Sri v. Vinay Giri, Adv

IN THE HIGH COURT OF KARNATAKA AT BENGALURUDATED THIS THE 30 DAY OF NOVEMBER 2070. PRESENT| THE HON’BLE MR. JUSTICE ALOK ARADHE AND| THE HON’BLE MR. JUSTICE H.T.NARENDRA PRASAD BETWEEN: LT.A.§ NCO.142 OF 201 HEWLETT-PACKARD INDIA SALESPRIVATE LIMITED NO.24, SALARPURIA ARENA HOSUR MAIN ROAD| ADUGODI, BANGALORE-560030REP. HEREIN BY ITS INDIA TAX DIRECTOR.MR. MANOJ BAVLE. (BY SRI. T. SURYANARAYANA, ADV., FOR| SRI. V. VINAY GIRI, ADV.,) — APPELLANT. AND" 1.|THE COMMISSIONER OF INCOME-TA® C.R. BUILDING, QUEENS ROAD BANGALORE-560001. 2 |THE DEPUTY COMMISSIONER OF INCOME TAX CIRCLE-11(4), C.R. BUILDING QUEEN'S ROAD, BANGALORE-560001. .., RESPONDENTS| (BY SRI. K.V. ARAVIND, ADV.,) THIS ITA IS FILED UNDER SECTION 260-A OF I.T. ACT,|1961L ARISING OUT OF ORDER DATED O9.11.20L2 PASSED IN ITA NO.683/BANG/2010 FOR THE ASSESSMENT YEAR 2004-05,PRAYING TO: (1) FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW.STATED THEREIN.» (11) ALLOW THE APPEAL AND SET ASIDE THE ORDER OF.THE ITAT DATED 9-11-2012 IN ITA NO.683/BANG/2010 TO THEEXTENT QUESTIONED HEREIN, IN THE INTEREST OF JUSTICE ANDEQUITY. THIS ITA COMING ON FOR HEARING, THIS’ DAY, |ALOK ARADHE J.,DELIVERED THE FOLLOWING: | JUDGMENT This appeal under Section 260A of the Income TaxAct, 1961 (nereinafter referred to as the Act for short) nas been preferred by the assessee. The subject matterof the appeal pertains to the Assessment year 2004-05.The appeal was admitted by a bench of this Court videorder dated 09.07.2013 on the following substantial|question of law: (1) Whether, on the facts, in tnecircumstances and on the grounds urged, tneTribunal was Justified in confirming the orderpassed by the CIT(A) and thereby the orderpassed by the 2nd Respondent in holding thatthe Appellant was not entitled to claim. depreciation on leased assets under Section37 of the Act?| (11) WhetherON)thefacts, In|thecircumstances and on the grounds urged, theTribunal was right in holding that the lease Isin the nature of a finance lease and thattherefore it Is the lessee who is the de factoowner of the leased equipment who is entitledto claim depreciation and not the Appellant? 2.|Facts leading to filing of this appeal brieflystated are that the assessee earned lease rentals from|certain assets being equipments which were leased outto various persons in 2003-04. In terms of the leaseagreements entered into by the lessees, the assesseewas the owner of the equipments and the lessees nad norignt or interest in the equipments during or after theperiod of lease. The assessee filed the return of incomefor the Assessment Year 2004-05, in which deduction tothe tune of Rs.7,27,04,961/- was claimed on account ofdepreciation on assets given on lease under Section 32 of the Act.The Assessing Officer Dy an order dated29.12.7008 held that the assessee is not entitled to!claim depreciation on assets leased by it on the groundthat it was the lessee and not the lessor. 3.The assessee thereupon filed an appealbefore the Commissioner of Income Tax (Appeals) who.by an order dated 13.01.2010 by placing reliance onassessee'Ss own case in respect of Assessment Year2007-03dismissed|theappealpreferredbytheassessee. The assessee approached the Income TaxAppellate Tribunal (hereinafter referred to as ‘thetribunal for short) by filing an appeal. The tribunal byorder dated 09.11.7017 inter alia held that the lease iInquestion is a finance lease and the lessee being de factoowner and user of the equipment is not entitled to claim.depreciation. In the aforesaid factual background, this|appeal has been filed. 3.The assessee thereupon filed an appealbefore the Commissioner of Income Tax (Appeals) who.by an order dated 13.01.2010 by placing reliance onassessee'Ss own case in respect of Assessment Year2007-03dismissed|theappealpreferredbytheassessee. The assessee approached the Income TaxAppellate Tribunal (hereinafter referred to as ‘thetribunal for short) by filing an appeal. The tribunal byorder dated 09.11.7017 inter alia held that the lease iInquestion is a finance lease and the lessee being de factoowner and user of the equipment is not entitled to claim.depreciation. In the aforesaid factual background, this|appeal has been filed. 4Learned counsel for the assessee submittedthat the substantial questions of law involved in thisappeal is squarely covered by decision of the SupremeCourt in I1.C.D.S. LTD. VS. COMMISSIONER OF INCOMETAX AND ANOTHER , (2013) 350 ITR 527 (SC). It isfurther pointed out that the tribunal in case of theassessee for the Assessment Year 2002-03 by an orderdated 30.10.2015 had permitted deduction underSection 32 of the Act on the depreciation on assets givenon lease. Subsequently, the tribunal by placing reliance’on its aforesaid order for the Assessment Year 2003-04,by an order dated 25.02.2019 took the similar view in|favour of the assessee. It is alSo pointed out that beingaggrieved by the order passed by the tribunal in respectof Assessment Year 2003-04, the revenue nas filed anappeal, a copy of which produced for our perusal and itwas pointed out that no ground with regard to claim of.assessee for deduction under Section 32 of the Act has/been taken in the aforesaid appeal. In other words, it Is” pointed out that the revenue has accepted the claim ofthe assessee for deduction under Section 32 of the Acton depreciation on assets which were leased out for theAssessment Years 2002-03 and 2003-04. It is also urged.that in view of the decision in RADHASOAMI SATSANG|VS. CIT, 193 ITR 321 (SC), the revenue cannot bepermitted to alter its position. 5On the other hand, learned counsel for the|revenue submitted that the finding recorded by thetribunal is a finding of fact and therefore, no substantialquestions of law are involved. It is also pointed out thatno finding Nas been recorded by the tribunal as toagreements and the nature of transaction entered by theassessee iS one and the same, it requires determinationand therefore, the matter deserves to be remitted to thetribunal. It Is also contended that the tribunal has to'examine the issue afresh in terms of law laid down bythe Supreme Court in 1I.C.D.S. Ltd. supra. It Is alsourged that the lease is only a finance lease as per the agreement as recorded by the tribunal, therefore,assessee is not entitled for depreciation.| 6.|We have considered the submissions made bylearned counsel for the parties and have perused therecord. The clauses of the agreement in the case beforethe Supreme Court in I.C.D.S Ltd. supra and in the caseof the assessee with regard to ownership, inspection, re_possession of the vehicle of the equipment on default,delivery of equipment on expiration of lease andownership at the end of the lease period are similar.From perusal of clause 8.1 of the agreement, it isevident that the lessee has to ensure the equipmentshowing the assessee's name as owner and in terms ofclause 11 no alteration or improvements to theequipment can be made by the lessee without priorconsent from the assessee. Thus, the assessee alone canclaim the depreciation allowance. The aforesaid clauseshave been interpreted by the Supreme Court in I.C.D.S..Ltd. supra and it has been held that the assessee is entitled to benefit of depreciationon leased assetsunder Section 32 of the Act. Thus, the questions of lawinvolved in the appeal are no longer res integra and aresquarely covered by the decision of the Supreme Courtin I.C.D.S. Ltd. supra. © entitled to benefit of depreciationon leased assetsunder Section 32 of the Act. Thus, the questions of lawinvolved in the appeal are no longer res integra and aresquarely covered by the decision of the Supreme Courtin I.C.D.S. Ltd. supra. © 7. For yet another reason the substantial questions|of law have to be answered in favour of the assessee.|The Supreme Court inRADHASOAMI SATSANG Vs.|COMMISSIONER|OFINCOME-TAX’|(1992)60TAXMAN 248 (SC)has held that even though principlesof res judicata do not apply to income tax proceedings,|but where a fundamental! aspect permeating through thedifferent Assessment Years has peen found as the fact|one way or tne other and the parties nave allowed theposition to be sustained by not challenging the order, itwould not be at all appropriate to allow the position tobe changed in subsequent year. In the instant case, therevenue has accepted the claim of the assessee for depreciation under Section 32 of the Act for theAssessment Year 2002-03 and 2003-04. Therefore, therevenue cannot be allowed to take a different stand forthe 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 theTribunal dated 09.1.2012 in sofar as it pertains to therejection of the claim of the assessee for depreciation inrespect of leased assets under Section 32 of the Act ishereby quashed and the assessee is held entitled todepreciation in respect of leased assets under Section 32of the Act. Accordingly, the appeal is allowed. — Sd/- JUDGE. SS| Sd/-—JUDGE.