2022 (2) TMI 108 - AT - Income Tax

Disallowing the depreciation for the cars AND interest paid on car loan used by the directors - vehicle held in the name of director of the appellant company - AO disallowed both the claims on the ground that the car was held in the name of the director instead of appellant company - HELD THAT - The vehicle i.e. BMW car is registered in the name of director of the appellant company although the repayment of loan out of which the car was acquired, was made by the appellant company and it was used in the business of the appellant company. The fact that the loan was repaid by the appellant company affirms the position that the appellant company is owner of the vehicle. The fact that the vehicle is registered in the name of the director of the appellant company does not make any difference, inasmuch as, the registration under the Motor Vehicle Act, 1988 is not conclusive evidence of the ownership of the vehicle. The term ownership under the Motor Vehicle Act is different from the ownership as envisaged under the provisions of section 32 of the Act as held by the Hon'ble Supreme Court in the case of I.C.D.S. Ltd. 2013 (1) TMI 344 - SUPREME COURT . Hon'ble Calcutta High Court in the case of CIT vs. Salkia Transport Associates 1982 (9) TMI 28 - CALCUTTA HIGH COURT held that there is no requirement under the provisions of section 32 that in order to avail the depreciation, an assessee should be registered the ownership of the vehicle. We are of the considered opinion that the assessee is entitled to the depreciation under the provisions of section 32 of the Act inspite of the fact that the vehicle is registered in the name of the director of the appellant company. Therefore, we direct the Assessing Officer to delete the addition on account of disallowance of depreciation on car and interest paid on car loan. - Decided in favour of assessee.

Summary

Issues:
1. Disallowance of depreciation claimed for cars used by directors.
2. Disallowance of interest paid on the purchase of cars.
3. Disallowance of extended warranty payment.
4. Disallowance of difference as per 26AS.

Analysis:
1. The appellant challenged the disallowance of depreciation and interest on car loan by the Assessing Officer and confirmed by the CIT(A). The appellant argued that the car, although registered in the director's name, was owned and used by the company, justifying depreciation. Citing legal precedents, it was established that registration under the Motor Vehicle Act does not determine ownership for tax purposes. The Tribunal ruled in favor of the appellant, allowing depreciation and interest claims, reversing lower authorities' decisions.

2. The disallowance of extended warranty payment and the difference as per 26AS were not pressed during the appeal hearing and thus dismissed. The Tribunal partially allowed the appeal, directing the Assessing Officer to delete the disallowed depreciation and interest amount. The judgment highlighted the distinction between vehicle ownership under the Motor Vehicle Act and for tax purposes under section 32 of the Income Tax Act, emphasizing legal precedents supporting depreciation claims despite registration in the director's name.

3. The legal position clarified that repayment of the car loan by the company, along with business use, established the company's ownership, warranting depreciation allowance. The Tribunal's decision aligned with Supreme Court and High Court rulings, emphasizing the company's entitlement to depreciation under section 32 of the Act. The judgment concluded by reversing the lower authorities' orders on depreciation and interest disallowance, allowing the appeal partially and dismissing the remaining grounds not pressed during the hearing.