Finance Lease

Prakash Leasing Ltd v DCIT [IT APPEAL NO.2557 OF 2005] (Karnataka HC) Background: The assessee company is engaged in the business of finance and leasing. During the year under consideration, the assessee company had purchased vehicles and had leased out the same. Assessing Authority was of the view that if the vehicles were purchased by this alleged lessees, the ownership of the vehicles lies only with them and not with the assessee company. Relying on the statements of 35 persons, the truck drivers, it was held that they have purchased the vehicles under the financial assistance from the assessee and therefore, the assessee is not the owner of the 36 motor vehicles owned and therefore, he is not entitled to depreciation. Similarly, 26 persons to whom summons had been issued did not turn up. Therefore, the Assessing Authority disallowed the depreciation claimed on these vehicles allegedly leased to the 26 persons. 

Lessor is entitled to depreciation even if lessees use the assets in their business – ...

Prakash Leasing Ltd v DCIT [ITA Nos 301,302 & 491 OF 2007] (Karnataka High Court) Background: The assessee was a non-banking financial company. The assessee received a sum of Rs. 11.84 crores as the lease rentals. The assessee had deducted a sum of Rs. 4.35 crores representing the lease equalization account from lease rentals of Rs. 11.84 crores. It contended that the lease equalization charges should not be added as income. The assessing authority disallowed the said claim on the ground that the same was neither a liability, nor an allowance and nor an expenditure. He held that same was just a matching entry for the purpose of tallying the accounts with regard to the assets leased out. He was also of the opinion that the said claim was made for the first time during the year and also that the depreciation was provided in the books and the lease income was recognized.

Lease Equalisation Charges – Accounting standards of ICAI to be followed – Karnataka HC