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2017 (1) TMI 244 - RAJASTHAN HIGH COURT

2017 (1) TMI 244 - RAJASTHAN HIGH COURT - TMI - Benefit of depreciation - vehicle were not owned and used but merely financed by the assessee - Held that:- Section 32 requires that the assessee must use the asset for the "purposes of business". It does not mandate usage of the asset by the assessee itself. As long as the asset is utilised for the purpose of business of the assessee, the requirement of Section 32 will stand satisfied, notwithstanding non-usage of the asset itself by the assessee .....

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rs without interest and for non business purposes? - Held that:- As decided in S.A. Builders Ltd. Vs. Commissioner of Income Tax (Appeals) Chandigarh and Anr.[2006 (12) TMI 82 - SUPREME COURT] in the present case, the assessee borrowed the fund from the bank and lent some of it to its sister concern (a subsidiary) on interest free loan. The test, in our opinion, in such a case is really whether this was done as a measure of commercial expediency. - In our opinion, the decisions relating to S .....

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h was from the borrowed fund which was running from the finance which is justified by CIT learned Tribunal. - Decided in favour of the assessee - DB Income Tax Appeal No. 249/2005, DB Income Tax Appeal No. 245/2005 - Dated:- 23-11-2016 - K. S. Jhaveri And Mahendra Maheshwari, JJ. For the Appellant : Anuroop Singhi For the Respondent : Sanjay Jhanwar ORDER 1. In both these appeals, the appellant has challenged the judgment and order of the Tribunal whereby the Tribunal has partly allowed the appe .....

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ed and used but merely financed by the assessee? (ii) Whether on the facts and circumstances of the case, the ITAT was right and justified in holding that in the case of financing agreement the benefit of depreciation would be available to the assessee, financer and not to the real owner purchaser of the vehicle? (iii) Whether on the facts and circumstances of the case, the ITAT was right and justified in allowing the deduction of payment of interest of ₹ 66,395/- when the loans/ advances .....

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y the assessee? (ii) Whether on the facts and circumstances of the case, the ITAT was right and justified in holding that in the case of financing agreement the benefit of depreciation would be available to the assessee, financer and not to the real owner purchaser of the vehicle? (iii) Whether on the facts and circumstances of the case, the ITAT was right and justified in allowing the deduction of payment of interest of ₹ 16,07,684/-, when the loans/ advances were provided to the persons .....

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1.7.2013 wherein it has been held as under:- 9. The facts of the case are not in dispute between the parties. The assessee-company is engaged in the business of leasing the vehicles. The assessee claimed depreciation, being lessor of the vehicles. However, the same was disallowed by the Assessing Officer and the same was upheld by Commissioner of Income Tax (Appeals) also. Learned Income Tax Appellate Tribunal considered various aspects of the case and provisions of law and came to a conclusion .....

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so submitted that Hon'ble Apex Court has also held that lessor is owner and, therefore, is entitled for depreciation under Section 32(1) of the Act. 13. The Hon'ble Apex Court in Industrial Credit And Development Syndicate Limited (supra) case considered the case of assessee, who was public limited company, classified by Reserve Bank of India (RBI) as a non-banking finance company. It was engaged in the business of hire purchase, leasing and real estate etc. The vehicles, on which deprec .....

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essing Officer on the ground that the assessee's use of these vehicles was only by way of leasing out to others and not as actual user of the vehicles in the business of running them on hire. It had merely financed the purchase of these assets and was neither the owner nor user of these assets. The Commissioner of Income Tax (Appeals) affirmed the finding of the Assessing Officer. Thereafter, assessee preferred appeal before the Income Tax Appellate Tribunal, but the same was also dismissed. .....

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er the appellant (assessee) is the owner of the vehicles which are leased out by it to its customers? And 8.2 Whether the appellant (assessee) is entitled to the higher rate of depreciation on the said vehicles, on the ground that they were hired out to the Appellant's customers . 14. The Hon'ble Apex Court considered the various judgments, the dictionary meaning of the word owner , the provisions of Income Tax Act and the Motor Vehicles Act and answered both the questions framed in para .....

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to costs . 15. It is also relevant to mention that the Hon'ble Apex Court has considered two submissions of Revenue regarding owner of the vehicle and use of the vehicle in the course of its business and both the submissions were negatived by the Hon'ble Apex Court. Para 15 and 16 of the judgment are reproduced, as under :- 15. The Revenue attacked both legs of this portion of the section by contending: (i) that the assessee is not the owner of the vehicles in question and (ii) that the .....

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quires that the assessee must use the asset for the "purposes of business". It does not mandate usage of the asset by the assessee itself. As long as the asset is utilised for the purpose of business of the assessee, the requirement of Section 32 will stand satisfied, notwithstanding nonusage of the asset itself by the assessee. In the present case before us, the assessee is a leasing company which leases out trucks that it purchases. Therefore, on a combined reading of Section 2(13) a .....

