1993 (8) TMI 130 - AT - Income Tax

Appeal dismissed: Car expenses not deductible. Petrol bills not income.

The Tribunal dismissed the appeal, ruling that the assessee could not claim depreciation on the car or interest on the car loan as deductible expenses ... Income From Other Sources, Deductions Issues Involved:1. Entitlement to claim depreciation on a car purchased using a bank loan.2. Classification of reimbursement of petrol bills as income or perquisite.3. Applicability of Section 57(iii) of the Income-tax Act for claiming deductions.Detailed Analysis:1. Entitlement to Claim Depreciation on Car Purchased Using Bank Loan:The primary issue is whether the assessee is entitled to claim depreciation on a car purchased with a bank loan. The assessee, a Scale 5 Officer in the State Bank of India, claimed depreciation of Rs. 21,166.20 on a car used for official duties. The car was purchased using a loan from the bank, and the assessee sought to deduct this depreciation under Section 57(iii) of the Income-tax Act.The Tribunal noted that the assessee did not disclose Rs. 8,400 received towards reimbursement of petrol bills in the income-tax return. There was no hire agreement between the assessee and the bank, nor any evidence of the terms of service entitling reimbursement for 50 liters of petrol per month. The Tribunal concluded that the lack of evidence undermined the claim for depreciation.2. Classification of Reimbursement of Petrol Bills as Income or Perquisite:The assessee argued that the reimbursement of petrol bills should not be considered income. The Tribunal referred to Section 2(24)(iiia) of the Income-tax Act, which defines income as any special allowance or benefit granted to meet expenses wholly, necessarily, and exclusively for the performance of duties.In CIT v. S.G. Pgnatale, the Gujarat High Court held that living allowances are not income or perquisites if they are mere reimbursements of necessary disbursements. Applying this principle, the Tribunal concluded that the reimbursement of petrol bills was not a perquisite or benefit, as it was merely a reimbursement of expenses incurred for official duties. Consequently, it could not be considered income.3. Applicability of Section 57(iii) of the Income-tax Act for Claiming Deductions:The assessee sought to claim depreciation and interest on the car loan as deductible expenses under Section 57(iii). The Tribunal examined whether these expenses could be deducted from income under the head 'other sources.'The Tribunal noted that for an expense to be deductible under Section 57(iii), it must be incurred wholly and exclusively for earning income. In the case of Rajendra Prasad Moody, the Supreme Court held that interest on borrowed money used to purchase equity shares was deductible even if no dividend income was earned. However, the Tribunal distinguished this case, noting that the assessee did not prove the receipt of Rs. 8,400 as hire charges. Without corresponding income, the claim for depreciation could not be allowed.The Tribunal also referred to Smt. Archana R. Dhanwatay's case, which held that deductions should be allowed from income from other sources even if not claimed. However, the Tribunal emphasized that there must be corresponding income or a likelihood of income related to the expenditure. Since there was no income correlated to the use of the car, the claim for depreciation was not allowable.Conclusion:The Tribunal dismissed the appeal, holding that the assessee was not entitled to claim depreciation on the car or interest on the car loan as deductible expenses under Section 57(iii). The reimbursement of petrol bills was not considered income or a perquisite, and without corresponding income, the claim for depreciation could not be substantiated.