2017 (1) TMI 244 - HC - Income Tax

High Court supports assessee's depreciation on financed vehicles & interest deduction to related parties.

The High Court ruled in favor of the assessee on all issues. The Court upheld the Tribunal's decisions allowing depreciation on vehicles financed by the ... Benefit of depreciation - vehicle were not owned and used but merely financed by the assessee - Held that:- Section 32 requires that the assessee must use the asset for the 'purposes of business'. It does not mandate usage of the asset by the assessee itself. As long as the asset is utilised for the purpose of business of the assessee, the requirement of Section 32 will stand satisfied, notwithstanding non-usage of the asset itself by the assessee - As the owner, it used the assets in the course of its business, satisfying both requirements of Section 32 of the Act and hence, is entitled to claim depreciation in respect of additions made to the trucks, which were leased out. See Commissioner of Income Tax (I) Jaipur Vs. Baid Leasing & Finance Company Ltd. [2013 (8) TMI 13 - RAJASTHAN HIGH COURT] - Decided in favour of assessee. Deduction of payment of interest - the loans/ advances were provided to the persons related to the Directors without interest and for non business purposes? - Held that:- As decided in S.A. Builders Ltd. Vs. Commissioner of Income Tax (Appeals) Chandigarh and Anr.[2006 (12) TMI 82 - SUPREME COURT] in the present case, the assessee borrowed the fund from the bank and lent some of it to its sister concern (a subsidiary) on interest free loan. The test, in our opinion, in such a case is really whether this was done as a measure of commercial expediency. In our opinion, the decisions relating to Section 37 of the Act will also be applicable to Section 36(1)(iii) because in Section 37 also the expression used is 'for the purpose of business'. It has been consistently held in decisions relating to Section 37 that the expression 'for the purpose of business' includes expenditure voluntarily incurred for commercial expediency, and it is immaterial if a third party also benefits thereby. Taking into account the decision of the Supreme Court, we are of the opinion that it was not interest which was from the borrowed fund which was running from the finance which is justified by CIT learned Tribunal. - Decided in favour of the assessee Issues Involved:1. Depreciation on vehicles not owned but financed by the assessee.2. Entitlement of depreciation benefit to the financer instead of the real owner.3. Deduction of interest payment on loans/advances provided to persons related to the Directors without interest and for non-business purposes.4. Perversity and tenability of the ITAT's findings.Issue-wise Detailed Analysis:1. Depreciation on vehicles not owned but financed by the assessee:The appellant challenged the Tribunal's decision allowing the benefit of depreciation on vehicles that were not owned and used by the assessee but merely financed. The High Court referred to the precedent set in 'Commissioner of Income Tax (I) Jaipur Vs. Baid Leasing & Finance Company Ltd.,' where it was held that an assessee engaged in the business of leasing vehicles is entitled to depreciation under Section 32(1) of the Income Tax Act. The Supreme Court in 'Industrial Credit And Development Syndicate Limited vs. Commissioner of Income Tax' confirmed that a lessor is the owner and thus entitled to depreciation, even if the lessees were the registered owners under the Motor Vehicles Act. The High Court concluded that the lessor's use of the vehicles for leasing purposes satisfies the requirement of Section 32, thus affirming the Tribunal's decision.2. Entitlement of depreciation benefit to the financer instead of the real owner:The Tribunal's decision that the benefit of depreciation would be available to the financer (assessee) and not the real owner (purchaser) was upheld. The High Court reiterated that the Supreme Court's decision in the 'Industrial Credit And Development Syndicate Limited' case established the lessor as the owner for depreciation purposes. The Court emphasized that the vehicles were used in the course of the assessee's business of leasing, fulfilling Section 32's requirements. The Tribunal's finding was thus supported by the apex court's interpretation, and the question was answered in favor of the assessee.3. Deduction of interest payment on loans/advances provided to persons related to the Directors without interest and for non-business purposes:The appellant contested the Tribunal's approval of interest payment deductions on loans/advances given to persons related to the Directors without interest and for non-business purposes. The High Court referenced the Supreme Court's decision in 'S.A. Builders Ltd. Vs. Commissioner of Income Tax (Appeals) Chandigarh and Anr.,' which held that interest-free loans to sister concerns could be justified if done as a measure of commercial expediency. Additionally, the High Court cited the Gujarat High Court's rulings in 'Commissioner of Income Tax (I) Vs. Arihant Avenue & Credit Ltd.' and 'Commissioner of Income Tax Vs. Raghuvir Synthetics Ltd.,' which supported the view that if the assessee had sufficient interest-free funds, the loans to related parties did not warrant disallowance of interest deductions. The Tribunal's decision was thus upheld, favoring the assessee.4. Perversity and tenability of the ITAT's findings:The appellant argued that the ITAT's findings were perverse, contrary to the record, and untenable. However, the High Court found that the Tribunal's conclusions were well-reasoned and supported by judicial precedents. The Tribunal had considered all relevant facts and legal provisions, and its findings were consistent with the Supreme Court's and High Courts' interpretations. Consequently, the High Court dismissed the appeals, affirming the Tribunal's decisions.Conclusion:The High Court dismissed the appeals, ruling in favor of the assessee on all issues. The Tribunal's decisions on depreciation entitlement and interest payment deductions were upheld, with the Court relying on established judicial precedents to support its conclusions.