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Issues involved: Disallowance of depreciation on car and disallowance of interest paid for purchase of car.
Disallowance of depreciation on car: The assessee claimed depreciation on a motor car purchased during the relevant year. The car was purchased in the name of the Director of the assessee company, and the assessee also paid interest on the loan taken for the car purchase. The Assessing Officer disallowed both amounts, stating that the assessee was not the owner of the car. The disallowance was based on a Supreme Court decision. The CIT(A) upheld the disallowance, stating that the car should have been registered in the name of the company, not the director, to avoid evasion of state taxes. The assessee appealed against this decision. The issue was resolved in favor of the assessee by referring to a Bombay High Court decision which clarified that the Motor Vehicle Act does not impose restrictions on the transfer of ownership of a motor vehicle. The section in question only requires reporting of transfer to the registration authority within a specified time. Non-compliance with this section does not affect the transfer of ownership. Therefore, the assessee, who purchased the vehicle and used it for business, was entitled to depreciation, regardless of the registration details. The court emphasized that ownership should be determined based on the facts of each case. The court cited another case where depreciation was allowed even though the vehicle was registered in the vendor's name. Consequently, the disallowance of depreciation on the car was deemed unjustified and was deleted. Disallowance of interest paid for purchase of car: The same reasoning applied to the disallowance of interest on the loan taken for the car purchase. The disallowance was also deemed unjustified and was deleted. In conclusion, the disallowances made by the CIT(A) were found to have no justification, and the appeal filed by the assessee was allowed.
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