2017 (10) TMI 1597 - AT - Income Tax

Claim of depreciation and related expenses on the vehicles registered in the name of the Director of assessee company - ownership of asset/vehicle - disallowing the depreciation claimed for the cars used by the directors for officials work of the company but ownership documents in the name of individual director - HELD THAT - It is an undisputed fact that the vehicles on which the depreciation has been disallowed and interest on loan taken on such vehicles are reflected in the audited Balance-sheet of the assessee and the repayment of the loan is also made by the assessee. The only reason for disallowance of depreciation was that the vehicles are not in the name of assessee but are in the name of the Director of assessee s company. The submission of the assessee that the vehicles have been used for the purpose of business of the assessee has not been controverted by Revenue. We find that in the case of CIT Vs. Dilip Singh Sardarsingh Bagga 1992 (9) TMI 74 - BOMBAY HIGH COURT had held that an assessee who has purchased the motor vehicle for valuable consideration and used the same for his business cannot be denied the benefit of depreciation on the ground that the transfer was not recorded under the Motor Vehicles Act or that the vehicle to be in the name of the vendors. As decided in SWATI AUTO LINK P. LTD VERSUS INCOME TAX OFFICER 2013 (2) TMI 727 - ITAT AHMEDABAD mere non-registration of a vehicle in the name of company under the Motor Vehicles Act cannot disentitle an assessee to its claim of depreciation when the investment for purpose of vehicle had made and it being used for the purpose of business is an undisputed fact. It further noted that the requirement of Section 32 of the Act is that the vehicle must be owned by the assessee and not that the assessee must be a registered owner under the same Motor Vehicles Act. We further find that Hon ble Calcutta High Court in the case of CIT Vs. Salkia Transport Associates 1982 (9) TMI 28 - CALCUTTA HIGH COURT as observed that the requirement of Sec.32 of the I.T. Act is that the vehicles must be owned by the assessee . This section does not require that the assessee must be a registered owner of the vehicles in order to claim depreciation allowance in respect of him - Decided in favour of assessee.

Summary

Issues Involved:
1. Disallowance of depreciation claimed for cars used by the directors for official work of the company but registered in the name of individual directors.
2. Disallowance of interest paid on the purchase of cars.

Issue-Wise Detailed Analysis:

1. Disallowance of Depreciation on Cars:
The primary issue was whether the assessee company could claim depreciation on cars used for business purposes but registered in the name of its directors. The assessee argued that the cars were used for business purposes, included in the company's block of assets, and reflected in its books. The AO disallowed the depreciation claim, stating that the cars were not registered in the company's name. The CIT(A) upheld this decision, noting that the cars' registration in the directors' names indicated ownership by the directors, not the company. The CIT(A) referenced the Mumbai Tribunal's decision in Edwise Consultants (P.) Ltd., which held that depreciation is not allowable if the car is registered in the name of directors.

The Tribunal, however, found merit in the assessee's argument, referencing multiple judicial precedents. The Tribunal cited the Bombay High Court's decision in CIT Vs. Dilip Singh Sardarsingh Bagga, which held that an assessee who has purchased a vehicle for business use cannot be denied depreciation merely because the vehicle is not registered in the assessee's name. The Tribunal also referenced decisions from other High Courts and Tribunals, which consistently held that ownership under Section 32 of the Income Tax Act does not necessitate registration under the Motor Vehicles Act. The Tribunal concluded that the assessee was entitled to claim depreciation as the cars were used for business purposes and the investment was made by the company.

2. Disallowance of Interest on Car Loans:
The second issue was the disallowance of interest paid on loans taken for purchasing the cars. The AO disallowed the interest expenses, reasoning that the vehicles were not owned by the company. The CIT(A) supported this view, treating the loan repayments by the company as advances to the directors.

The Tribunal, however, disagreed with this assessment. It noted that the interest expenses were incurred for vehicles used for business purposes and reflected in the company's financial statements. The Tribunal referenced the same judicial precedents used in the depreciation issue, which supported the view that the company could claim expenses related to assets used for business purposes, irrespective of the registration status. Consequently, the Tribunal allowed the interest expenses as deductible.

Conclusion:
The Tribunal ruled in favor of the assessee on both issues, allowing the claims for depreciation and interest expenses. It emphasized that the critical factor was the use of the assets for business purposes and the company's investment in those assets, rather than the registration details under the Motor Vehicles Act. The appeal of the assessee was allowed, setting aside the disallowances made by the AO and upheld by the CIT(A).