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LEASE TRANSACTION

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This query is : Resolved

VISWANADH.R (Querist)

22 April 2009 In case of a lease transaction, who has the right to capitalise the asset?,lessee or the lessor. In this regard, is there any contradiction b/w AS and income tax act. To be precise in IT we treat lessor as the legal owner of the asset though he donot capitalise it. Please give me an expert opinion.

Taranjit Singh

Taranjit Singh (Expert)

22 April 2009 The tax treatment of lease transactions in India is based on whether the lease qualifies as a lease or will be treated as a hire-purchase transactions.

If the transaction is treated as a lease, the lessor shall be eligible for depreciation on the asset. The entire lease rentals will be taxed as income of the lessor. The lessee, correspondingly, will not claim any depreciation and will be entitled to expense off the rentals.

If the transaction is a hire-purchase or conditional sale transaction, the hirer will be allowed to claim depreciation. This is based on an old Circular of the Deptt issued in year 1943. The financing charges inherent in hire instalments will be taxed as the hire-vendor's income and allowed as the hirer's expense.

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