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CBDT circular regarding impact of accounting standards on lease depreciation

 

CIRCULAR NO 2 OF 2001

F. No 225/186/2000- ITA-II
Government of India
Ministry of Finance
Department of Revenue
Central Board of Direct Taxes

New Delhi, the 9th February 2001

To
All chief Commissioners of Income-tax
All Directors General of Income-tax

Subject: Finance Lease Agreements Effect of publication of Accounting Standards on allowability of Depreciation - reg.

Sir.

Under the Income-tax Act, in all leasing transactions, the owner of the asset is entitled to the depreciation if the same is used in the business, under section 32 of the Income-tax. The ownership of the asset is determined by the terms of contract between the lessor and the lessee.

The central Board of Direct Taxes vide instruction No 1978 dated 31st December, 1999 (F, No. 225/190/98/ ITA-II) has laid down the line of investigation in such cases. In cases where assets are factually non-existent, having been creatd by hawala transaction, the question of allowance of depreciation does not arise. In cases of sale and loose back of assets without any alteration in the situation of assets and its working, the denial of depreciation claimed has to be considered keeping in view the principle laid down by the supreme Court in the case of McDowell and Company Limited.

It has come to the notice of the Board that the New Accounting Standard on 'Leases' issued by the Institute of Chartered Accountants of India requires capitalization of the asset by the lessees in financial lease transaction. By itself, the accounting standard will have no implication on the allowance of depreciation on assets under the provisions of the Income- tax Act

The contents of this Circular may be brought to the notice of all concerned.

Yours faithfully,

 

(Kamlesh C. Vashney)
Under Secretary to the Government of India
Tele.No 3013018.

 

 

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