Depreciation on leased trucks allowed where leasing assessee retained ownership, business use was satisfied, and higher rate applied.

For depreciation under section 32 of the Income-tax Act, legal ownership was held to remain with the leasing assessee where the lease terms reserved title, inspection rights, repossession on default, and return on expiry; registration of the trucks in the lessees' names under the Motor Vehicles Act was not conclusive for income-tax purposes. The trucks were also treated as used for the assessee's business because leasing them out was the business activity and the rental income was business income, so physical use by the lessee did not defeat section 32. On the same reasoning, the assessee qualified for the higher depreciation rate applicable to trucks used in the business of running them on hire.

---

---

Issues: (i) Whether the lessor in a vehicle leasing business was the owner of the leased trucks for the purpose of claiming depreciation under section 32 of the Income-tax Act, 1961; (ii) Whether the leased trucks were used for the purposes of the assessee's business so as to satisfy section 32 of the Income-tax Act, 1961; (iii) Whether the assessee was entitled to the higher rate of depreciation on the trucks leased out by it.

Issue (i): Whether the lessor in a vehicle leasing business was the owner of the leased trucks for the purpose of claiming depreciation under section 32 of the Income-tax Act, 1961.

Analysis: Depreciation under section 32 requires ownership of the asset and its use for the purposes of business. The lease agreements showed that the assessee retained exclusive ownership, could inspect the vehicles, repossess them on default, and require their return on expiry of the lease. The registration of the vehicles in the lessees' names under the Motor Vehicles Act, 1988 was held to be a deeming arrangement for that Act only and not conclusive of ownership for income-tax purposes. The assessee's leasing arrangement therefore evidenced ownership in law.

Conclusion: The assessee was the owner of the leased trucks for the purpose of section 32 and was entitled to claim depreciation.

Issue (ii): Whether the leased trucks were used for the purposes of the assessee's business so as to satisfy section 32 of the Income-tax Act, 1961.

Analysis: The expression "used for the purposes of business" does not require the assessee to physically use the asset itself. Where the business consists of leasing out trucks and the lease income is assessed as business income, the asset is used in the course of the assessee's business. The Court applied the same principle that an asset hired out in the course of business satisfies the business-use requirement.

Conclusion: The leased trucks were used for the purposes of the assessee's business, satisfying section 32.

Issue (iii): Whether the assessee was entitled to the higher rate of depreciation on the trucks leased out by it.

Analysis: The second proviso to section 32(1) was interpreted consistently with the main provision. Since the assessee's business consisted of hiring out trucks and the income from that activity was business income, the trucks were treated as used in the business of running them on hire for the relevant depreciation rate. The CBDT circular was read as not denying the higher rate where the actual use was in a hiring business.

Conclusion: The assessee was entitled to the higher rate of depreciation on the leased trucks.

Final Conclusion: The impugned High Court judgment was set aside and the assessee succeeded on both ownership and depreciation claims, including the higher rate of depreciation on leased trucks.

Ratio Decidendi: For depreciation under section 32, legal ownership and business use are satisfied where a leasing assessee retains title to the asset and derives business income from its hire, even if the asset is physically used by the lessee; registration under the Motor Vehicles Act is not conclusive for income-tax ownership.

---