Depreciation on Lease Transaction

Court :
THE HIGH COURT OF DELHI AT NEW DELHI

Brief :
This appeal under Section 260-A of the Income-tax Act, 1961 (hereinafter referred to as „the said Act‟) has been preferred by the revenue being aggrieved by the judgment and / or order dated 22.02.2008 passed by the Income-tax Appellate Tribunal in revenue‟s appeal being ITA No.4516/Del/2003 pertaining to the assessment year 1996-97, nasmuch as the Income-tax Appellate Tribunal had dismissed the appeal of the revenue on the ground that the Commissioner of Income-tax (Appeals) had erred in deleting the addition of ` 2,30,40,000/- made on account of depreciation. The Assessing Officer by virtue of his assessment order dated 29.03.2001 had disallowed the claim of the respondent / assessee with regard to 100% depreciation on the equipment purchased by it from the Haryana State Electricity Board (hereinafter referred to as „HSEB‟), which was already installed at the said Board‟s Thermal Power Station at Faridabad and immediately thereupon leasing the said equipment back to the HSEB on certain terms and conditions. The assessing officer had placed reliance on the Supreme Court decision in the case of McDowell and Company Limited v. Commercial Tax Officer: 1985 (154) ITR 148. The Assessing Officer came to the conclusion that the transaction was not a case of purchase and lease back of equipment, but was a pure financial and loan transaction and, accordingly, the claim of 100% depreciation to the tune of ` 2,30,40,000/- claimed by the respondent / assessee was disallowed. The Commissioner of Income-tax (Appeals) by virtue of his order dated 31.07.2003, placed reliance on the decision of the Income-tax Appellate Tribunal in the case of Consortium Finance Limited v. JCITD: 82 ITD 808 and held that a genuine transaction of purchase and lease back had taken place and that, as the assessee was carrying on the business of leasing also, apart from other businesses, it was entitled to the claim of depreciation and consequently the appeal was allowed insofar as the claim of depreciation was concerned.

Citation :
COMMISSIONER OF INCOME-TAX … Appellant Versus M/S COSMO FILMS LIMITED … Respondent