A machine having expected useful life of 6 years, is leased for 4 years. Both the cost and the fair value of the machinery are ₹7,00,000. The amount will be paid in 4 equal instalments and at the termination of 5lease, lessor will get back the machinery. The unguaranteed residual value at the end of the 4th year is ₹70,000. The IRP of the investment is 10%.

The present value of annuity factor of ₹1 due at the end of the 4th year at 10% IRR is 3.169. The present value of ₹1 due at the end of 4th year at 10% rate of interest is 0.683. State with reasons whether the lease constitutes finance lease.