HELD, dismissing the appeal:
(i) The fact that the machinery was an integral part of the boilers and continued with the assessee even after the sale is irrelevant because the assessee received the sale consideration and paid the lease rental. The mere reduction of tax liability is not conclusive of an arrangement being a “sham” or a “device”.
(2) The principle that an assessee is entitled to arrange his affairs to reduce tax liability, without violating the law has been approved by the Supreme Court in A. Raman 67 ITR 11 and Azadi Bachao Andolan 263 ITR 706 and the contrary observations in McDowell 154 ITR 148 are not the ratio of that judgement.
(3) The words “device” or “sham” cannot be used to defeat the effect of a legal situation.
See Also: MCorp Global 178 Taxman 347 (SC): “Sham” lease transactions cannot be given relief as “financial arrangements”
Note: A 5 Member Special Bench of the ITAT has been constituted in Indusind Bank Ltd to consider whether depreciation is allowable on “financial lease transactions” in view of Asian Brown Bovary 54 Taxman 512 (SC).
