Depreciation Claim Allowed for Vehicle Paid For and Used.

Depreciation Claim Allowed for Vehicle Paid For and Used by Company Despite Registration in Director’s Name

Issue

Whether a company is entitled to claim depreciation under Section 32 of the Income-tax Act, 1961 on a vehicle purchased and used for its business, when the funds were paid by the company but the registration stands in the name of its Director.

Facts

Asset Purchase: The assessee-company purchased a Hummer car and claimed depreciation on the vehicle under Section 32 for Assessment Year 2012–13.
Payment of Consideration: The entire financial consideration and payment for the purchase of the vehicle was discharged directly by the company.
Registration details: The car was registered in the personal name of the company’s Director rather than in the name of the company.
Tribunal Decision: The ITAT allowed the company’s claim for depreciation, accepting that beneficial ownership and business usage rested with the company.
Revenue’s Appeal: The Revenue challenged the Tribunal’s decision, contending that legal ownership via registration in the Director’s name disqualified the company from claiming depreciation.

Decision

Beneficial Ownership Validates Claim: The Court held that since the payment for the vehicle’s purchase was made entirely by the company and used for its business purposes, the company remains the beneficial owner.
No Substantial Question of Law: The Court concluded that registration of the vehicle in the Director’s name does not disentitle the company from claiming depreciation under Section 32.
Appeal Dismissed: The Tribunal’s order allowing the depreciation claim was upheld, and no question of law was found to arise, deciding the matter in favor of the assessee.

Key Takeaways

Dominance of Beneficial Ownership: For the purpose of claiming depreciation under Section 32 of the Income-tax Act, beneficial ownership and use of the asset for business take precedence over formal legal registration under the Motor Vehicles Act.
Substance Over Form: Where a company pays the purchase price of a vehicle from its funds and uses it for enterprise operations, it is treated as the real owner eligible for depreciation benefits, even if registered under a director’s or employee’s name for convenience.

HIGH COURT OF GUJARAT

Principal Commissioner of Income-tax (Central)

Cadila Heathcare Ltd.

BHARGAV D. KARIA and Pranav Trivedi, JJ.

R/TAX APPEAL NO. 590 of 2022^†

JULY 27, 2026

Varun K. Patel for the Appellant. Darshan R. Patel and R.K. Patel, Ld. Sr. Adv. for the Respondent.

ORDER

Bhargav D. Karia, J. – Heard learned Senior Standing Counsel Mr. Varun K. Patel for the appellant-Revenue and learned Senior Advocate Mr. R.K. Patel assisted by learned advocate Mr. Darshan R. Patel for the respondent-assessee.

2. Learned Senior Standing Counsel Mr. Varun K. Patel for the appellant has tendered a draft amendment to change the name of the respondent in view of the Certificate issued by the Registrar of Companies for change of name with effect from 24^th February, 2022. The same is allowed in terms of the draft. To be carried out forthwith.

3. The appellant-Revenue has filed this Appeal under Section 260A of the Income Tax Act, 1961 proposing the following substantial questions of law arising out of the order of the Income Tax Appellate Tribunal, Ahmedabad ‘D’ Bench, Ahmedabad (for short ‘the Tribunal’) in Cadila Healthcare Ltd. v. Dy. CIT (Ahmedabad – Trib.)/[ITA No.954/Ahd/2017, dated 17-8-2021] for Assessment Year 2012-13:

“[A] Whether on the facts and circumstances of the case and in law the Appellate Tribunal’s decision is ex-facie perverse because Appellate Tribunal has erred in deleting the addition made on account of the guarantee fee charge of Rs.10,45,32,855/- by ignoring the ALP determined by using external Comparable Uncontrolled Price (CUP) Method?

[B] Whether on the facts and circumstances of the case and in law, the Appellate Tribunal was justified in deleting the addition made on account of interest on convertible loan to ‘Zydus International Private Ltd.’ of Rs.9,97,52,504/- by holding that the assessee still had the option to convert the same into equity?

[C] Whether on the facts and circumstances of the case and in law, the Appellate Tribunal was justified in deleting the addition made under section 40(a)(i) of the Act on account of non-deduction of TDS under section 195 of the Act in respect of payment of export commission?

[D] Whether on the facts and circumstances of the case and in law, the Appellate Tribunal was justified in deleting the addition made on account of Product registration expenditure considering the same as revenue?

[E] Whether on the facts and circumstances of the case and in law, the Appellate Tribunal was justified in deleting the addition of Rs.8,60,25,625/- made on account of Trademark Registration & Patent Fee considering the same as revenue expense despite of the facts that they are not recurring the nature?

[F] Whether on the facts and circumstances of the case and in law, the Appellate Tribunal was justified in deleting the addition of Rs. 39,39,31,000/- made on account of expenses incurred outside the approved R & D facility w.r. to 35[2AB] of the Act?

[G] Whether on the facts and circumstances of the case and in law, the Appellate Tribunal was justified in allowing the depreciation on Hummer Car despite the fact that the same was in the name of the Director and there was no evidence to show that the same was used wholly and exclusively for the purpose of business, the provisions of Section 32 were thereof not satisfied?

[H] Whether on the facts and circumstances of the case and in law, the Appellate Tribunal was justified in deleting the addition of Rs.142 Crore being the amount received from M/s.Zydus Healthcare, Sikkim as “exempted remuneration” without appreciating that the Assessing Officer had clearly established that in the guise of remuneration, the assessee has actually received the sum from the partnership firm falling within the purview of section 56 of the Act?

[I] Whether on the facts and circumstances of the case and in law, the Appellate Tribunal was justified in excluding the disallowance made under section 14A while computing of Book Profit under Section 115JB ignoring the clause (f) of Explanation-1 to section 115JB(2)?”

4. So far as question Nos. A to F and I are concerned, the similar questions are already admitted for consideration by this Court in case of the assessee in Pr. CIT v. Cadila Healthcare Ltd. (Guj.)/ Tax Appeal No.274 of 2018. Therefore, this appeal is admitted qua questions Nos. A to F and I.

5. So far as question No. G is concerned, the similar question in case of the assessee is not entertained by this Court in Cadila Healthcare Ltd.(supra) by observing as under :

“With respect to Question [H] which pertains to depreciation claimed by the Company on purchase of a Car for the Director, the case of the assessee was that the payment for purchase of vehicle was made by the Company, though the car was registered in the name of the Director. This Court under similar circumstances in the case of Commissioner of Income-Tax v. Aravali Finlease Limited, reported in [2012] 341 ITR 282 ruled in favour of the assessee. This question is, therefore, not considered.”

6. So far as question No. H is concerned, the similar question, being question No.9, is admitted for consideration by this Court in case of the assessee in Tax Appeal No.995 of 2018. Therefore, the Appeal is admitted qua question No.H.

7. To be heard with Cadila Healthcare Ltd.(supra), so far as question Nos. A to F and I are concerned and Tax Appeal No.995 of 2018, so far as question No. H is concerned.

8. The Appeal is accordingly, dismissed qua question No. G.