Depreciation-Allowability-Trucks in the names of directors

Income tax – Sec 32(1) – Assessee-company claims depreciation on trucks registered in the name of Director – Revenue disallows – Tribunal allows the appeal – held, since the vehicles have been purchased in the name of the Director only for convenience sake and rents have been credited to the company’s account and even tax has been paid on the same, depreciation cannot be disallowed now as it is in effective possession of the company – Revenue’s appeal dismissed : ALLAHABAD HIGH COURT;Also Read:-Can Assessee claim Depreciation on car Registered in the name of its partners or directors?

Counsel: A.N. Mahajan, for the Appellant q R.P. Agarwal, for the Respondent

ORDER

Heard Sri A.N. Mahajan, learned Standing Counsel, and Sri R.P. Agarwal, learned counsel appearing on behalf of the respondent.

2. In the present appeal the Commissioner of is raising the following question of law:

“(1) Whether on the facts and in the circumstances of the case, the Tribunal is justified in allowing depreciation under the provisions of section 32 of the Act to the assessee on trucks which are in the name of Directors of the company and also on the trucks which are under hire purchase agreement ?”

3. Learned Standing counsel submitted that under section 32 of the Income Tax Act, 1961 (called the `Act’ for short) only the owner of the vehicle is entitled for depreciation. The company is the assessee in the present case and it claimed the depreciation on the vehicle which was in the name of the Director of the company. Therefore, in respect of such vehicle the company was not entitled for depreciation under section 32 of the Act.

4. Sri R.P. Agarwal, learned counsel for the respondent, submitted that the Tribunal found that the trucks have been purchased in the names of the Directors just for the convenience and the funds have been invested by the assessee-company and the hire rent received on such trucks have been credited by the company in their account and such receipts have been taxed by the department. As such in view of the handing over of the company, the company was the de facto owner of such trucks and, therefore, the Tribunal has rightly allowed the depreciation on such vehicles. He further submitted that the department has not challenged the findings recorded by the Tribunal and, therefore, the question raised is concluded by the findings of fact. We have considered the submissions of learned counsel for the parties and perused the order of the Tribunal. The Tribunal has recorded the following findings :

“21. Before us, the learned A.R. basically relied on the decision of the learned Commissioner (Appeals) so far as depreciation on trucks is allowed by the learned Commissioner (Appeals). Regarding other part of his decision, where trucks are in the name of directors and therefore, the learned Commissioner (Appeals) has not allowed the depreciation, the learned A.R. submitted that the trucks have been purchased in the name of directors just for the convenience. Funds have been invested by the assessee- company. It is making regular payment of instalments to Telco/Tata Finance. The income of hire received on such trucks are credited by the company and taxed by the department as such in the hands of the company. No separate assessments of the directors have been made. No depreciation has been claimed by the directors, in fact, directors are holding the trucks as benami for assessee-company. In brief, the argument of the learned A.R. was that the investment in the trucks and enjoyment of income from the trucks vests in the company. The assessee is de facto owner of the trucks and there is no obligation with it to transfer any income of the truck to the directors. He relied on the decision of Punjab and Haryana High Court in 70 ITR 398 and of Allahabad High Court in 235 ITR 158. Expenditure relating to registration is also debited in the books of the company. No part of the finance is made by the directors. The A.R. also submitted that insurance also in respect of those trucks is in the name of the assessee and payment thereof is also made by the assessee-company.”

5. The aforesaid finding of the Tribunal has not been challenged by the department. Once the Tribunal, on the facts, has held the company as de fact owner of the trucks which were standing in the name of the Director, the Tribunal has rightly held that the company is entitled to claim the depreciation under section 32 of the Act.

In the case of Mysore Minerals Ltd. v. CIT (1999) 106 Taxman 166 the Apex Court has interpreted section 32 of the Act and has held as follows :

“(4) section 32 of the Income Tax Act confers a benefit on the assessee. The provision should be so interpreted and the words used therein should be assigned such meaning as would enable the assessee securing the benefit intended to be given by the Legislature to the assessee. It is also well settled that where there are two possible interpretations of a taxing provision the one which is favourable to the assessee should be preferred.

(14) In our opinion, the term owned as occurring in section 32(1) of the Income Tax Act, 1961 must be assigned a wider meaning. Any one in possession of property in his own title exercising such dominion over the property as would enable others being excluded therefrom and having right to use and occupy the property and/ or to enjoy its usufruct in his own right would be the owner of the buildings though a formal deed of title may not have been executed and registered as contemplated by Transfer of Property Act, Registration Act etc. Building owned by the assessee’-the expression as occurring in section 32( 1) of the Income Tax Act means the person who having acquired possession over the building in his own right uses the same for the purposes of the business or profession though a legal title has not been conveyed to him consistently with the requirements of laws such as Transfer of Property Act and Registration Act etc. but nevertheless is entitled to hold the property to the exclusion of all others.

