Depreciation for vehicle lessors allowed where leasing business satisfies ownership and user requirements under tax law.

Depreciation under Section 32(1) of the Income-tax Act, 1961 is available to a vehicle lessor where the leasing business treats the lessor as the owner for tax purposes, even if the vehicles stand registered in the lessees' names. The user requirement is satisfied because the assets are employed in the assessee's business of earning lease income. The Court applied the binding Supreme Court principle on ownership and business use in a leasing arrangement and held the hire-purchase aspect to be irrelevant to the controversy. Depreciation was therefore allowable in favour of the assessee.

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Issues: Whether the assessee, being a lessor of vehicles under lease arrangements, was entitled to depreciation under Section 32(1) of the Income-tax Act, 1961.

Analysis: The allowance of depreciation depends on ownership of the asset and its use for the purposes of business. The Court followed the binding Supreme Court ruling that, in a leasing business, the lessor can be treated as the owner of the vehicles for depreciation purposes even if the vehicles are registered in the lessees' names. The Court also noted that the business of leasing itself satisfies the user requirement under Section 32, because the assets are employed in the assessee's business of earning lease income. The question of hire-purchase was found irrelevant to the actual controversy.

Conclusion: The assessee was entitled to depreciation under Section 32(1) of the Income-tax Act, 1961, and the issue was answered in favour of the assessee and against the Revenue.

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