Page 179 - DMGT512_FINANCIAL_INSTITUTIONS_AND_SERVICES

Financial Institutions and Services

Notes ensuring uniform legislation among various States. It should ensure uniformity in the scope
and contents of the sales tax. The facility of using 'G' should also be extended to leasing companies.
Prabhu, Chairman, Canara Bank in his chairman's speech in June 1989 remarked that there were
certain avoidable constraints restraining the lease finance from becoming a major source of
corporate finance. The levy of sales tax on rentals by many State governments makes leasing
unattractive. The benefits of lease finance, in terms of accelerated modernisation and industrial
growth, are to that extent adversely affected. Yet another problem is in obtaining approval for
issue of 'C' Forms by lessors under the Central Sales Tax.
It is noticed from the analysis of the questionnaire responses that 100 per cent of the respondents
suggested that Section 115J of the Income-tax Act, 1961, and sales tax on lease rentals should be
abolished with immediate effect. About three fourths of the respondents expressed that the
investment allowance and investment deposit scheme should be extended to the leasing
companies. The leasing companies would feel relieved since Section 115 has been scrapped.
Rigid Procedure for Import Leasing

In India, leasing industry has high potential in areas like import leasing or international leasing.
Recently, a few leasing companies entered the arena of import leasing. The Import and Export
Policy for 1985-88 has laid down the following eligibility criteria for leasing companies to do
import leasing.
The memorandum and articles of association of the leasing company must specifically provide
for leasing as one of the objectives. The leasing company must have a minimum paid-up share
capital and reserves of 1 crores. The share of leasing company must be listed in a recognized
stock exchange. Thus, leasing of imported equipment has been restricted a meagre part of the
industry. A number of respondents indicated the problems of import leasing and made the
following suggestions:
1. Import of OGL items to be permitted without approval the Joint Chief Controller of
Imports and Exports (JCCI & E).
2. The Chief Controller of Imports and Exports (CCI&E) has to reduce the period for giving
permission for import leasing.

11.6 Summary

Leasing is a process by which a firm can obtain the use of a certain fixed assets for which
it must pay a series of contractual, periodic, tax deductible payments.
Under normal circumstances, an owner of property is at liberty to do what they want with
their property.
However, if the owner has surrendered possession to another (i.e. the tenant) then any
interference with the quiet enjoyment of the property by the tenant in lawful possession
is unlawful.
A lease contract can be classified on various characteristics in many categories like Finance
Lease and Operating Lease; Sales & Lease back and Direct Lease; Single investor and
Leveraged lease and Domestic and International lease.

There are many financial, legal and tax related aspects of leasing.
Financially, leasing is more advantageous than harmful.

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