MCorp Global vs. CIT (Supreme Court)

DATE: (Date of pronouncement)
DATE: February 18, 2009 (Date of publication)

“Sham” lease transactions cannot be given relief as “financial arrangements”.

(1) Where the AO disallowed part depreciation on bottles leased out by the assessee on the ground of “non-user” but the Tribunal & High Court confirmed the same on the ground that as the lease was not renewed and the bottles were not returned on expiry, the transaction was only a financial arrangement and not a Lease, HELD, reversing the lower authorities that as u/s 254 (1), the Tribunal had no power to enhance the Assessment and the benefit granted to the assessee by the AO could not be taken away.

(2) Where depreciation on other leased assets was disallowed on the ground that the lease arrangement was a “sham” and the same was upheld and the assessee claimed in the alternative that if the said transaction was a financial arrangement, as held by the Department, even then the assessee could be taxed only on Interest embedded in the amount of lease rentals received from the lessee and the matter should be remitted for recalculation, HELD rejecting the claim that as the transaction was a “sham”, the plea that it should be regarded as a financial arrangement could not be accepted.