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vehicle. Relevant paragraphs i.e. paras 23, 27, 29 and 31 are also reproduced, as under:- 23. A scrutiny of the material facts at hand raises a presumption of ownership in favour of the assessee. The vehicle, along with its keys, was delivered to the assessee upon which, the lease agreement was entered into by the assessee with the customer. Moreover, the relevant clauses of the agreement between the assessee and the customer specifically provided that: (i) The assessee was the exclusive owner .....

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t, which defines ownership as follows: "2.(30) 'owner' means a person in whose name a motor vehicle stands registered, and where such person is a minor, the guardian of such minor, and in relation to a motor vehicle which is the subject of a hire-purchase agreement, or an agreement of lease or an agreement of a hypothecation, the person in possession of the vehicle under that agreement; The general opening words of the Section say that the owner of a motor vehicle is the one in whos .....

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Therefore, the general and specific statements on ownership construe ownership in favour of the lessee, and hence, are in favour of the Revenue. 29. Finally, the learned Senior Counsel appearing on behalf of the assessee also pointed out a larger number of cases, accepted and unchallenged by the Revenue, wherein the lessor has been held as the owner of an asset in a lease agreement. [CIT v. A.M. Constructions, CIT v. Bansal Credits Ltd., CIT v. M.G.F. (India) Ltd., CIT v. Annamalai Finance Ltd.] .....

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e Act and hence, is entitled to claim depreciation in respect of additions made to the trucks, which were leased out . 17. From the submissions of learned counsel for the parties, the facts and reasons assigned in the judgment of the Tribunal, it is clear that Hon'ble Apex Court has held that lessor is an owner and thus is entitled to depreciation under Section 32(1) of the Act, and the present case is fully covered by decision of Hon'ble Apex Court in case of Industrial Credit And Devel .....

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wed fund is required to be viewed very seriously inasmuch as the Tribunal and the CIT (A) has reversed the finding of the Assessing Officer which has given reasoned order and the reasoning which has been adopted by the AO is supported by the decision of the Supreme Court in the case of S.A. Builders Ltd. Vs. Commissioner of Income Tax (Appeals) Chandigarh and Anr. (2007) I SCC 781, wherein it has been held as under: In our opinion, the High Court in the impugned judgment, as well as the Tribunal .....

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s "for the purpose of business". It has been consistently held in decisions relating to Section 37 that the expression "for the purpose of business" includes expenditure voluntarily incurred for commercial expediency, and it is immaterial if a third party also benefits thereby. 7. Counsel for the respondent Mr. Jhanwar has relied upon decision of Gujarat High Court in Commissioner of Income Tax (I) Vs. Arihant Avenue & Credit Ltd., [2013] 36 taxmann.com 14(Gujarat) holdin .....

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ount two points of time at which the liability to tax is attracted, viz., the accrual of the income or its receipt; but the substance of the matter is the income. If income does not result at all, there cannot be a tax, even though in book-keeping, an entry is made about a hypothetical income , which does not materialize. Where income has, in fact, been received and is subsequently given up in such circumstances that it remains the income of the recipient, even though given up, the tax may be pa .....

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this court. 8. And another decision of Gujarat High Court in Commissioner of Income Tax Vs. Raghuvir Synthetics Ltd., [2013] 36 taxmann.com 275(Gujarat) The Tribunal on noting these details, in terms held that there was nothing contrary that could be brought on record by the Department. The assessee's equity share capital ₹ 3.85 cores and reserve and surplus of ₹ 5.52 crores also were noted by the Tribunal. It found that the interest free fund available with the assessee was far .....

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not exceed the total interest free funds available with the assessee, interest was not disallowable merely on account of the utilization of the funds for nonbusiness purposes. 9. Decision of the Supreme Court in Munjal Sales Corporation Vs. Commissioner of Income Tax, Ludhiana [2008] 18 taxman 43 (SC) wherein also it has been held: For the AYs 1995-96 and 1996-97, Tribunal held that during the said years, no interest free advances to sister concerns were made and, therefore, there was no nexus .....

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38 to be read with the limitation prescribed under Section 40. Since there was some confusion with regard to the status of Section 40, particularly, after enactment of Finance Act 1992, we have explained the law in the context of deductions under Chapter IV-D of the 1961 Act. We have accepted the submissions advanced by the learned Addl. Solicitor General in that regard. However, the assessee succeeds in this batch of civil appeals on the peculiar facts of this case. 10. Decision of Allahabad Hi .....

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, the AO had disallowed the amount towards proportionate interest on the said advances. The Tribunal after examining the balance sheet for the year ending 31st Dec., 1985, had come to the conclusion that the assessee-company was having sufficient fund on account of share capital, share application money, reserve and surplus, and was having sufficient fund at its disposal out of which a small sum of ₹ 17.19 lakhs could easily be diverted. It is well-settled that if an amount has been borrow .....

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enable the assessee to claim a deduction on interest on borrowed capital, namely : (a) that the money (capital) must have been borrowed by the assessee; (b) that it must have been borrowed for the purpose of business; and (c) that the assessee must have paid interest on the said amount and claimed it as a deduction. The apex Court has held that the expression 'for the purpose of business' is wider in scope than the expression 'for the purposes of earning income profits or gains' .....

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