Issue/Justification

In many cases, assessees engaged in the business of financing assets, acquire such assets which were used by the borrower for the purpose of his business or profession. Post-acquisition of such assets, the finance companies lease out the same to another person under operating lease. The acquisition of assets in satisfaction of debts, many a times, exceeds the written down value of the assets as on the date of acquisition. The existing definition of the term “actual cost” given in section 43 (1) of the Act does not allow the financing companies to claim depreciation at the
price/cost at which the assets are acquired by it from the borrower. Considering the fact that Asset Financing Company is acquiring the depreciable asset from the borrower for a particular price and using it for the purpose of its business by way of leasing out the same to the lessee, it should logically be entitled to claim depreciation on the “actual cost” at which it is acquired from the borrower.

Suggestion

Suitable Explanation may be inserted to the definition of the term “actual cost” given in section 43(1) of the Act.

Source-  ICAI Pre-Budget Memorandum–2018 (Direct Taxes and International Tax)

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