PRINCIPAL COMMISSIONER OF INCOME TAX 2 vs. GUJARAT LEASE FINANCING LTD

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TAXAP/1023/2018HC GujaratGJHC24043983201813 August 2018Bench: HONOURABLE MR. JUSTICE AKIL KURESHI,HONOURABLE MR. JUSTICE B.N. KARIA3 pages
AI SummaryDismissed

What did the High Court hold?

On the first issue concerning interest expense, the Tribunal, while confirming the deletion of disallowance by the CIT(Appeals) to the extent of Rs. 3.63 crores, noted that this liability had crystallized during the year. The Tribunal disallowed the claim of interest expenditure to the extent of Rs. 2.52 crores. The High Court found that no question of law arose on this issue. Regarding the second and third issues concerning depreciation on leased assets, the Revenue's counsel submitted that these questions were wrongly framed and dealt with separately. However, the judgment notes that the Tribunal relied on the High Court's decision in CIT vs. Pinnacle Finance Ltd. (268 ITR 395) for the proposition that when a leasing company delivers assets and lease rent commences, the asset is deemed to have been put to use. As this was in conformity with the High Court's view, no question of law arose.

What were the facts?

The Revenue has challenged the order of the Income-tax Appellate Tribunal (Tribunal) dated November 16, 2017. The assessee is Gujarat Lease Financing Ltd. The assessment year in question is 2001-02. The dispute involves the allowability of interest expense of Rs. 3,63,36,883, and the disallowance of depreciation on leased assets amounting to Rs. 16,45,341 and Rs. 16,00,563. The CIT(Appeals) had deleted the disallowance of interest expense, which was confirmed by the Tribunal to the extent of Rs. 3.63 crores, while disallowing Rs. 2.52 crores. The Tribunal had also deleted the disallowance of depreciation on leased assets.

What were the issues?

1. Whether the Appellate Tribunal is right in law and on facts in allowing the interest expense of Rs. 3,63,36,883, considering it as un-ascertained contingent liabilities not allowable under the Act? 2. Whether the Appellate Tribunal erred in law and on facts in deleting the disallowance of depreciation of Rs. 16,45,341 in respect of leased assets? 3. Whether the Appellate Tribunal has substantially erred in deleting the disallowance of depreciation amounting to Rs. 16,00,563 on sale and leased back assets? Assessee's Contentions: Not recorded in the judgment. Revenue's Contentions: The interest expenditure did not crystallize during the assessment year 2001-02. The second question regarding depreciation on leased assets is wrongly framed and dealt with separately in another appeal. The Tribunal erred in deleting the disallowance of depreciation on leased assets.

Which sections of the Income-tax Act were involved?

Section 68

AI-generated summary — verify with the full judgment below

C/TAXAP/1023/2018 ORDER IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/TAX APPEAL NO. 1023 of 2018 ========================================================== PRINCIPAL COMMISSIONER OF INCOME TAX 2 Versus GUJARAT LEASE FINANCING LTD ========================================================== Appearance: MR MR BHATT, SENIOR ADVOCATE with MRS MAUNA M BHATT(174) for the PETITIONER(s) No. 1 for the RESPONDENT(s) No. 1 ========================================================== CORAM: HONOURABLE MR.JUSTICE AKIL KURESHI and HONOURABLE MR.JUSTICE B.N. KARIA

Date : 13/08/2018

ORAL ORDER (PER : HONOURABLE MR.JUSTICE AKIL KURESHI) 1.   Revenue has challenged the judgment of the Income­tax

Appellate

Tribunal

dated 16.11.2017   raising   following   questions   for our consideration. “(A)     Whether   the   Appellate   Tribunal   is right in law and on facts in allowing the interest   expense   of   Rs.3,63,36,883/­ without appreciating the fact that these expenses   are   of   the   nature   of   un ascertained   contingent   liabilities   not allowable under Act ?

(B)   Whether the Appellate Tribunal erred  in   law   and   on   facts   in   deleting   the  disallowance

depreciation

of Rs.16,45,341/­   in   respect   of   leased assets?

Page 1 of 3

C/TAXAP/1023/2018 ORDER (C)     Whether the Appellate Tribunal has substantially   erred   in   deleting   the disallowance of depreciation amounting to Rs.1600563/­   on   Sale   and   leased   back assets ?

2.

First issue is with respect to disallowance of   interest   expenditure   of   Rs.3.63   crores (rounded off) which was deleted by the CIT (Appeals) and confirmed by the Tribunal. The Revenue   principally   contends   that   this interest   expenditure   did   not   crystallize during the year under consideration, for the assessment year 2001­02. The Tribunal while confirming the decision of CIT (Appeals) took note   of   the   detail   facts   on   record   and accepted   the   claim   of   the   assessee   to   the extent of Rs.3.63 crores but disallowed the claim   of   interest   expenditure   of   Rs.2.52 crores (rounded off). This was on the basis that   interest   liability   to   the   extent   of Rs.3.63 crores crystallized during the year under   consideration.   No   question   of   law therefore arises.

3.

Second question pertains to the assessee’s claim   of   depreciation   on   leased   asset. Counsel   for   the   Revenue   however   submitted that this question is wrongly framed in the present  tax  appeal  and  is  separately   dealt with in Tax Appeal No.1022 of 2018.

4.

The   last   surviving   question   pertains   to depreciation on leased asset to the tune of Page 2 of 3

C/TAXAP/1023/2018 ORDER Rs.Rs.16 lacs (rounded off). In the impugned judgment   the   Tribunal   had   relied   on   the decision   of   this   Court   in   the   case   of Commissioner   of   Income­tax   vs.   Pinnacle Finance Ltd., reported in 268 ITR 395 to come to the conclusion that when a leasing company delivers assets by way of lease transaction and lease rent commences, the concerned asset is deemed to have been put to use. This being in   conformity   with   the   view   of   the   High Court, no question of law arises.

5.

In the result, tax appeal is dismissed. (AKIL KURESHI, J) (B.N. KARIA, J) K.K. SAIYED Page 3 of 3

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