1985 (2) TMI 61 - AT - Income Tax

Summary

Issues: Claim for depreciation on cars received as a prize under an incentive scheme.

Upon considering the appeal, the Tribunal addressed the contention of the assessee regarding the claim for depreciation on two cars received as a prize under an incentive scheme. The assessee, a registered firm dealing in tractors, received two ambassador cars as prize items under a scheme by a manufacturing company. The firm had acknowledged that the value of the cars was taxable as income under section 28(iv) of the Income-tax Act, 1961. The Income Tax Officer (ITO) disallowed the depreciation claim, a decision upheld by the Commissioner (Appeals).

The main issue revolved around whether the assessee was entitled to claim depreciation on the cars. The assessee argued that since the cars were acquired on its behalf, the assessed value should be considered as expenditure for acquiring the cars, making it eligible for depreciation. Alternatively, it was contended that if the cars were received as a gift, the cost to the previous owner should be deemed as the actual cost for depreciation purposes. On the contrary, the revenue argued that as per section 43(1), the actual cost should be reduced by any cost met by another person, thus disqualifying the assessee from claiming depreciation.

The Tribunal analyzed the concept of depreciation as a permanent diminishment in the value of an asset used in business. It noted that the assessee met the conditions of asset ownership and usage for business purposes, essential for claiming depreciation under section 32 of the Act. The revenue's argument that the cost of the cars was met by the manufacturing company was refuted. The Tribunal reasoned that the value of the cars, assessed as the assessee's income, was effectively spent by the assessee for acquiring the cars. The method of car acquisition through the prize scheme supported this view, indicating that the cars were acquired on behalf of the assessee.

Furthermore, the Tribunal highlighted that even if the cars were considered a gift, the cost to the previous owner should be the actual cost for depreciation calculation, as per Explanation 2 to section 43(1). It emphasized that the assessment of the car value as income was due to deeming provisions, and the real nature of the transaction should not be disregarded. Therefore, the Tribunal concluded that the value of the cars owned by the assessee and used in its business must be factored into the depreciation computation. Consequently, the ITO was directed to recompute the firm's total income and amend the partners' assessments accordingly, allowing the appeals.