2014 (7) TMI 840 - AT - Income Tax

One time vehicle tax paid on purchase of vehicle - Capital or revenue expenditure - eligible for deduction u/s 37(1) or depreciation u/s 32 Held that - The assessee has been guided by the law as it stood prior to its amendment in 1995, misled itself - the amendment/s has the effect of altering the nature of the levy in-as-much as the pre-amended tax could be regarded as an annual charge for the user of the vehicle for one year at a time - the levy of tax is towards the use of the vehicle in-as-much as it makes the registered owner (of the vehicle) liable to interest and the user of the vehicle as subject to the payment of tax and interest, making the vehicle liable to seizure - Tax is chargeable even if the vehicle is kept for use, so that it becomes due and, thus, liable to be recovered, even where the vehicle is not actually used or used even for a single day - Interest is a compensatory levy, for which a reasonable period of 30 days has been allowed for the payment of tax without interest - the tax levied by the Act would form part of the actual cost of the motor car, a capital asset, on which the same is levied, and exigible to depreciation as a part to the actual cost the order of the CIT(A) is upheld- Decided against Assessee.

Summary

Issues:
Validity of considering vehicle tax as capital expenditure instead of revenue expenditure.

Analysis:
The judgment pertains to an appeal against the Commissioner of Income Tax (Appeals) order regarding the assessment of the vehicle tax paid by the assessee. The main issue revolves around whether the one-time vehicle tax of Rs. 1,33,054 should be treated as capital expenditure or revenue expenditure under the Income Tax Act, 1961.

The assessee argued that the tax, initially an annual levy under the Bombay Motor Vehicles Tax Act, was converted into a one-time tax in 1995. They contended that this change did not alter the nature of the expenditure from revenue to capital, as it was merely a lump sum representing the net present value of the annual tax. However, the Revenue contended that the tax is necessary for vehicle use, making it part of the capital asset's cost.

The Tribunal observed that the tax was payable for vehicles used in Maharashtra and was a one-time tax for the vehicle's lifetime. The tax enabled the vehicle's use, making it akin to a registration fee and part of the asset's cost. The Tribunal referred to relevant sections of the Act and Accounting Standards to support the decision.

The Tribunal rejected the assessee's argument that the tax allowed a 30-day usage period without payment, emphasizing that the tax was for vehicle use and formed part of the asset's actual cost. Ultimately, the Tribunal upheld the Revenue's stance that the vehicle tax should be considered part of the capital asset's actual cost, subject to depreciation.

In conclusion, the Tribunal dismissed the assessee's appeal, affirming that the vehicle tax should be treated as capital expenditure and included in the actual cost of the motor car for depreciation purposes.