ITAT Allows Rs. 6.47 Crore Lease Rent Expense as Deduction Citing Lessee’s Right to Claim Depreciation [Read Order]

The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) upheld the order of the Commissioner of Income Tax (Appeals) [CIT(A)], which allowed depreciation as an alternative claim on finance lease rental payments citing Lessee's right to claim depreciation.

The Tribunal, relying on its coordinate bench’s prior ruling and the Karnataka High Court decision in Cisco Systems Capital (India) Pvt. Ltd., ruled that the lease rent of Rs. 6.47 crore is allowable as revenue expenditure.

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NTT Global Data Centres Cloud Infrastructure India Pvt. Ltd. (the assessee) had filed its return for AY 2015–16 declaring a loss of Rs. 95.75 lakhs. During assessment, the Assessing Officer (AO) noted that the assessee had reduced Rs. 6.47 crore from its income computation, representing finance lease rental payments capitalized in the books.

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The assessee argued that these lease payments were allowable under Section 37(1), citing CBDT Circular No. 2 of 2001 and the Supreme Court decision in ICDS v. CIT. The Assessing Officer (AO), disallowed the amount, treating the principal component of lease payments as capital in nature and denying depreciation on the leased assets.

Aggrieved by the order of AO, the assessee filed an appeal before the CIT(A). The CIT(A) granted relief to the assessee by granting finance lease rent as revenue expenditure. Aggrieved by the CIT(A)’s order, the revenue filed an appeal before the ITAT.

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The counsel for the revenue relied on the order of the AO and submitted that the CIT(A) was erred in allowing the depreciation on assets, as the assessee was not legal owner of assets.

On the other hand, the counsel for the assessee submitted that the finance lease rental payment as expenditure was allowed under the Section 37(1) Income Tax Act.

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The two-member bench comprising BR. Baskaran (Accountant Member) and Sandeep Singh Karhail (Judicial Member) observed that in the assessee’s own case for the same year, the coordinate bench had already accepted the primary claim that finance lease rental payments are deductible under Section 37(1) Income Tax Act.

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The tribunal relied on the Karnataka High Court’s judgment in the case of Cisco Systems, which confirmed that if the lessor was granted depreciation, then the lessee was entitled to claim the lease rent as expenditure under the Income Tax Act.

The tribunal allowed the deduction of finance lease rental payment under section 37(1) of the Income Tax Act. The appeal of the Revenue was dismissed.

To Read the full text of the Order CLICK HERE

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