(18) An overall view of the above said authorities show that the very concept of depreciation suggests that the tax benefit on account of depreciation legitimately belongs to one who has invested in the capital asset, is utilizing the capital asset and thereby losing gradually investment caused by wear and tear, and would need to replace the same by having lost its value fully over a period of time.

(19)It is well-settled that there cannot be two owners of the property simultaneously and in the same sense of the term. The intention of the Legislature in enacting section 32 of the Act would be best fulfilled by allowing deduction in respect of depreciation to the person in whom for the time-being vests the dominion over the building and who is entitled to use it in his own right and is using the same for the purposes of his business or profession. Assigning any different meaning would not sub serve the legislative intent. To take the case at hand it is the appellant-assessee who having paid part of the price, has been placed in possession of the houses as an owner and is using the buildings for the purpose of its business in its own right. Still the assessee has been denied the benefit of section 32. On the other hand, the Housing Board would be denied the benefit of section 32 because in spite of its being the legal owner it was not using the building for its business or profession. We do not think such a benefit-to-none situation could have been intended by the Legislature. The finding of fact arrived at in the case at hand is that though a document of title was not executed by Housing Board in favour of the assessee, but the houses were allotted to the assessee by the Housing Board, part payment received and possession delivered so as to confer dominion over the property on the assessee where after the assessee had in its own right allotted the quarters to the staff and they were being actually used by the staff of the assessee. It is common knowledge, under the various schemes floated by bodies like housing boards, houses are constructed on large scale and allotted on part payment to those who have booked. Possession is also delivered to the allottee so as to enable enjoyment of the property. Execution of document transferring title necessarily follows if the schedule of payment is observed by allottee. If only the allottee may default the property may revert back to the Board. That is a matter only between the Housing Board and the allottee. No third person intervenes. The part payments made by the allottee are with the intention of acquiring title. The delivery of possession by Housing Board to allottee is also a step towards conferring ownership. Documentation is delayed only with the idea of compelling the allottee to observe the schedule of payment.”

6. In the case of CIT Vs. Navdurga Transport Co. (1999) 235 ITR 158 (All.) while dealing with section 32 of the Act, a Division Bench of this court has relied upon the decision of the Bombay High Court in the case of CIT v. Dilip Singh Sardarsingh Bagga (1993) 201 ITR 995 (Bom) and the decision of this Court in the case of Addl CIT v. U.P. State Agro Industrial Corpn. Ltd. (1981) 127 ITR 97(All) and has held as follows :

“The Tribunal as a last fact-finding body categorically recorded a finding of fact that all the three vehicles became the assets of the firm and as such, they have been used through agents by the firm and the income from the three vehicles were credited in the books of account of the assessee-firm. No doubt, the registration continues in the name of three partners, who initially acquired the vehicles.

In CIT Vs. Dilip Singh Sardarsingh Bagga (1993) 201 ITR 995 (Bom), the Bombay High Court held that registration under the Motor Vehicles Act is not an essential pre-requisite for the acquisition of ownership of the motor vehicles, but is an obligation cast upon an owner of the vehicle for the purpose of running the vehicles, but is an obligation cast upon an owner of the vehicle for the purpose of running the vehicles in any public place.

As registration cannot be made in the name of the firm, the registration continued in the name of the three partners, who initially owned the vehicles.

In Addl CIT v. U.P. State Agro Industrial Corporation Ltd (1981) 127 ITR 97 (All), this court held that the expression “building owned by the assessee” in section 32 of the Income Tax Act, 1961, has not been used in the sense of property, complete title in which vests in the assessee. The assessee will be considered to be an owner of the building under section 32 if he is in a position to exercise the rights of the owner not on behalf of the person in whom the tide vests, but in his own right.

Applying the ratio of the aforesaid decisions, we are of the considered view that the Appellate Tribunal rightly reached the conclusion that the assessee owned and used the three vehicles within the meaning of section 32 of the Act.”

7. In the present case the Tribunal has found that the trucks have been purchased in the names of the Directors just for the convenience and the funds have been invested by the assessee-company and the higher rents received on such trucks have been credited by the company in their account and such receipts have been taxed by the department and the company was the de facto owner of such trucks. The aforesaid finding of the Tribunal has not been challenged by the department.

8. In view of the aforesaid finding we are of the view that the Tribunal has rightly allowed the depreciation on such trucks which were though in the names of the Directors but were actually owned by the company, in the case of the company.

9. For the aforesaid reason, the appeal fails and is, accordingly, dismissed.

NF