Fastway Transmission (P) Ltd. Vs ACIT (ITAT Chandigarh)
Conclusion: Set top boxes was the property of CISCO which was taken by assessee on lease from CISCO against payment of lease charges thus assessee was not entitled to claim the principal component of alleged lease rent paid as ‘revenue expenditure’ u/s 37(1) however, entitled to claim depreciation @60% on the said assets acquired on Finance Lease.
Held: Assessee was engaged in the business of Multi System Operators and Digital Cable Services (DCS). DCS services were rendered to the customers through set top boxes. During the course of assessment proceedings, AO noticed that assessee had entered into a financial lease agreement with M/s CISCO Capital System India Pvt. Ltd. for supply of Set Top Boxes (STB) and Head Ends. AO further noted that CISCO was a Non-Banking Finance Company (NBFC) registered with Reserve Bank of India and was in the business of providing different types of loans on assets/equipments to its customers.
AO found that assessee had entered into the said agreement with CISCO through Master Lease Finance Agreement wherein the lease term was 48 months for the supply of STBs and Head ends. Assessee had pleaded that the assets / equipment in question was the property of CISCO which was taken by assessee on lease from CISCO against payment of lease charges; Whereas, the sum and substance of AO had been that the transaction in fact, was a finance lease as defined by the ICAI in its AS-19.
Accordingly, AO disallowed the claim of deduction of the Principal component of the lease rentals made by the assessee and allowed depreciation @ 15% on the leased assets, thus resulting in an addition. He rejected the alternate contention of the assessee that the STB would fall within the definition and scope of computers, hence, depreciation on the same should be granted @ 60% as provided under I.T. Rules, 1962.
The question was as to whether the principal component of lease rental claimed by assessee was a Revenue expenditure falling u/s 37 or a capital expenditure incurred for the purpose of capital assets upon which assessee could be allowed depreciation as per the provisions of section 32 of the Income Tax Act. It was held that after going through the various terms of the deed, it was found that the only role of the lessor in the present arrangement was to finance the transaction of purchase of equipment, with the lessee selecting the equipment to be supplied by the dealer, using it for its expected economic life, paying back the entire cost of the equipment over the lease tenure and exercising all rights of ownership over the asset and also bearing the risks of losses, damages, etc. associated with the ownership of the asset and no option to the lessee to terminate the lease and return the asset before the end of the lease term. Thus, it was neither a lease, nor a hire purchase agreement, but a loan/ finance arrangement between the parties.
Assessee, therefore, was entitled only to claim interest paid as part of the said lease rentals as expenditure u/s 36 (1) (iii). Assessee was not entitled to claim the principal component of alleged lease rent paid as ‘revenue expenditure’ u/s 37(1) of the Act. However, the assessee was also entitled to claim depreciation on the said assets purchased from borrowed capital. Assessee was entitled to deprecation @ 60% as applicable to the computers for the year under consideration.
FULL TEXT OF THE ITAT JUDGEMENT
These appeals relating to different assessment years have been preferred by the assessee against the corresponding separate orders passed by the Ld. Commissioner of Income Tax (Appeals)-3 Gurgaon, (hereinafter referred to as CIT(Appeals)) u/s 250(6) of the Income Tax Act,1961 (hereinafter referred to as ‘the Act’). Since the facts as well the issues involved in all the captioned appeals are identical, hence, these have been heard together and are being disposed of with this common order:
2. ITA No 547/Chd/2017 for AY-2013-14 is taken as the lead case for the sake of convenience.
ITA No. 547/Chd/2017
3. The brief facts of the case, as extracted from the impugned orders of the lower authorities, are that the assessee is engaged in the business of Multi System Operators and Digital Cable Services (DCS). The DCS services are rendered to the customers through set top boxes. The assessee, thus, acts as an intermediate between local cable operators and broadcasters. The assessee for the assessment year under consideration declared a loss of Rs.30,21,64,573/- in the return of income. During the course of assessment proceedings, the Assessing Officer (in short ‘AO’) noticed that the assessee had entered into a financial lease agreement with M/s CISCO Capital System India Pvt. Ltd. (hereinafter referred to as CISCO) for supply of Set Top Boxes (hereinafter referred to as STB) and Head Ends. The Assessing Officer further noted that CISCO was a Non-Banking Finance Company (NBFC) registered with Reserve Bank of India and was in the business of providing different types of loans on assets/equipments to its customers. The Assessing Officer found that the assessee had entered into the said agreement with CISCO through Master Lease Finance Agreement dated 7-12-2011 along with a number of schedules, wherein the lease term was 48 months for the supply of 7,91,924 number of STBs and Head ends for the amount detailed as under:
