PREMESHWAR CREATIONS P. LTD,MUMBAI vs. DCIT 8(2), MUMBAI

आदेश / O R D E R Per Joginder Singh (Judicial Member) The assessee is aggrieved by the impugned order dated 14/08/2014 of the Ld. First Appellate Authority, Mumbai. The first ground raised by the assessee pertains to confirming the disallowance on motor car depreciation on the ground that the vehicle was not registered in the name of the assessee company.

M/s Permeshwar Creations Pvt. Ltd. on 23/09/2011. The assessee revised the return on 31/03/2013 declaring total income at Rs.48,76,203/- after taking in to account the MAT provisions. While framing the assessment, the ld. Assessing Officer disallowed the claimed depreciation on the motor cars.

2.2. On appeal before the Ld. Commissioner of Income Tax (Appeal), the conclusion drawn in the assessment order was challenged, wherein, also, the stand taken in the assessment order was affirmed. The assessee is aggrieved and is in appeal before this Tribunal.

2.3. It is noted that before the Ld. Commissioner of Income Tax (Appeal) as well as before the ld. Assessing Officer, the assessee furnished the copies of invoices dated 22/10/2010, issued by Infinity Cars Pvt. Ltd. towards purchase of BMW car. The name of the buyer was mentioned to be Gyandev P. Sadh, who is one of the directors of the assessee company. Even the Assessing Officer asked the assessee to furnish the detailed explanation with respect to purchase of car in the name of director. Shri Gyandev Sadh submitted the details of expense like interest on loan, fuel, driver salary, insurance, etc. by explaining that these are allowable expenses. The assessee also submitted the copies of bills for purchase of cars from concord motors. The claimed depreciation was disallowed on the plea that the assessee is not the owner of the asset. The stand of the assessee is that for convenience, the registration was got done in the name of the director

M/s Permeshwar Creations Pvt. Ltd. and the motor cars were being used for the purposes of business of the assessee. The payments were also made by the assessee and the motor cars were also shown as asset of the company in the block of asset and not in the books of the director. The EMI of the Car loan were also directly paid by the company. The assessee also furnished the ledger account of the assessee company and also of the director. The assertions made by the assessee were not even disputed by the Revenue. Under the aforementioned, facts now, question arises, whether the benefit of section 32 should be extended to the assessee company, when the motor cars/car are used for the business purposes of the assessee company. We are of the view that the depreciation as a general principle represents the diminution in the value of a capital asset, when applied to the purpose of making profit or gain. The object is to get the true picture of the real income of the business. The term ‘depreciation’ as understood in commercial circles as well as within the meaning of accounting practice means wear and tear of the asset used for the purpose of earning revenue on user of the asset. The concept of depreciation is that any asset, on account of normal wear and tear, is required to be replaced at a point of time in future The position in law is well settled that depreciation allowance is a provision for normal wear and tear of asset which have been used during the previous year in early income, which is brought to tax. Depreciation is nothing but decrease in the value of the property through wear and tear,

M/s Permeshwar Creations Pvt. Ltd. deterioration or obsolescence and allowance is made for the purpose of book keeping, accountancy, etc. It is the exhaustion of the effective live of the fixed asset owing to use or wear and tear. It may be computed as that part of cost of asset, which will not be recovered when the asset is finally put out of use. The object of providing for depreciation is to spread the expenditure, incurred in acquiring the asset, over its effective life time. The provision as to depreciation in a taxing law like Income Tax Act contain elements of incentives and are also informed by consideration of policy of the tax and do not reflect purely economy criteria relevant to the determination of the depreciation. It is noted that for and from Assessment Year 2002-03, by virtue of provision w.e.f. 01/04/2002, explanation-5 to section 32(1)(ii) was inserted by the Finance Act, 2001(14 of 2001) declaring that the provision of section 32(1) shall apply ‘whether or not the assessee has claimed the deduction in respect of depreciation in computing the total income.’ Thus, for and from the Assessment Year 2002-03, it has been made mandatory to allow depreciation to an assessee even though he has not claimed deduction in respect of depreciation. The scheme of section 32 has provided different rates of depreciation for building, machinery, plant or furniture, ships building used for hotels, airplanes and other items mentioned therein. The Supreme Court decision in CIT vs Poddar Cement Pvt. Ltd. (1997)_ 226 ITR 625 (SC) is under the Income Tax Act is to be considered as trend setter in the M/s Permeshwar Creations Pvt. Ltd. concept of ownership. Assistance from the law laid down therein can be taken for finding out the meaning of the term ‘owned as accruing in section 32(1) of the Act, Maysore Minerals vs CIT (1999) 239 ITR 775, 778, 780 (SC), CIT vs WEP Peripherals Ltd. (2014) 362 ITR 508 (Karn.) and CIT vs Jawahar Kala Kendra (2014) 362 ITR 515 (Raj.). Another decision from Hon'ble Madras High Court in A.M.P. Mudaliyar vs CIT 228 ITR 454, 459 (mad.) throws light on the explanation ‘owned by the assessee’. Following the Madras decision (228 ITR 454), it was held by Hon'ble Bombay High Court in CIT vs Taxspin Engineering and Maufacturing Works (2003) 263 ITR 345, 356 (Bom.) held that there is no requirement that the assessee should continue to hold the depreciable asset till the end of relevant previous year or in other words, remains owner of the depreciable asset for entire previous year. In CIT vs Salkia Transport Associates (1983) 143 ITR 39 (Kal.), wherein, buses were taken on hire and had to be replaced by the assessee at its own cost by new buses, which were registered in the name of the original owner. The assessee was held to be the owner of the asset concern. In another decision following the decision from Delhi High Court in Addl. CIT vs General Industries Corporation (1985) 155 ITR 430 (Del.) in CIT vs Nagpur Golden Transport Company 233 ITR 389, 390 (Del.), it was held that the assessee was entitled to get depreciation on trucks purchased by it on higher purchase basis.

M/s Permeshwar Creations Pvt. Ltd.

2.4. In the present appeal, there is no dispute to the fact that the motor car was used by the Directors for business purposes of the assessee company, the capital assets/motor cars were shown in the books as asset of the company, purchased by the company, EMI also paid by the assessee company, company is the beneficial owner of the motor car and such cars are exclusively only for the purposes of business carried out by the company, accordingly, in our view, assessee is the owner of the asset, therefore, following the ratio laid down in following cases:- i. CIT vs Poddar Cements Pvt. Ltd. (Supra), ii. CIT vs Daudayal Hotels Pvt. Ltd.) (2006) 282 ITR 132 (Guj.). iii. CIT vs Crown Products (2008) 304 ITR 106 (Guj.) iv. CIT vs Gujarati Samaj (2012) 349 ITR 559 (MP).

We are of the view that depreciation on the applicable rates, during the relevant time, has to be allowed to the assessee. It is not the case of the Revenue that these motor cars were not used for business purposes of the assessee company or used by the Directors for their personal purposes. Merely because, the registration was done in the name of the directors, the depreciation u/s 32 cannot be disallowed. Registration is not the sole criteria for denying the depreciation u/s 32 of the Act. The ratio laid down in CIT vs Dilip Singh Sardar Singh Bagga 201 ITR 995 (Bom.)

M/s Permeshwar Creations Pvt. Ltd. supports our view. It is also not the case of the Revenue that the directors also claimed depreciation resulting into double depreciation. The depreciation was claimed by the assessee company only. Considering the foregoing discussion, we direct the ld. Assessing Officer to grant depreciation on such motor cars to the assessee on applicable rates at the relevant time, thus, this ground of the assessee is allowed.

Finally, the appeal of the assessee is disposed of in terms indicated hereinabove.

This order was pronounced in the open court in the presence of the ld. representative from both sides at the conclusion of the hearing on 07/12/2016.