Despite Tax Avoidance, 100 Per cent Depreciation on Sale and Lease Back Allowable – Delhi High Court
Case Law Details
CIT vs. Cosmo Films Ltd (Delhi High Court) – High Court observed that if the sale and lease back agreement between the assessee and the OSEB indicate that the assessee had purchased the plant and machinery from OSEB for a price and had leased out the same to OSEB on lease rent, the revenue department cannot discard the said sale and lease back agreement on the ground that the underlying motive of the assessee to enter into the said transaction was to reduce its income-tax liability. The Orissa High Court observed that the revenue could, however, discard the said transaction only if there were materials or evidence before it to show that the intentions of the parties were different from what had been incorporated in the sale and lease back agreements and that the transaction was really a sham and dubious transaction and was a colourable device.
We are in complete agreement with these observations of the Orissa High Court in the case of Industrial Development Corporation of Orissa Limited (supra). We are also in agreement with the conclusion of the said High Court that in such cases, the court would have to find out as to what was the real intention of the parties in entering into the sale and lease agreement and that such intention has to be gathered from the words in the said agreement in a tangible and in an objective manner and not upon a hypothetical assessment of the supposed motive of the assessee to avoid tax. We have already indicated that the intention gathered from the documents on record shows that the ownership and title of the said equipment had been transferred to the respondent / assessee and that after the said transfer, the lease was entered into and the said equipment was leased back to the HSEB. It has not at all been established on the basis of evidence on record that the transaction was a colourable device entered into by and between the HSEB and the respondent / assessee.
THE HIGH COURT OF DELHI AT NEW DELHI
Judgment delivered on: 18.07.2011
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