As per para 6.3 of Judgement
6.3 In the light of aforesaid terms and conditions of the agreement it is apparent that the assessee entered in to a financing lease arrangement with LPIN for taking certain vehicles for its use. A finance lease is one where the lessee uses the asset for substantially the whole of its useful life and the lease payments are calculated to cover the full cost together with interest charges. It is thus a disguised way of purchasing the asset with the help of a loan.
An operating lease is any other type of lease where the asset is not wholly amortised during the non-cancellable period, if any, of the lease and where the lessor does not rely for his profit on the rentals in the non-cancellable period. This distinction has been explained in Asea Brown Boveri Ltd v. IFCI [2006] 154 Taxman 512 (SC), Association of Leasing & Financial Service Companies v. Union of India [2011] 2 SCC 352 & Sundaram Finance Ltd v. State of Kerala AIR 1966 SC 1178. In a recent decision dated 17.4.2012 in CIT v. Instalment Supply Ltd. [2012] 207 Taxman 19/20 taxmann.com 779 (Delhi), Hon'ble jurisdictional High Court concluded that, financial lease is a transaction current in the commercial world, the primary purpose whereof is the financing of the purchase by the financier. In the light of view taken in these decisions, on analyzing various terms and conditions of the agreement with LPIN, we are of the view that the assessee is not entitled to deduction of payment of principal amount under the aforesaid financing arrangement. The ld. AR on behalf of the assessee did not place any material before us, controverting the aforesaid findings recorded by the ld. CIT(A) and various clauses of the agreement and facts narrated before us stare in the face of the assessee. Accordingly, we are not inclined to interfere with the findings of the ld. CIT(A) in upholding disallowance of claim for deduction of Rs. 11,03,660/- towards payment of principal amount.
Rio Tinto India (P.) Ltd.
[2012] 24 taxmann.com 124 (Delhi - Trib.)
22-06-2012
6.3 In the light of aforesaid terms and conditions of the agreement it is apparent that the assessee entered in to a financing lease arrangement with LPIN for taking certain vehicles for its use. A finance lease is one where the lessee uses the asset for substantially the whole of its useful life and the lease payments are calculated to cover the full cost together with interest charges. It is thus a disguised way of purchasing the asset with the help of a loan.
An operating lease is any other type of lease where the asset is not wholly amortised during the non-cancellable period, if any, of the lease and where the lessor does not rely for his profit on the rentals in the non-cancellable period. This distinction has been explained in Asea Brown Boveri Ltd v. IFCI [2006] 154 Taxman 512 (SC), Association of Leasing & Financial Service Companies v. Union of India [2011] 2 SCC 352 & Sundaram Finance Ltd v. State of Kerala AIR 1966 SC 1178. In a recent decision dated 17.4.2012 in CIT v. Instalment Supply Ltd. [2012] 207 Taxman 19/20 taxmann.com 779 (Delhi), Hon'ble jurisdictional High Court concluded that, financial lease is a transaction current in the commercial world, the primary purpose whereof is the financing of the purchase by the financier. In the light of view taken in these decisions, on analyzing various terms and conditions of the agreement with LPIN, we are of the view that the assessee is not entitled to deduction of payment of principal amount under the aforesaid financing arrangement. The ld. AR on behalf of the assessee did not place any material before us, controverting the aforesaid findings recorded by the ld. CIT(A) and various clauses of the agreement and facts narrated before us stare in the face of the assessee. Accordingly, we are not inclined to interfere with the findings of the ld. CIT(A) in upholding disallowance of claim for deduction of Rs. 11,03,660/- towards payment of principal amount.
Rio Tinto India (P.) Ltd.
[2012] 24 taxmann.com 124 (Delhi - Trib.)
22-06-2012
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