( 1 ) THE appeal in ITA 101/2000 by the Assessee pertains to the assessment Year 1994-95, challenging the order of Income-tax Appellate Tribunal. The assessee is a Public Limited Company, engaged, inter alia, in the business of leasing financing and hire-purchase.

( 2 ) THE assessee had entered into several "leasing" transactions involving movables, with M/s. Kasturba Medical College, M/s. Manipal Institute of Technology and other educational Institutions and Trusts.

( 3 ) UNDER the terms of the several identical contracts, the appellant has purchased assets and leased the same to the aforesaid Institutions. The appellant has received refundable security deposits, which sums were equivalent to the purchase value of the assets. The security deposits were interest bearing. The lease rental payable by the lessee was equal to the interest payable on the security deposit.

( 4 ) THE appellant claimed depreciation in respect of assets under these transaction, the assessing authority denied the same, holding:

a) The appellant-Company and the Institution to which the assets were leased, were controlled by common members. b) The transaction was a "self-cancelling transaction" one where the appellant is in a position to use the security deposit to chase the asset leased and claim to adjust lease rentals against interest payable on the security deposit. c) The educational institutions which are not liable to pay income-tax cannot also claim depreciation on any asset purchased by it. The net result of the above transactions however, enable a taxable entity to claim depreciation on an asset which is actually purchased with the funds of a non-taxable entity.

( 5 ) ACCORDINGLY, the quantum of depreciation claimed amounting to Rs. 44,22,995/- was added back to the appellant's income. The same having been challenged unsuccessfully before the First Appellate Authority and in a further appeal before the Income-tax Appellate tribunal, the assessee is before this Court.

( 6 ) IN ITA 345/2001, the Revenue is before this Court challenging the order of the Appellate tribunal, pertaining to the very asses-see, who is the appellant in ITA 101/2000.

( 7 ) IN respect of identical transaction entered into during the Assessment Year 1995-96, the Assessing Officer had denied the claim for depreciation as had been done for the earlier assessment Year. This was confirmed in an appeal preferred by the appellant. However, in a further appeal before the Appellate tribunal, the Tribunal remanded the matter to the First Appellate Authority as the first appellate Authority had merely applied the view expressed for the Assessment Year 1994-95. This is under challenge by the Revenue.

( 8 ) HENCE, the substantial question of law arising for consideration in these two appeals is :

"whether the assessee is entitled to depreciation upon assets owned by it and leased in favour of educational institutions which had made interest earning deposits with the assessee. "

( 9 ) SHRI. Sarangan, Senior Advocate appearing for shri. S. Parthasarathi for the appellant in ITA 101/2000 and for the respondent in ITA 345/2001 contends as follows : the depreciation claimed is in respect of assets owned by the appellant and leased in favour of educational institutions. The transactions of lease are supported by relevant documents. The terms of lease, as regards the rents payable, the periodicity of the same, and other relevant obligations are specified therein. The receipt of deposits from the lessees is a normal incident of the lease. The deposit is almost equal to the cost of the asset. The deposit bears interest at the same rate for all depositors including the educational institutions. The appellant has paid interest in accordance with the Acceptance of Deposit rules framed by the Reserve Bank of India. The lease rent and the interest payment are in equal sums. The appellant has credited the lease rent to profit and loss account and has debited the interest payable o