The Delhi bench of the Income Tax Appellate Tribunal (ITAT) has held that a lessee is not eligible for depreciation in respect of the vehicles taken on a financial lease.
The assessee-company has taken certain vehicles on finance lease and lease rental paid by the assessee company comprised to interest portion and principal portion out of which principal portion of lease rental amounted to Rs.2,20,383/-. The Assessing Officer, while considering the income tax return filed for the relevant year, disallowed the deduction claimed by the assessee rather than allowed depreciation @ 15% on the principal portion of the lease rental during the year under consideration.
The Tribunal bench comprising Judicial Member Anil Chaturvedi and Accountant Member Kuldip Singh held that the order passed by the AO shows that the AO proceeded on the basis of surmise that the vehicles are owned by the assessee company which is factually incorrect as is evident from the registration certificate, available at page 127 of the paper book.
“In the registration certificate, assessee company is referred as the lessee and Orix Auto is referred as the lessor. Merely mentioning the name of the assessee company as the lessee does not construe ownership in favor of the assessee as has been held by Hon’ble Supreme Court in case of ICDS Ltd. vs. CIT 350 ITR 527 (SC). It is a basic principle of law that the only lessor is the owner of the leased property in case of finances and depreciation is allowable to the lessor only and not the lessee.”
Dismissing the appeal filed by the Revenue, the Tribunal held that “lease agreement entered into between the assessee company and lessor of the vehicles itself provides that ownership of the vehicles will not be transferred to the lessee during the subsistence of the lease as is evident from Lease Agreement dated 24.04.2008, available at pages 128 to 141 of the paper book.”
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