Depreciation on leased vehicles allowed where the lessor remains owner for tax purposes and assets are used in business.

A leasing finance company is entitled to depreciation on vehicles leased to customers where, for income-tax purposes, it remains the owner of the assets and the vehicles are employed in its business. Physical operation by the lessee does not defeat the user requirement under section 32; what matters is business use by the assessee through the leasing activity. Registration and insurance consistent with ownership supported that position, and the Motor Vehicles Act fiction did not override ownership under tax law. The later Supreme Court ruling on the same issue was applied, so the lessor qualified for depreciation and the alternative issue did not require adjudication.

---

---

Issues: Whether the assessee, a leasing finance company, was entitled to depreciation under section 32 on vehicles leased out by it, and whether the transaction was a true lease or merely a financing arrangement.

Analysis: Depreciation under section 32 requires that the assessee be the owner of the asset and that the asset be used for the purposes of business. The vehicles were registered and insured in a manner consistent with the assessee's ownership for the purpose of the Income-tax Act, and the business receipts were assessed as business income. The governing test was not whether the assessee physically used the vehicles, but whether the assets were utilized in the course of its business. The legal fiction in the Motor Vehicles Act concerning registration did not displace ownership for income-tax purposes. The later Supreme Court ruling on the same issue was applied, holding that a lessor in such a leasing arrangement is the owner for section 32 purposes.

Conclusion: The assessee was entitled to depreciation under section 32, and the first substantial question of law was answered in favour of the assessee and against the Revenue. The remaining question did not survive for adjudication.

Ratio Decidendi: For purposes of section 32 of the Income-tax Act, 1961, a lessor can be treated as the owner of leased vehicles and satisfy the user requirement where the assets are employed in the assessee's business, even if the lessees physically operate them.

---