Special Bench verdicts on Sale & Lease Back & lease finance are not good law

CLR Editorial Notes: In this case, the assessee, a Bank, had bought assets from a customers and had then leased it back to them under a sale and lease back agreement. It had also purchased assets which were identified by its customers and leased it to back to them under a finance lease agreement. The assessee then claimed depreciation on the assets on the grounds that it was the owner and had hence had used the assets for purposes of business . The Assessing Officer, then relied on a case of MidEast Portfolio Management 87 ITD 537 (Mum) (SB) and IndusInd Bank 135 ITD 165 (Mum) (SB), and disallowed this depreciation claimed, on the grounds that the transactions were just an eyewash and colourable device. After an appeal to the CIT(Appeals), the CIT partly confirmed the disallowance. On appeal by the assessee, the Tribunal, upheld the claim and allowed it on the following grounds:

The issue of whether the lessor is entitled to claim depreciation in the case of a sale and lease back transaction as well as in a finance lease have been laid to rest by the judgements in ICDS 350 ITR 527 (SC),Kotak Mahindra Finance 317 ITR 236 (Bom) and Cosmo Films 338 ITR 266 (Del) where it was held that the lessor is eligible to claim depreciation. The judgements of the Special Bench in MidEast Portfolio Management87 ITD 537 (Mum) (SB) and IndusInd Bank 135 ITD 165 (Mum) (SB) are impliedly overruled.


The Full Case Document is available for download


Main Case File :

  • Case File – Development Credit Bank Ltd vs. DCIT (ITAT Mumbai)

Reference Cases:

  • Case File – IndusInd Bank Ltd vs. ACIT (ITAT Mumbai Special Bench)
  • Case File – CIT vs. Cosmo Films Ltd (Delhi High Court)
  • Case File – I. C. D. S. Ltd vs. CIT (Supreme Court)
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