Case Law Details
Advocate Akhilesh Kumar Sah
Deduction of lease rentals paid towards cars taken on finance lease allowed while computing income: Phillips India appeal
Recently in, Phillips India Ltd. formerly Philips Electronics India Ltd. vs. ACIT [I.T.A No. 612/Kol/2017, A.Y. : 2012-13, decided on 07.02.2018], apart from other issues/grounds, the assessee claimed lease rental paid for motor car taken on finance lease from Citi Corp amounting to Rs. 6,86,60,107. The same was treated as capital expenditure by the AO based on the reliance placed in assessee’s own case for the A.Y. 2003-04 which got confirmed by ITAT, Kolkata. The DRP observed as under:-
The lease rentals paid by the assessee for the year 2003-04 were disallowed and the action was upheld by the ITAT.
Aggrieved by the order, the assessee filed appeal before Kolkata ITAT on the following ground:-
- The Learned AO and DRP erred in law and on facts in disallowing Rs. 6,86,60,107 being the lease rent paid in respect of cars treating the same as capital expenditure.
- The Learned AO and DRP erred in law and on facts in disallowing the lease rent paid without taking cognizance of the decision of the Supreme Court in the case of ICDS Ltd. vs. CIT (2013) 350 ITR 527 (SC).
- Strictly without prejudice to the above, the AO and DRP erred in law and on facts in not allowing depreciation on total payment towards lease transactions including interest.
The Authorized Representative (AR) argued that this issue is covered by the decision of the Hon’ble Supreme Court in the case of ICDS Ltd vs. CIT reported in (2013) 350 ITR 527 (SC) wherein it was held that:-
“the lessor i.e the assessee is the owner of the vehicles. As the owner, it used the assets in the course of its business, satisfying both requirements of section 32 of the Act and hence, is entitled to claim depreciation in respect of additions made to the trucks, which were leased out.”
The AR stated that the assessee was a lessee and was entitled for deduction towards lease rentals paid towards cars taken on finance lease. He also stated that the lessor had confirmed that it had claimed depreciation in the relevant Asst year on the said cars which were leased out to the assessee. He further placed reliance on the decision of the Hon’ble Rajasthan High Court in the case of Rajshree Roadways vs. UOI reported in 263 ITR 206 (Raj), wherein it was held that the lessee would be entitled to the deduction of rent paid by him and the benefit of the depreciation shall be available to owner of the asset. Further the Special Leave Petition (SLP) filed by the Department against the said decision before the Hon’ble Supreme Court has been dismissed. He further placed reliance on the co-ordinate bench decision of Kolkata ITAT in the case of The Royal Bank of Scotland N.V. vs. DDIT in ITA No. 1738/Kol/2009, 1926/Kol/2010 , 519/Kol/2011 and 1805/Kol/2012) dated 13.4.2016 wherein on identical matter, the issue was decided in favour of the assessee.
The learned Members of the Kolkata ITAT after hearing the rival submissions found that the issue under dispute is covered by the decision of the Hon’ble Supreme Court in the case of ICDS Ltd (supra) in favour of the assessee. Hence respectfully following the same, the above mentioned Ground raised by the assessee-company was allowed.
