Treatment of demo/test drive vehicle

[Guest]

 

Dear All,

The brief facts of the case are as under:-

Assessee is a private limited company 

Assessee company is an authorized dealer of a reputed car manufacturer

As per policy of manufacturer the dealer has to purchase and pay the price for the demo/ test drive car

The car is insured and registered in the name of the dealer

The car is used only for prospective customer demo/test drive purpose

As per the policy of manufacturer the demo/test drive car has to keep by dealer atleast for 2 years

After two years dealer can sell the car as used car.

In this matter my queries are as under:-

1. Accounting:-

Cost of Car should be capitalised or charged to revenue.

If capitalsed should be categorised under plant & machinery or under Motor car

 

2. Income Tax

If charged to revenue then whether allowable under the  IT Act.

 3. Service tax

If categorised as plant, Whether cenvet credit is available under service tax output category 'Authorised service station' or 'Business Auxiliarry servcies'.

4. Wealth tax

If categorised as Motor Car, whether taxable under the wealth tax act, being more than one car.

Thanks

AI Summary

Dealership Seeks Tax Guidance on Demo Cars: Capitalize or Expense? Tax Implications for Income, Service, Wealth Taxes An authorized car dealership is seeking guidance on accounting and tax treatment for demo/test drive vehicles. The dealership is required to purchase and register the demo car, using it solely for customer demonstrations for at least two years before selling it as a used car. The queries focus on whether the cost should be capitalized or expensed, and under which category, as well as implications for income tax, service tax, and wealth tax. Responses indicate that demo cars do not qualify for service tax credit under certain categories and clarify classifications under Business Auxiliary Services.