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Income Tax Appellate Tribunal, “C” BENCH : KOLKATA
Before: Hon’ble Sri A.T.Varkey, JM & Shri M.Balaganesh, AM ]
Per M.Balaganesh, AM
This appeal of the revenue arises out of the order of the Learned CIT(A)-1, Kolkata in Appeal No. 226/CIT(A)-I/C-2/2010-11 dated 20.02.2014 against the order of assessment framed for the Asst Year 2008-09 u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as the ‘Act’).
At the outset, there is a delay of 6 days in filing the appeal by the revenue before us. In view of concession given by the ld AR , the delay is condoned and the appeal of the revenue is admitted for adjudication.
The only issue to be decided in this appeal is as to whether the ld CITA was justified in deleting the disallowance of depreciation of Rs. 34,37,133/- on eased out computers, in the facts and circumstances of the case.
2 ITA No.1485/Kol/2014 M/s. Prompt Infotech (P)Ltd. A.Yr.2008-09 4. The brief facts of this issue is that the assessee is private limited company engaged in the business of computers and peripherals. The assessee had disclosed income under the head sales (of computer and peripherals) , project revenues (being lease rental charges on account of supply etc of computers and accessories to several PSUs) and annual maintenance charges as major sources. The ld AO observed that the depreciation chart, as forming part of schedules of accounts reveal that while there are assets on own use, ‘computers’ given on lease have also been subjected to depreciation in the sum of Rs 34,37,132.53 out of total of Rs 34,59,037.93. The ld AO observed that a question arises as to whether depreciation on assets on lease qualify for claim by the lessor company i.e assessee herein . The assessee submitted a work order issued to it by one of the PSUs viz Hindusthan Copper Ltd (HCL) and stated that all other work orders (in respect of other PSUs) are similar. The ld AO explained the principles of ‘finance lease’ and found from the work order that the transactions carried out by the assessee falls under the ambit of ‘finance lease’ and accordingly held that the assessee lessor is not entitled for depreciation amounting to Rs 34,37,133/- on computers given on lease and disallowed the same in the assessment.
The assessee submitted that it is dealing in computers and peripherals and it has also given computers on rental basis to different parties with the right to use at fixed charges along with installation and maintenance of the same, on the day to day basis. The rental income from the above was credited to the profit and loss account under the head ‘project revenue’. The assessee tried to distinguish the case law of Hon’ble Apex Court in the case of Association of Leasing and Financial Service Company vs Union of India in Civil Appeal No. 9344 of 2010 which was heavily relied upon by the ld AO. In the said case, their Lordships adjudicated the difference between ‘finance lease’ and ‘operating lease’ for the purpose of service tax with reference to section 65(12) of Finance Act, 1994. The above judgment was given to explain nature of banking & financial services in the context of section 65(12) of Finance Act, 1994 which relates to 2
3 ITA No.1485/Kol/2014 M/s. Prompt Infotech (P)Ltd. A.Yr.2008-09 imposition of service tax. The nature of work carried out by the assessee in the instant case would fall under the category of ‘Operating Lease’ and not ‘Finance lease’. The assessee enclosed the copies of purchase orders of different PSUs wherein they have clearly stated that the computers have been taken by them on monthly rental basis with maintenance thereof. The assessee also stated that even the tax has been deducted at source from the payment of rent u/s 194I of the Act by the respective parties while making payment to the assessee. It was also submitted that no such disallowance was made in the scrutiny assessment completed u/s 143(3) of the Act for the Asst Year 2006-07. The assessee also placed reliance on the decision of the Hon’ble Supreme Court in the case of ICDS Ltd vs CIT reported in 350 ITR 527 (SC) which squarely fits into the facts of the assessee’s case and accordingly claimed that it was entitled for depreciation on assets given on lease. The ld CITA deleted the disallowance of depreciation on computers in the sum of Rs 34,37,133/- by making the following observations :- “It is seen from the facts in the Appellant's case that the submissions made as above by it are that the Appellant was the owner of the Assets in question and the same had been given on rent to various Public Sectors including Hindustan Copper Ltd. The AO has examined the Agreement with this concern observing that other agreements were the same and on the basis of the same held that this was a “Finance Lease" and depreciation was disallowed. This is clear from the Point No.5 of General terms and conditions of the Appellant's Contract with this concern, which is re-produced as under :- “5. Rental period & termination : a. The PC sets will be rented for a period of 48 months from the date of installation. b. After 24 months from the date of installation Hindustan Copper Ltd. may terminate the contract for reasons other than unsatisfactory performance. c. In case of unsatisfactory performance, the company (HCL) reserves the right to terminate the contract either in full or in part even during 24 months lock in period referred above by giving written notice to the contractor and get the job done at the risk & cost of the contractor. d. Rental quoted will be firm without escalation. At the expiry period of 48 months HCL will have the option to takeover the total 20 sets as per Annexure (B) by paying token amount not exceeding one month rental. This however will not include any liability from the contractor/supplier side towards maintenance.
