2016 (1) TMI 1494 - HC - Income Tax

Depreciation u/s 32(1) - amounts of car loan advanced to employees for the purchase of vehicle under terms and conditions as laid down in Car Policy of the Assessee company - whether employee of the Assessee is to be considered as owner of the vehicle for the granting deprecation as per the provisions of the Act? - HELD THAT - AO acknowledges that the asset is in fact in the name of the Assessee but that mere fact does not make the Assessee eligible for the claim of depreciation. In the considered view of the Court, this amounts to re-characterization of a factual aspect which cannot be permitted. Admittedly, the vehicles are in the name of the Assessee and merely because the employee may be given an option of buying the vehicle from the Assessee at a subsequent point in time at the depreciated value, would not disentitle the Assessee to claim depreciation on the vehicle as long as they continued to be in the ownership of the Assessee. Consequently, the Court declines to frame question nos.1 and 2 as urged by the Revenue. Disallowance of car running expenses u/s 37(1) - Assessee had not discharged its onus u/s 37(1) of the Act that the expenditure was actually laid out or expended wholly and exclusively for the purposes of the business - HELD THAT - Court again finds that the ITAT has not agreed with the contention of the Revenue that the running and maintenance expenses of the vehicles used by the employees of the Assessee were not for the business purposes of the Assessee. This is consistent with the view that has been adopted by the ITAT in the Assessee s own case for the earlier AY 2006-07. This Court is not persuaded to hold that only because the vehicles were used by the employees for their personal use, the car maintenance expenses would not be for the business purposes of the Assessee. The Court, accordingly, declines to frame the question on this issue.

Summary

Issues:
1. Disallowance of depreciation under section 32(1) of the Income Tax Act, 1961.
2. Disallowance of car running expenses under section 37(1) of the Act.
3. Invocation of principle of Res Judicata.

Analysis:
1. The Revenue appealed against the ITAT's order regarding the disallowance of depreciation of Rs.1,85,45,102 under section 32(1) of the Income Tax Act for the Assessment Year 2007-08. The Revenue argued that the Assessee should not claim depreciation on vehicles due to a car policy where a loan was advanced to employees. The Court found that the Assessee was eligible for depreciation as the vehicles were in the Assessee's ownership, even if employees had an option to purchase them later. The Court rejected the Revenue's contentions, stating that re-characterization of facts cannot be permitted, and declined to frame questions as urged by the Revenue.

2. Regarding the disallowance of car running expenses under section 37(1) of the Act, the ITAT did not agree with the Revenue's argument that the expenses were not for the business purposes of the Assessee. The Court noted that the ITAT's decision was consistent with the earlier AY 2006-07 ruling in the Assessee's case. The Court held that mere personal use of vehicles by employees does not render car maintenance expenses non-business related for the Assessee. Consequently, the Court declined to frame a question on this issue, supporting the ITAT's decision.

3. The Revenue also raised the issue of invoking the principle of Res Judicata. However, the Court did not find any substantial question of law arising from this issue and dismissed the appeal. The Court's decision was based on the findings that the Assessee was entitled to claim depreciation on vehicles under section 32(1) and that car maintenance expenses were considered for business purposes under section 37(1) of the Act.