CIT Vs Tata Motors Ltd. (Supreme Court of India)
The matter arose from a batch of appeals filed by the Income Tax Department challenging a common order of the Income Tax Appellate Tribunal (ITAT) relating to assessment years 1994–95 to 1997–98. The key issues concerned (i) allowability of depreciation under Section 32 of the Income-tax Act, 1961 on leased assets, and (ii) levy of interest under Section 220(2) beyond the original assessment order.
At the assessment stage, the Assessing Officer disallowed depreciation on leased assets, holding that the transactions were merely financial arrangements and that the assessee did not satisfy the twin conditions of ownership and usage for business. This disallowance was upheld by the Commissioner (Appeals). Upon remand, the Assessing Officer reiterated the disallowance and also levied interest under Section 220(2).
Read Bombay HC Judgment in this case: Bombay HC allowed Depreciation on Leased Assets as Business Use Requirement Satisfied
The ITAT, however, allowed the assessee’s claim by relying on its earlier decisions in the assessee’s own case and deleted both the depreciation disallowance and the interest. The Tribunal found that the leased assets existed, were acquired through proper banking channels, and that lease rentals were offered to tax as business income. It also noted that lessees had confirmed ownership and had not claimed depreciation themselves.
