2024 (2) TMI 1236 - AT - Income Tax

Company entitled to depreciation on car purchased in director's name for business use

ITAT Ahmedabad allowed the assessee's appeal regarding depreciation on a car purchased in the director's name. The AO had disallowed 15% depreciation ... Beneficial ownership and dominion over asset - distinction between legal ownership and beneficial ownership for depreciation - interpretation of 'owned' for depreciation purpose under section 32 - allowance of depreciation where company funds are used and asset recorded in company's books - use of asset wholly and exclusively for business - concept of 'kept ready for use'Beneficial ownership and dominion over asset - distinction between legal ownership and beneficial ownership for depreciation - allowance of depreciation where company funds are used and asset recorded in company's books - use of asset wholly and exclusively for business - concept of 'kept ready for use' - Depreciation on a car registered in the name of the director but purchased with company funds and shown as an asset in the company's books is allowable to the company. - HELD THAT: - The Tribunal held that where the company furnished material showing that the funds for acquisition were provided by the company and the vehicle is reflected in the company's accounts, the company for practical purposes vests with dominion over the vehicle and is the beneficial owner entitled to claim depreciation. The Tribunal relied upon and followed the ratio in Mysore Minerals Ltd. and the Jurisdictional High Court decision in PCIT v. Asian Mills (P.) Ltd., which recognise that the term 'owned' for depreciation purposes must be given a wider meaning to effectuate the legislative intent, and that legal title is not decisive where the assessee has financed the acquisition and the asset is used for business. The Tribunal also noted that ancillary expenditures (interest on car loan and insurance) were allowed by the department, reinforcing that the vehicle was commercially used for business. Applying these principles to the facts, the disallowance by the AO and the First Appellate Authority was set aside and the matter remitted to the AO to allow depreciation in accordance with law. [Paras 10, 11]Appeal allowed and AO directed to allow depreciation in accordance with law.Final Conclusion: The Tribunal allowed the appeal and directed the Assessing Officer to allow depreciation on the vehicle for AY 2017-18, holding that the company was the beneficial owner entitled to depreciation as the purchase was financed by the company and the vehicle was used for business. Issues involved: Disallowance of depreciation on car purchased in the name of the Director for Assessment Year 2017-18.Summary:The appeal was filed against the order disallowing depreciation on a car amounting to Rs. 11,75,823/-, purchased in the name of the Director of the assessee company. The issue revolved around whether the car was used for the business of the company, as it was not purchased in the name of the company. The appellant contended that the company was the practical owner of the vehicle and had dominion over it, justifying the depreciation claim. Reference was made to relevant case laws to support this argument.The First Appellate Authority was informed that the funds for the car were from the company, and the vehicle was considered an asset of the company. It was argued that the car was exclusively used for business purposes, warranting the depreciation claim. The Assessing Officer (AO) mentioned that interest on car loan and insurance expenses were allowed, indicating no grounds for disallowing depreciation. Reference was made to a judgment by the Jurisdictional High Court to support this stance.After considering the arguments and relevant judgments, the Tribunal found that the car was purchased by the company and used for business purposes, aligning with the decision in a similar case by the Jurisdictional High Court. The appeal was allowed, directing the AO to allow depreciation as per the law. The Tribunal's decision was based on the ownership and commercial use of the car by the company, in line with legal interpretations provided by higher courts.This Order was pronounced on 23/02/2024.