4 ITA No.1485/Kol/2014 M/s. Prompt Infotech (P)Ltd. A.Yr.2008-09 6. Payment: One time charges of 1,00,000(One lakh rupees) shall be paid within 30 days from the date of installation of the PC sets and subject to compliance of clause no.2. The rental charges of 36000/-(Thirty six thousand rupees) per month shall be paid on quarterly basis after expiry of each quarter. “
It is clear from the above that the Appellant was the owner of the Assets(Computers etc) given on rent to HCL , in view of the decisions in the ICDS Ltd. -vs- CIT Mysore & Anr. supra, wherein the Apex Court has held that even if there is a retention of Assets clause in the lease agreement ,the lessor remains the owner and hence entitled to depreciation. It was held that-
"23. The Revenue's objection to the claim of the assessee is founded on the lease Agreement. It argued that at the end of the lease period. the ownership of the vehicle is transferred to the lessee at a nominal value not exceeding 1% of the original cost of the vehicle. making tile assessee in effect a financer. However we are not persuaded to agree with the Revenue. As long as the assessee has a right to retain the legal title of the vehicle against the rest of the world. it would be the owner of the vehicle in the eyes of law. A scrutiny of the sole agreement cannot be the basis of raising question against the ownership of the vehicle. The clues qua ownership lie in the lease agreement itself. which clearly point in favour of the assessee. In the Appellant's case there is no Buy back or finance clause in the agreement for it to be considered a "Finance Lease". It is therefore held that the A.O was not justified in disallowing the claim of depreciation on the Computers etc claimed by the Appellant at Rs.34,37,132/- and the AO is directed to allow this claim of depreciation.”
Aggrieved, the revenue is in appeal before us on the following ground:- “1. That on the facts and circumstances of the case, the Ld. CIT(A) is not justified in deleting disallowance of depreciation of Rs. 34,37,133/- on leased out computers, relying on the decision of the Hon'ble Supreme Court in the case of ICDS Ltd. Vs. CIT, Mysore & Anr 350 ITR 527, without appreciating the facts of the instant case, which is different from the above referred case. The A. O. treated the same as "finance Lease" relying on the decision in Civil appeal no. 9344 of 2010 of Association of Leasing & Financial Service Cos (appellant) vs. Union of India & Ors (respondent) where the facts in the appeal are dealt with definition of "banking & other financial services" as contained in section 65( 12) of the Finance Act, 1994. Moreover, the CBDT's Circular No. 2/2001 dt. 09.02.2011 states that AS-19 on accounting leases requires capitalization by the lessee in case of financial lease transactions, which implies that depreciation can be claimed by the lessor only. 4
5 ITA No.1485/Kol/2014 M/s. Prompt Infotech (P)Ltd. A.Yr.2008-09
The appellant craves leave to amend, modify or alter any grounds of appeal during the course of hearing of this case.”
The ld DR vehemently relied on the order of the ld AO. In response to this, the ld AR vehemently relied on the order of the ld CITA.
We have heard the rival submissions. We find that the issue under dispute is squarely covered by the decision of the Hon’ble Apex Court in the case of ICDS Ltd vs CIT reported in 350 ITR 527 (SC) wherein it was held as under:- ‘the lessor i.e the assessee is the owner of the vehicles. As the owner, it used the assets in the course of its business, satisfying both requirements of section 32 of the Act and hence, is entitled to claim depreciation in respect of additions made to the trucks, which were leased out.”
We find that the assessee lessor had claimed depreciation in the relevant asst year on the said computers which were leased out. We also place further reliance on the decision of the Hon’ble Rajasthan High Court in the case of Rajshree Roadways vs UOI reported in 263 ITR 206 (Raj) wherein it was held that the lessee would be entitled to the deduction of rent paid by him and the benefit of the depreciation shall be available to owner of the asset. Further the Special Leave Petition (SLP ) filed by the department against the said decision before the Hon’ble Supreme Court has been dismissed . We also find that the co-ordinate bench decision of this tribunal in the case of The Royal Bank of Scotland N.V. vs DDIT in ITA No. 1738/Kol/2009, 1926/Kol/2010 , 519/Kol/2011 and 1805/Kol/2012) dated 13.4.2016 wherein on identical matter, the issue was decided in favour of the assessee.
6 ITA No.1485/Kol/2014 M/s. Prompt Infotech (P)Ltd. A.Yr.2008-09 Respectfully following the same , we do not find any infirmity in the order of the ld CITA in this regard. Accordingly, the ground raised by the revenue is dismissed.
In the result, the appeal of the revenue is dismissed.
Order pronounced in the Court on 25.05.2017.
Sd/- Sd/- [A.T.Varkey] [ M.Balaganesh ] Judicial Member Accountant Member
Dated : 25.05.2017. [RG PS]
Copy of the order forwarded to:
1.M/s. Prompt Infotech (P)Ltd., 98, Lake View Road, Kolkata-700029. 2. D.C.I.T., Circle-2, Kolkata. . 3..C.I.T.(A)-1, Kolkata 4. C.I.T.-1, Kolkata. 5. CIT(DR), Kolkata Benches, Kolkata.