I-T - Leasing out of plant to seller, after claiming depreciation on same during first year of purchase, is no colourable device, if lease rental are subjected to tax: HC
By TIOL News Service
MUMBAI, SEPT 14, 2017: THE ISSUE BEFORE THE COURT IS - Whether a transaction can be termed as dubious or colourable device, merely because the manufacturer after claiming benefit of depreciation in one year, leased its machinery back to a closely connected company for rental income. NO is the verdict.
Facts of the case:
The Assessee-company purchased a boiler from Bombay Dyeing and claimed 100 % depreciation on it. After claiming depreciation, the Assessee leased out the boiler to Bombay Dyeing again. The AO rejected the claim of depreciation contending that both the Assessee and the Bombay Dyeing are closely connected companies. The AO also contended that the device was beneficial to the Assessee which was making profits, whereas Bombay Dyeing was not likely to have taxable profits due to allowances which would have been allowed on account of it's DMT plant, that's why the deal entered between them was suspicious. Accordingly, the AO disallowed the claim of depreciation.
High Court held that,
++ it cannot be said that the assessee bought and leased back the asset to M/s. Bombay Dyeing solely for the purpose of avoiding tax. The assessee is earning rental income from the transaction which was subjected to tax. If it was not a bona fide business transaction, the assessee, after claiming benefit of depreciation in one year, could not have subjected itself to tax on the income arising from that very transaction. This was taken by the Tribunal to be an important feature of the transaction and the matter as a whole. It is in these circumstances, and looking at the issue in an overall manner, that the Tribunal held that the transaction cannot be termed as dubious or colourable device, but a genuine business transaction. There are reasons assigned for such a factual conclusion.