Академический Документы
Профессиональный Документы
Культура Документы
A lease transaction is a commercial arrangement whereby an equipment owner or Manufacturer conveys to the equipment user the right to use the equipment in return for a rental. In other words, lease is a contract between the owner of an asset (the lessor) and its user (the lessee) for the right to use the asset during a specified period in return for a mutually agreed periodic payment (the lease rentals).
The important feature of a lease contract is separation of the ownership of the asset from its usage.
Parties to the contract - There are two parties to a contract of lease financing, the lessor and the lessee.
Asset- The asset, equipment or property is the subject matter of a contract of lease financing. The asset must, however, be of the lessees choice. Ownership separated from user- The essence of a lease-financing contract is that during the lease tenure, ownership of the asset vests with the lessor and its use is allowed to the lessee. On the expiry of the tenure, the asset reverts to the lessor. Term of lease It is the period for which the agreement of the lease remains in operation. Every lease should have a definite period otherwise it will be legally inoperative.
2
TYPES OF LEASE
Lease agreements are basically of two types: (a) Operating lease (b) Financial lease The other variations in lease agreements are (c) Sale and lease back (d) Leveraged leasing (e) Direct leasing.
OPERATING LEASE
This lease agreement gives to the lessee only a limited right to use the asset. The lessor is responsible for the upkeep and maintenance of the asset. The lessee is not given any uplift to purchase the asset at the end of the lease period. Normally the lease is for a short period and even otherwise is revocable at a short notice. An operating lease is commonly used to acquire equipment on a relatively short-term basis. Thus, for example, an aircraft which has an economic life of 25 years may be leased to an airline for 5 years on an operating lease.
4
FINANCE LEASE
Financial lease, also known as capital lease are Long-term, non-cancellable lease contracts The lessor agrees to transfer the title for the asset at the end of the lease period at a nominal cost or gives an option to the lessee to purchase the asset at the expiry of the lease period The lease agreement is irrevocable In India, financial leases are very popular with highcost and high technology equipment.
LEVERAGED LEASE
Under leveraged leasing arrangement, a third party is involved beside lessor and lessee. The lessor borrows a part of the purchase cost (say 80%) of the asset from the third party i.e., lender and the asset so purchased is held as security against the loan. The lender is paid off from the lease rentals directly by the lessee and the surplus after meeting the claims of the lender goes to the lessor. The lessor, the owner of the asset is entitled to depreciation allowance associated with the asset.
DIRECT LEASE
Under direct leasing, a firm acquires the right to use an asset from the manufacturer directly. The ownership of the asset leased out remains with the manufacturer itself. The major types of direct lessor include manufacturers, finance companies, independent lease companies, special purpose leasing companies etc
RBI has expressly allowed cross-border leases - The Reserve Bank of India (RBI) has expressly permitted crossborder lease transactions. In circular number 16, dated 14 September 1996, RBI clarified that the import of capital goods under financial leases would be considered on par with external commercial borrowings (ECBs). Lessors ownership rights are supreme, even in the case of cross-border lessors - An example of a cross-border lessor seeking to enforce rights against an Indian lessee was the East West Airlines case, where the Supreme Court ordered repossession of the aircraft by the cross-border lessor owing to rental defaults by the lessee.
10
Tax laws generally respect the form of the transaction Indian tax laws have generally accepted the form of lease transactions. There have been some rulings (notably, a Supreme Court ruling in the case of Narang Dairy Industries, regarding a lease as a mode of transfer, and the ruling of the Bombay Tribunal in the Centre for Monitoring of Indian Economy case holding a lease to be a purchase by the lessee) against the form, but the general attitude is that the form should be accepted unless the substance is revealing enough. The Central Board of Direct Taxes clarified that just because a lease is a financial lease, there will be no disallowance of depreciation to the lessor.
11