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Issue: Whether depreciation available to lessor can be denied on the ground that asset leased is registered in the name of lessee?
Section 32 of Income Tax Act 1961 imposes twin requirement of ownership and usage of asset in the business to avail benefit of depreciation. Further depreciation cannot be denied merely because registration of asset is in the name of lessee.
The lessor can avail the benefit of depreciation if it fulfils both the condition simultaneously:
- Ownership of asset is with the lessor.
- Usage of asset in the business.
The Supreme Court pronounced the same that depreciation can be claimed by lessor if it satisfies the condition of section 32 i.e. ownership and usage of asset in the business in the case of I.C.D.S Ltd.vs. CIT (2013).
In given case the assessee is Non Banking Finance Company (NBFC) engaged in lease and hire purchase business. The assessee purchased the vehicles from manufacturer directly but the certificate of registration under the Motor Vehicle Act 1988 of the vehicle is in the name of lessee. The assessee claimed depreciation on such vehicles.
The Assessing Officer disallowed the depreciation claim on the ground that the vehicles were registered in the name of lessee and not the assessee-lessor and secondly that the assessee use of the vehicles was only by way leasing out the vehicles to others and not actual use in the business
The Supreme Court held that there is requirement to fulfil two conditions simultaneously of ownership and usage of business for claim of depreciation. Further Supreme Court observed that section 32 of Income Tax Act 1961 requires of usage of asset in the business, it does not mandate actual usage by assessee itself.
In given case of I.C.D.S Ltd. assesse did use the vehicle in the business of leasing, thus it fulfils the requirement of section 32 of Income Tax Act 1961.
The Supreme Court further noted that as per section of 2(30) of Motor Vehicle Act 1988, lessee is the owner but only for Motor Vehicle Act and not in general law.
The Supreme Court held that as the lessor has a right to retain the legal title against the whole world, he is the owner in the eyes of law. Therefore he has right to claim depreciation under section 32 of Income Tax Act 1961 against the assets he has given on lease.
As per the Supreme Court judgement in the case of I.C.D.S Ltd., depreciation on the lease asset can be claimed by lessor if it fulfills the condition of ownership and usage of asset in the business, even if the asset is registered in the name of lessee.
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