The assessee, a Bank, purchased
windmills worth Rs.27 crore in a sale-and-lease-back transaction and
claimed depreciation thereon. The AO
& CIT(A) rejected the claim and held that the transaction was not one of
purchase but was a finance transaction in which the windmills were received as
security on the basis that (a) under the Banking Regulation Act, 1949, the
assessee was not permitted to engage in any business other than banking, (b)
the lease rentals were fixed on the basis of interest on advances and other charges
receivable by the assessee as a financier and were not co-related to the
projected income on the capacity of each wind energy generator, (c) the
assessee was not entitled for surplus income on excess generation of power and
was not to suffer any loss owing to lesser production or any other
contingencies, (d) the return of the assessee on financing was granted by
taking interest-free deposit, (e) the assessee had no responsibility of labour,
repairs, taxes etc in running of the project and (f) though the purchase of
wind energy generators was in the assessee’s name, the land and power purchase
agreements with the Electricity Boards were not in its name. On appeal by the
assessee to the Tribunal HELD allowing the appeal:
S.32 allows depreciation if the asset is
“owned, wholly or partly, by the assessee and used for the
purposes of the business“. There is no
requirement that the asset must be used by the assessee himself. It is
sufficient if the asset is utilized for the purpose of business of the
assessee. The argument, relying on McDowell and co. Ltd. v. CTO (1985)154 ITR
148 (SC), that Sale & Lease Back transactions are adevise for lowering the
tax effect cannot be accepted. Sale & Lease Back transactions are genuine
and cannot be considered to be sham.(ITA No. 2572,2737/A/2006, 386,4388/A/2007,236,238/A/2000,
790/A/2012, (A.Ys. 2002-03, 2004-05
& 2007-08)
UTI Bank Limited v.
ACIT (Ahd.)(Trib.) www.itatonline.org
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