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August 25, 2022

Equipment lease rent paid without acquiring ownership is revenue expenditure

by CA Shivam Jaiswal in Income Tax, Legal Court Judgement

Equipment lease rent paid without acquiring ownership is revenue expenditure

Facts and Issues of the case

The assessee was assessed u/s 143(3) wherein it transpired that the assessee claimed deduction of principal component of lease payment in the computation of income. It was noted that the assessee took on lease equipment from M/s Sundaram Finance Ltd. (SFL) and debited interest portion in the Profit & Loss Account. M/s SFL, as owner of the equipment, claimed depreciation. However, the assessee claimed principal portion also as deduction in the computation of income. The AO disallowed the same on the ground that both SFL as well as assessee claimed depreciation on the same asset. Therefore, the claim was rejected and an addition of Rs.12.11 Lacs was made to the income of the assessee. The CIT (A) upheld the stand of AO on the ground that principal portion was capital expenditure and allowing the same to the assessee would amount to double deduction. The sole grievance of the assessee is disallowance of principal component of lease payment.

Observations by the Court

The ownership of the leased assets remains with the lessor. The assessee, as a lessee, pays lease rentals which are allowable as revenue expenditure. Therefore, we would hold that principal portion of lease rentals would be an allowable deduction as revenue expenditure. The depreciation, if any, as separately claimed by the assessee on lease assets shall stand disallowed. The AO is directed to re-compute the income.

Conclusion

The lease payment made for rented equipment is considered as revenue expenditure.

Sundaram-Infotech-Solutions-Ltd-Vs-ITO-ITAT-Chennai

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