CIT (LTU) Vs Tata Motors Ltd. (Supreme Court of India)
The dispute before the Bombay High Court concerned whether the assessee was entitled to claim depreciation under Section 32 of the Income-tax Act on assets given on lease and whether interest under Section 220(2) could continue after reassessment proceedings. The Revenue challenged a common order of the Income Tax Appellate Tribunal relating to assessment years 1994-95 to 1997-98.
The Assessing Officer had disallowed depreciation claimed on leased assets on the ground that the lease arrangements were merely financial transactions and that the assessee did not satisfy the twin conditions of ownership and use for business purposes under Section 32. The Assessing Officer also levied interest under Section 220(2) while passing an order under Section 143(3) read with Section 254. The Commissioner (Appeals) upheld the disallowance, after which the matter reached the Tribunal.
The Tribunal allowed the assessee’s appeal by relying on earlier Tribunal decisions in the assessee’s own case for subsequent years. It held that the assessee was entitled to depreciation on leased assets and deleted the interest charged under Section 220(2). The Revenue then appealed before the Bombay High Court.
Before the High Court, the principal issue was whether depreciation could be allowed where leased assets were used by lessees but ownership remained with the assessee. The Court noted that the facts were undisputed and that the assessee had entered into genuine lease transactions supported by lease agreements placed before the Assessing Officer. The assessee consistently argued that the transactions were genuine leases and not mere financing arrangements.
