Case Law Details
CIT (LTU) Vs Tata Motors Ltd. (Supreme Court of India)
The dispute before the Bombay High Court concerned whether the assessee was entitled to claim depreciation under Section 32 of the Income-tax Act on assets given on lease and whether interest under Section 220(2) could continue after reassessment proceedings. The Revenue challenged a common order of the Income Tax Appellate Tribunal relating to assessment years 1994-95 to 1997-98.
The Assessing Officer had disallowed depreciation claimed on leased assets on the ground that the lease arrangements were merely financial transactions and that the assessee did not satisfy the twin conditions of ownership and use for business purposes under Section 32. The Assessing Officer also levied interest under Section 220(2) while passing an order under Section 143(3) read with Section 254. The Commissioner (Appeals) upheld the disallowance, after which the matter reached the Tribunal.
The Tribunal allowed the assessee’s appeal by relying on earlier Tribunal decisions in the assessee’s own case for subsequent years. It held that the assessee was entitled to depreciation on leased assets and deleted the interest charged under Section 220(2). The Revenue then appealed before the Bombay High Court.
Before the High Court, the principal issue was whether depreciation could be allowed where leased assets were used by lessees but ownership remained with the assessee. The Court noted that the facts were undisputed and that the assessee had entered into genuine lease transactions supported by lease agreements placed before the Assessing Officer. The assessee consistently argued that the transactions were genuine leases and not mere financing arrangements.
The High Court relied extensively on the Supreme Court decision in I.C.D.S. Ltd. v. Commissioner of Income-tax, where the Supreme Court interpreted Section 32 of the Act. In that case, the Supreme Court held that Section 32 requires ownership and use for business purposes, but the provision does not require the assessee itself to physically use the asset. It is sufficient if the asset is used in the course of the assessee’s business.
The Supreme Court had clarified that where the business of the assessee consists of leasing or hiring assets, income from such leasing constitutes business income and the leased assets are regarded as used for the purposes of business. The Court emphasized that actual physical use by the assessee is not mandatory. It further observed that once leasing is accepted as a mode of carrying on business, it would be contradictory to deny depreciation on the ground that the machinery was not used for the assessee’s business.
The Bombay High Court also referred to its earlier judgment in Commissioner of Income-tax v. Apollo Finvest (I) Ltd., where it had applied the Supreme Court ruling in I.C.D.S. Ltd. to hold that depreciation is allowable in lease transactions so long as the assessee owns the assets and uses them in the course of its leasing business.
The Tribunal had found that the leased assets existed, payments for purchase were made through banking channels, lease agreements were genuine, and lessees had confirmed the ownership of the assessee. It also noted that the lease rentals were offered to tax and assessed as business income. The Tribunal therefore concluded that the assessee, being the owner of the leased assets, was entitled to depreciation.
The High Court agreed with the Tribunal and held that the Revenue’s argument that the lease agreements were disguised loan transactions could not be accepted. It observed that the Assessing Officer’s view that ownership was artificially retained merely to claim depreciation was contrary to the interpretation of Section 32 laid down by the Supreme Court in I.C.D.S. Ltd.. Accordingly, the High Court held that no substantial question of law arose regarding the allowance of depreciation.
On the issue of interest under Section 220(2), the High Court held that once the disallowance of depreciation was set aside, the levy of further interest became consequential and unsustainable. It ruled that such interest was chargeable only up to the original assessment order passed under Sections 143(3) or 144 and not up to the reassessment order passed under Section 143(3) read with Section 254.
The High Court dismissed all the Revenue appeals involving identical questions of law for subsequent assessment years as well.
The matter later reached the Supreme Court through special leave petitions filed by the Revenue. The Supreme Court recorded the statement of the Additional Solicitor General that an earlier special leave petition challenging the same judgment had already been dismissed on the ground of delay on 10 April 2026. Following that order, the Supreme Court dismissed the delay condonation application and consequently dismissed the special leave petitions.
Read HC Judgment in this case: CIT Vs Tata Motors Ltd. (Bombay High Court)
FULL TEXT OF THE SUPREME COURT JUDGMENT/ORDER
Learned Additional Solicitor General appearing for the petitioner fairly states that the very same judgment, that is presently impugned, was subjected to challenge before this Court in SLP(C) Diary No. 16062/2026, titled “Commissioner of Income Tax -LTU vs. Tata Motors Ltd.”, and the same was dismissed on the ground of delay on 10.04.2026.
Following the aforestated order, the condone delay application and, in consequence, the special leave petitions are dismissed.
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