Depreciation of asset on lease

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D.Anil (Querist)

07 December 2013 Our sister concern(lessor) has transfered a maize milling plant to us(lessee) for a rent of Rs .1000/- per year. The ownership of the plant remains with them(lessor). This arrangement is for an indefinite period . Can we show(lessee)the depreciation of the plant in our book as we are using the plant? Is there any problem for claiming depreciation by the lessor as they don't use the asset?

CA PARAS BAFNA

CA PARAS BAFNA (Expert)

07 December 2013 The lessee can not claim the depreciation as
he is not the owner of the asset.
.
The lessor can claim the depreciation as it is the owner of the asset.
.
Looking to the nominal lease rentals the AO may assess the lease rentals at a fair value.
.
Please refer the Supreme court's judgement-

https://www.kpmg.com/Global/en/IssuesAndInsights/ArticlesPublications/taxnewsflash/Documents/india-jan24-2013no2.pdf

CA Sanjeev Kumar

CA Sanjeev Kumar (Expert)

07 December 2013 As per AS-19 & IAS-17, your case is fall under the Finance Lease, and therefore in this case, the depreciation shall be charged by lessee on the Minimum Lease Payment of Lessee (MLP-Lessee).

MLP Lessee means present value of the lease rent plus residual value by lessee.

Note; I am taking the presumption that only risk & reward has been transferred not the ownership, as if its case case of ownership then its case of sale not of lease.

In Income Tax ;
The matter is subjective and depends on the fact of the cases, in some of the assessee, it has been allowed.

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Thanks
Sanjeev

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