Interest on land

"Where the terms of the agreement provide that the equipment shall eventually become the property of the hirer(lessee) or confer on the hirer an option to purchase the equipment, the transaction should be regarded as one of hire purchase. In such cases the periodical payments made by the hirer should for tax purposes be regarded as made up of :

    Consideration for hire, to be allowed as a deduction in the assessment .........."

In short

ALLOWED u/s 37(1) IF

Interest evenly spread over the terms of the agreement.

Certificate is  to be produced from vendor

You might wanna have a look at it (another circular)

CBDT circular has overriding effect on AS-19 for tax purposes

For income tax purpose no matter what the nature of lease is (operating or financing), lessor is allowed to claim depriciation.

If plant ,machinery and furniture and taken on HIRE then rent payable is allowed u/s 37(1) .

Depriciation to lessee will be allowed if all the hire purchase installment have been paid and lessor has derived a valid legal title of the asset i.e ownership is transferred.

IF asset is acquired on INSTALLMENT BASIS (where lessor can sue for arrears but can not recover asset . In other words where the ownership is transfered to the lesse) the HIRE CHARGES WILL NOT be allowed but DEPRICIATION is allowed to the lessess on entire purchase price. (owner is entitled to depriciation and since ownership has been transferred therefore he can claim depriciation)

If under the agreement (lease or hire) the lessee has an OPTION or compulsions to Purchase the asset, the transaction will be considered as HIRE PURCHASE TRANSACTION (i.e finance lease which includes the clause of either compulsory buying or an option of buying, is also covered) Then consideration for hire is allowed to be deducted for tax purposes and any amount paid to the lessor/hireor for purchasing the asset (if any) other than consideration for hire (i.e installemnt) shoulld be capitalized and depriciation is allowed

for eg. 2 parties entered into other than operating lease agreement and all the charges have been paid then they are allowed as deduction , but if the lessee has ADDITIONALY paid some amount for ACQUIRING THE TITLE OF THE ASSET , then such amount is to be capitalized and depriciation can be claimed.

Deduction ceases  from the date of the termination of agreement (if there is any termination of agreement)

For an assesse to claim this deduction  a certificate from vendor of the initial amount should be submitted.

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