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TMI Blog2025 (2) TMI 287X X X X Extracts X X X X X X X X Extracts X X X X ..... Monika H. Pande, Sr. DR ORDER PER SANDEEP SINGH KARHAIL, J.M. 1. The present appeal has been filed by the Revenue challenging the impugned order dated 09/06/2023, passed under section 250 of the Income Tax Act, 1961 ("the Act") by the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi ["learned CIT(A)"], for the assessment year 2015-16. 2. The present appeal is delayed by 99 days. Along with the appeal, the Assessing Officer ("AO") has filed an application seeking condonation of delay in filing the present appeal, which reads as follows: - "Sub: Condonation of delay for filing of Appeal in the case of M/s. NTT GLOBAL DATA CENTERS & CLOUD INFRASTRUCTURE INDIA PVT. LTD. AACCN2366D for the A.Y. 2015-16- reg. Kindly refer to the above. In this regard, it is apparent from the record that the last date of filing the appeal in this case was 08.08.2023. However due to the following circumstances the further appeal could not be filed within the due date. (i) Since, this office having jurisdiction over very large cases like ICICI Bank, Kotak Mahindra Bank, HDFC Bank, Tech Mahindra, Tata Steel and other Tata Group of Companies, Proctor and gamble ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y in filing the appeal by the Revenue and we proceed to decide the appeals on merits. 5. In this appeal, the Revenue has raised the following ground: - "Whether on the facts and in the circumstances of the case and in the law, the Ld. CIT (A) justified deleting disallowance of Finance Lease Rental Payments, when the same is part of Capital Expenditure for payment of Finance Lease Rental Payments." 6. The only issue raised by the Revenue pertains to the deletion of disallowance on account of Finance Lease Rental Payment. 7. The brief facts of the case pertaining to this issue, as emanating from the record, are: The assessee is engaged in the business of providing remote infrastructure management, remote helpdesk, remote network monitoring services and other services for foreign customers. For the year under consideration, the assessee filed its return of income on 29/11/2015, declaring a total loss of Rs. 90,08,075. Subsequently, the assessee filed its revised return of income on 30/03/2017, declaring a total loss of Rs. 95,75,594. The return filed by the assessee was selected for scrutiny, and statutory notices under section 143(2) and section 142(1) of the Act were issue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d grounds not only claiming that the Finance Lease Rental Payment is allowable under section 37(1) of the Act but also raised an alternative ground that if the expenses incurred are considered as capital expenditure for acquisition of assets, depreciation on such assets were to be allowed to the assessee being the lessee. The learned CIT(A), vide impugned order, allowed the alternative plea of the assessee pertaining to the claim of depreciation on such assets. Being aggrieved, the Revenue is in appeal before us. 10. During the hearing, the learned Departmental Representative vehemently relied upon the order passed by the AO and submitted that the learned CIT(A) erred in allowing the depreciation on assets, as the assessee is not the legal owner of the assets. 11. On the contrary, the learned Authorised Representative, at the outset, submitted that the coordinate bench of the Tribunal in the assessee's appeal allowed the main plea of the assessee allowing the Finance Lease Rental Payment as expenditure under section 37(1) of the Act. 12. We have considered the submissions of both sides and perused the material available on record. We find that the coordinate bench of the Tribuna ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... epreciation claimed on assets leased under finance lease transactions by issuing show cause notice. The assessee has filed all relevant documents including the copies of agreements entered with the customers and the assessee has also referred to the Circulars issued by the CBDT clarifying the legal position to claim depreciation on assets under operating lease as well as finance lease. The assessing officer being satisfied with the explanation and after conducting a thorough enquiry has allowed the depreciation claimed on assets under lease transactions, but disputed the rate of depreciation claimed by the assessee and therefore, by no stretch of imagination it can be held that the assessment order passed by the assessing officer was erroneous within the meaning of Section 263 of the Act of 1961. 15. The learned counsel for the Income Tax Department has vehemently relied upon the judgments delivered in the case of Malabar Industrial Co.Ltd., (supra) as well as in the case of Amitabh Bachchan (supra) on the issue that the order passed by the assessing officer is prejudicial to the interests of the revenue. In the considered opinion of this Court as rightly held by the Income Tax A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e claim of the assessee for depreciation under Section 32 of the Act for the Assessment Year 2002-03 and 2003-04. Therefore, the revenue cannot be allowed to take a different stand for the Assessment Year 2004-05. 