Facts of the Case

  • The assessee entered into a purchase and lease-back transaction with M/s Asian Electronics Ltd.
  • Pursuant to the transaction, the assessee claimed depreciation of ₹1,74,11,000 on the assets acquired.
  • The Income Tax Appellate Tribunal allowed the depreciation claim.
  • The Revenue challenged the Tribunal’s order before the Delhi High Court.
  • The appeal related to Assessment Year 1997-98.

Issues Involved

Whether the Income Tax Appellate Tribunal was correct in law in allowing depreciation of ₹1,74,11,000 claimed by the assessee in respect of assets involved in a purchase and lease-back transaction entered into with M/s Asian Electronics Ltd.?

Petitioner’s Arguments (Revenue)

  • The Revenue challenged the allowability of depreciation claimed by the assessee.
  • It was contended that depreciation should not be permitted in relation to the sale-and-lease-back arrangement forming the basis of the transaction.
  • The Revenue sought reversal of the ITAT order that had granted depreciation benefits to the assessee.

Respondent’s Arguments (Assessee)

  • The assessee supported the order of the ITAT.
  • It was argued that the depreciation claim was legally permissible under Section 32 of the Income Tax Act.
  • The assessee relied upon settled judicial precedents recognizing depreciation claims in genuine leasing and sale-and-lease-back transactions.

Court Findings

The Delhi High Court observed that the issue was already covered by binding judicial precedents, namely:

  1. CIT v. Shaan Finance Pvt. Ltd. (1998) 231 ITR 308 (SC).
  2. Commissioner of Income Tax v. Cosmo Films Ltd. (Delhi High Court, ITA No. 1404/2008, decided on 18.07.2011).

The Court noted that both parties agreed that the question raised in the appeal stood covered by the aforesaid judgments. Consequently, the legal position regarding depreciation on such leasing transactions had already been settled.

Court Order

The Delhi High Court answered the question of law in the affirmative and against the Revenue.

Accordingly:

  • The depreciation claim allowed by the ITAT was upheld.
  • The assessee remained entitled to depreciation of ₹1,74,11,000.
  • The appeal filed by the Revenue was disposed of in favour of the assessee.

Important Clarification

  • Genuine sale-and-lease-back transactions do not automatically disentitle an assessee from claiming depreciation.
  • Where ownership and leasing requirements prescribed under Section 32 are satisfied, depreciation may be allowable.
  • The Delhi High Court reaffirmed the principles laid down by the Supreme Court in CIT v. Shaan Finance Pvt. Ltd. and followed its earlier decision in CIT v. Cosmo Films Ltd.
  • The judgment reinforces the settled legal position that depreciation benefits can be claimed in legitimate leasing arrangements notwithstanding the existence of a sale-and-lease-back structure.

Sections Involved

  • Section 32, Income Tax Act, 1961 – Depreciation Allowance
  • Provisions relating to ownership and leasing of assets for claiming depreciation.

2. Commissioner of Income Tax v. Cosmo Films Ltd. (Delhi High Court, ITA No. 1404/2008)

Link to download the order -https://delhihighcourt.nic.in/app/case_number_pdf/2011:DHC:11883-DB/SKK15092011ITA6672007_141942.pdf

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