for a consideration of ₹ 17 lakhs and Heating Furnace with Evaporator from M/s. Triveni Engg. Work Ltd., Khatauli, Muzaffarnagar for a consideration of ₹ 1,33,30,000/-. These articles were purchased on 25-9-1995, 23-9-1995 and 16-8-1995. The payments were made subsequently. The copies of accounts in regard to date of invoice and payment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assets transferred to the assessee. Copies of the said certificates were placed on record. Revenue has not contested or challenged the said finding. But this finding alone does not decide the question raised. We accept that requirements of the said Explanation 4A to Section 43(1) are different from the one considered and applied by the authorities including the Tribunal. For the sake of convenience, we are reproducing the said explanation: [Explanation 4A.-Where before the date of acquisition by the assessee (hereinafter referred to as the first mentioned person), the assets were at any time used by any other person (hereinafter referred to as the second mentioned person) for the purposes of his business or profession and depreciation allowance has been claimed in respect of such assets in the case of the second mentioned person and such person acquires on lease, hire or otherwise assets from the first mentioned person, then, notwithstanding anything contained in Explanation 3, the actual cost of the transferred assets, in the case of first mentioned person, shall be the same as the written down value of the said assets at the time of transfer thereof by the second mentioned p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s provision will apply in respect of sale and lease back transactions made on or after the 1st day of October, 1996. (emphasis supplied) 16. The circular gives a purport and purpose behind Explanation 4A. It was observed that instances had come to the notice of Revenue, where assets having Nil written down value had been sold at higher prices especially where 100% depreciation was admissible. The Explanation stipulates that the actual cost for the purpose of deduction of depreciation shall be taken to be the written down value at the time of transfer of the assets in the hands of the seller, who subsequently acquires the assets by way of hire, lease or otherwise. The paragraph 29.2 of the said circular specifically states that the sale or lease back made on or after 1st day of October, 1996 would be covered by Explanation 4A. In view of the clear stipulation in the circular, we are not required to examine and decide whether the said Explanation had a retrospective effect. But as far as the Assessment Year 1996-97 is concerned, the circular would not applicable as it does not apply to new assets. 17. The Assessing Officer has not contested the factual contention that the asset ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n possession of the said assets. The terms and conditions of the lease have not been reproduced by the Assessing Officer in the assessment order. The Tribunal, in the impugned order, has referred to a lease agreement which was placed on record before them and has given a finding that the respondent assessee was an owner of the assets and has referred to clauses that the ownership of the goods during the term of the lease including renewal thereof, remained with the lessor. Even replaced parts were immediately deemed to be parts of the goods given on lease by the lessor. In respect of the insurance, a clause stipulated that the lessee would get the items insured but in case of loss or damages, the claim would be in account of the respondent assessee. 22. The concept of financial lease was examined by the Supreme Court in Asea Brown Boveri Ltd. vs. Industrial Finance Corporation of India and Ors. 2005 (126) Compcase 332 and it has been observed as under:- What is a lease finance According to Dictionary of Accounting and Finance by R. Brockington (Pitman Publishing, Universal Book Traders, 1996 at page 136):- A Finance Lease is one where the Lessee uses the asset for substantial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the lease and where the lessor does not rely for his profit on the rentals in the non-cancelable period. 16. The features of the financial lease, according to the learned author are as under : 1. The asset is use-specific and is selected for the lessee specifically. Usually, the lessee is allowed to select it himself. 2. The risks and rewards incident to ownership are passed on to the lessee. The lessor only remains the legal owner of the asset. 3. Therefore, the lessee bears the risk of obsolescence. 4. The lessor is interested in his rentals and not in the asset. He must get his principal back along with interest. Therefore, the lease is non- cancelable by either party. 5. The lease period usually coincides with the economic life of the asset and may be broken into primary and secondary period. 6. The lessor enters into the transaction only as a financier. He does not bear the costs of repairs, maintenance or operation. 7. The lessor is typically a financial institution and cannot render specialized service in connection with the asset. 8. The lease is usually full-pay-out, that is, the single lease repays the cost of the asset together wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore the risk of obsolescence. The lessor s interest was primarily in the rentals and not in the assets. The lessee had to return the principal amount alongwith interest. The lease was non-cancellable by either party. The lease period usually coincides with the economic life of the assets. The word usually in the said test is important. This test, it is apparent, has not been applied or even examined by the assessing officer. The lessor in this case had entered into the transaction only as a financier but did not bear the costs of repairs, maintenance or operation. The lessor was typically a financial institution and did not render service in relation to the assets. The lease usually should be for full-pay- out. Again, the word usually is significant and there is no adverse finding of the assessing officer on the said aspect. In the aforesaid exposition, the Supreme Court has pointed out that the transactions may be on account of requirements of tax laws and to avail benefits by way of tax planning to both the parties. 24. Here, it would be important to refer to the decision of the Supreme Court in I.C.D.S. Ltd. vs. CIT (supra). These were cases of finance lease of vehicles and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as to be gathered from the words in the said agreement in a tangible and in an objective manner and not upon a hypothetical assessment of the supposed motive of the assessee to avoid tax. We have already indicated that the intention gathered from the documents on record shows that the ownership and title of the said equipment had been transferred to the respondent / assessee and that after the said transfer, the lease was entered into and the said equipment was leased back to the HSEB. It has not at all been established on the basis of evidence on record that the transaction was a colourable device entered into by and between the HSEB and the respondent / assessee. 19. We also note that a similar view has been taken by the Rajasthan High Court in the case of Commissioner of Income-tax v. Rajasthan State Electricity Board (supra) and the Gujarat High Court in the case of Commissioner of Income-tax vs. Gujarat Gas Company Ltd. (supra) which followed the decision of the Rajasthan High Court in the case of Commissioner of Income-tax v. Rajasthan State Electricity Board. (supra). 20. We find the observations of the Supreme Court in the case of Asea Brown Boveri Ltd. (supra) with ..... X X X X Extracts X X X X X X X X Extracts X X X X
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