INCOME TAX
INSTRUCTION NO. 5201/1994
Dated: January 10, 1994
Section(s) Referred: 32
Statute: Income - Tax Act, 1961
A search and seizure operation had been carried out in the case of M/s. Pertech Computers Ltd., (PCL)/M/S. Altos India Ltd., (ALTOS) by Directorate of Investigation, New Delhi.
Results of investigation in respect of M/s. PCL/Altos revealed that M/s. PCL and M/s. Altos were giving book entries to various persons/companies. The modus operandi adopted by these concerns is given below:
M/s. PCL entered into computer leasing agreement with a number of persons/companies/business concerns. Under these agreements, Altos (manufacturing concern) would sell computers to M/s. PCL, which would sell the same computer to a third party "X" (person/company/business concern). The computer sold to "X" are given on lease by "X" to M/s. Altos. M/s. Altos subleases the same computer to M/s. PCL.
The agreement was such that computers, if any, remained with M/s. PCL/Altos but deemed ownership was passed on to "X" who claimed depreciation and investment allowance on these computers.
So far as financial aspect is concerned, "X" will first pay full amount for purchasing computers, to PCL. Under the terms of the leasing agreements, 50% of this amount would be paid back by M/s. PCL to "X" as security deposit and balance 50% would be paid back as lease rent over a period of 36/50 months. In this way "X" will get back the full amount.
Under this arrangement, the advantage to it was to make a fictious claim of depreciation and investment allowance. This will reduce the taxable income of the person/business concern. The advantage to PCL group were two fold. Firstly, it got 50% sale price as finance for a period of 36/50 months. Secondly, the so called lease rent paid over 36 to 50 months was claimed as business expenses. The arrangements are shown in the flow chart, as under;
Sells computers(I)
____________________I____________________________
I I
ALTOS------------Sublease to PCL(IV)-------------PCL
I I
I I Sells(II)
Leases computer (III)---------------"X" who becomes lessor
FINANCIAL ARRANGEMENTS
PCL pays for purchases of
ALTOS----------------------Computers(II)-----------------PCL
(III)
I
I
I
I
(I)
Pays Rs. 1 crore as initial deposit plus } Pays Rs. 2 crores for 3.55 lakhs P.M. for 36 months + 1.66 lakhs}--"X"---- Purchases per month for next 60 months as lease rent}
Apart from what has been illustrated above, there may be other combinations too, for example party may have direct dealings with M/s. PCL. It has been noticed that such agreements were with a number of persons/companies. A list of such persons/companies is attached alongwith. The list may please be circulated among the Assessing Officers having jurisdiction over the cases and any such claim of depreciation/investment allowance by persons/companies as per list may be investigated in detail. Any fictitious claim of investment allowance/depreciation should be disallowed.
[DDIT(INV.)'s, Unit-III, New Delhi Lr.F.No. DDIT(INV)/U-III