8. In view of preceding analysis, the substantial questions of law are answered against the revenue and in favour of the assessee. In the result, the order of the Tribunal dated 09.1.2012 in so far as it pertains to the rejection of the claim of the assessee for depreciation in respect of leased assets under Section 32 of the Act is hereby quashed and the assessee is held entitled to depreciation in respect of leased assets under Section 32 of the Act. Accordingly, the appeal is allowed." 17. The Division Bench of this Court has placed reliance upon a judgment delivered in the case of M/s ICDS Ltd (supra), wherein again the same issue was involved. Paragraphs 26 to 32 of the judgment delivered by the Hon'ble Supreme Court in M/s ICDS Ltd's case are reproduced as under; "26. We do not find merit in the Revenue's argument for more than one reason: (i) Section 2(30) is a deeming provision that creates a legal fiction of ownership in favour of lessee only for the purpos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e certificate cancelled under this subsection would have been in force." Therefore, the MV Act mandates that during the period of lease, the vehicle be registered, in the certificate of registration, in the name of the lessee and, on conclusion of the lease period, the vehicle be registered in the name of lessor as owner. The Section leaves no choice to the lessor but to allow the vehicle to be registered in the name of the lessee Thus, no inference can be drawn from the registration certificate as to ownership of the legal title of the vehicle; and if the lessee was in fact the owner, he would have claimed depreciation on the vehicles, which, as specifically recorded in the order of the Appellate Tribunal, was not done. It would be a strange situation to have no claim of depreciation in case of a particular depreciable asset due to a vacuum of ownership. As afore- noted, the entire lease rent received by the assessee is assessed as business income in its hands and the entire lease rent paid by the lessee has been treated as deductible revenue expenditure in the hands of the lessee. This reaffirms the position that the assessee is in fact the owner of the vehicle, in so far as Se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1993 has clarified that the higher rate of 40% in case of lorries etc. plying on hire shall not apply if the vehicle is used in a non- hiring business of the assessee. This circular cannot be read out of its context to deny higher appreciation in case of leased vehicles when the actual use is in hiring business. (Emphasis supplied) Perhaps, the author meant that when the actual use of the vehicle is in hire business, it is entitled for depreciation at a higher rate. *** *** *** 39. The gist of the decision of the apex court in the case of Shaan Finance (P) Ltd. is that where the business of the assessee consists of hiring out machinery and/ or where the income derived by the assessee from the hiring of such machinery is business income, the assessee must be considered as having used the machinery for the purpose of business. 40 In the present case, the business of the assessee consists of hiring out machinery and trucks where the income derived by the assessee from hiring of such machinery is business income. Therefore, the assessee- appellant viz. ICDS should be considered as having used the trucks for the purpose of business. 41 It was further brought to our notice th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... above decision, the same set of transaction on which lessor (Cisco Systems Capital (India) Private Limited) was allowed to claim the deduction/depreciation in their computation and the resultant of the same transaction i.e., in the case of lessee (i.e. assessee), revenue cannot take a different view. Therefore, in our considered view the claim made by the assessee is on the same lease, therefore, we respectfully following decisions of the Hon'ble Karnataka High Court and Hon'ble Supreme Court in the case of ICDS Limited v. CIT (supra) we are inclined to allow the claim of the assessee to claim the lease rent as an expenditure in their computation. This case being peculiar we are inclined to allow the ground raised by the assessee. Accordingly, ground raised by the assessee is allowed." 13. Since, considering the decision of the Hon'ble Karnataka High Court in lessor's case, the claim of deduction of Finance Lease Rental Payment under section 37(1) of the Act has been allowed to the assessee by the coordinate bench for the year under consideration, the present appeal by the Revenue challenging the findings of the learned CIT(A) in allowing depreciation in the hands of the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X
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