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Issues:
- Whether depreciation allowed on cars used partly for personal purposes of directors can be considered for disallowance exceeding the prescribed limit of Rs. 72,000? Analysis: The case involved a private limited company maintaining cars for business purposes, which were also used for personal use by the directors. The Revenue contended that depreciation allowable on the cars should be proportionately reduced and disallowed under section 40(c) of the Income-tax Act. The Appellate Tribunal in earlier assessments held that depreciation, being an allowable deduction, cannot be considered excessive or unreasonable under section 40(c). The Department relied on the Supreme Court's decision in C. W. S. (India) Ltd. v. CIT [1994] 208 ITR 649, stating that the ceiling on expenditure applies to depreciation allowance as well. The Tribunal's lack of a definite finding on whether depreciation is subject to section 40(c) led to a request for clarification. The court noted that the Supreme Court's decision in C. W. S. (India) Ltd. v. CIT [1994] 208 ITR 649 clarified that section 40(a)(v) and section 40A(5)(a)(ii) encompass depreciation allowance within the limit on expenditure. Therefore, if assets like cars are used for personal purposes, the depreciation allowance must adhere to section 40(c). The court emphasized that both expenditure and allowance in respect of assets used for personal purposes fall under section 40(c)(ii), necessitating adherence to the provisions while claiming deductions. Consequently, the court held that if a company's asset, such as cars, is used for personal purposes of directors, the claimed expenditure or depreciation must consider section 40(c) provisions. Thus, the court answered the referred question affirmatively in favor of the Department, emphasizing compliance with section 40(c) for both expenditure and depreciation claims.
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