2012 (7) TMI 755 - HC - Income Tax

Disallowance of depreciation - ownership - lease out of the vehicles - lease rental taken as income of the appellant Held that - Merely because they did not respond or the assessee did not furnish the correct addresses of those persons to be summoned, it does not lead to an inference that the assessee ceased to be a owner - ownership of the assessee is demonstrated by the purchase receipt as well as the agreement - no other person other than the assessee claims the ownership of the vehicles. Therefore, the authorities were not justified in drawing an adverse inference and in holding that the assessee is not the owner. Merely because the vehicles were used by the lessees in their business, the assessee cannot be denied the depreciation @ 40% - If the authorities were of the view that the assessee has failed to prove his ownership over those vehicles, then, if depreciation is to be disallowed then they also should not have taken that lease rental agreement for the purpose of making the assessment - subsequent years, the assessee had been granted the benefit of depreciation. Therefore, the order to be passed by the authorities should be consistent. The approach of the authorities in so far as current assessment year is concerned is contrary to law and requires to be set aside - appeal is allowed

Summary

Issues:
1. Disallowance of depreciation claim by the Assessing Authority.
2. Confirmation of disallowance by the Appellate Authority and Tribunal.
3. Justification of disallowance despite accepting lease rental as income.

Issue 1: Disallowance of Depreciation Claim
The assessee company, engaged in finance and leasing, filed revised returns for the assessment year 1996-97, admitting a total loss initially and later claiming nil income after deduction under Section 80M. The Assessing Authority scrutinized the claim regarding ownership of vehicles leased out by the company. Despite the company's contentions, the Assessing Authority held that the vehicles were not owned by the company based on statements from truck drivers and alleged lessees. Consequently, depreciation claimed on the vehicles was disallowed, leading to a total disallowance of Rs. 75,28,720. The Appellate Authority and Tribunal upheld this disallowance, citing the company's failure to provide additional evidence supporting ownership.

Issue 2: Confirmation of Disallowance
The Appellate Authority and Tribunal affirmed the disallowance of depreciation claim, emphasizing the company's inability to substantiate ownership of the vehicles in question. The Tribunal noted that the company did not provide updated addresses for summons recipients or essential evidence establishing ownership. Consequently, the disallowance was upheld, and the appeal was dismissed based on the lack of conclusive proof of ownership beyond original purchase bills and lease agreements.

Issue 3: Justification of Disallowance Despite Lease Rental Income
The High Court analyzed the case, acknowledging that the company had shown lease rental income and claimed depreciation for the vehicles it purportedly owned. The Court highlighted that the lessees had become owners as per findings, leading to the disallowance of depreciation. However, the Court emphasized that the company's business model involved financing for vehicle purchases, and possession by lessees did not negate ownership. Referring to the Motor Vehicles Act, the Court clarified the concept of ownership and recognized dual ownership in the context of hire purchase or lease agreements. The Court criticized the authorities for not considering the legal aspect of ownership and concluded that the company was entitled to depreciation as claimed.

In conclusion, the High Court allowed the appeal, setting aside the previous orders and ruling in favor of the assessee company. The Court held that the disallowance of depreciation was unjustified, given the company's ownership demonstrated through purchase bills and lease agreements. The Court emphasized the legal definition of ownership and dual ownership in motor vehicle transactions, ultimately granting the company the depreciation claimed for the assessment year 1996-97.