Delhi High Court
M.M. Fisheries Pvt. Ltd. vs Commissioner Of Income-Tax And Anr. on 7 July, 2005
Equivalent citations: (2005)199CTR(DEL)62, [2005]277ITR204(DELHI)
Author: Swatanter Kumar
Bench: Swatanter Kumar, J.P. Singh
JUDGMENT Swatanter Kumar, J.
1. Whether, on the facts and circumstances of the present case, the Income-tax Appellate Tribunal has erred in disallowing the claim of depreciation of Rs. 76,453, even though the dominion in respect of the vehicle was with the appellant-company and the law was settled that the non-registration of vehicle in the name of the assessed, was not a bar for the purposes of claiming depreciation, which according to the assessed-appellant is a substantial question of law and arises in the present appeal from the order of the Income-tax Appellate Tribunal dated May 18, 2004. The merit or otherwise of this submission would have to be decided keeping in view the facts of the case and thus it will be proper to narrate the basic facts giving rise to the present appeal at the very outset.
2. The appellant had filed a return of income for the assessment year 2001-02 declaring income of Rs. 2,04,160. During the relevant financial year, the appellant claims to have purchased a Toyota Qualis vehicle for a sum of Rs. 7,64,553 and claimed an amount of Rs. 76,453 as depreciation on the said vehicle. It is the case of the assessed that the said vehicle was paid for by the company partly through the sale of an old Tata Sumo belonging to the appellant and partly through a loan taken from the ICICI Bank, in the name of a director of the appellant company-- Mr. Man-mohan Singh. The entire transaction was reflected in the books of account of the company which formed part of the record during the course of scrutiny proceedings before the Assessing Officer. The company has shown the said vehicle as an asset in its balance-sheet as of March 31, 2001. On this premise, it is submitted that dominion over the said motor vehicle was clearly with the appellant company and they were entitled to the claim of depreciation in terms of the law laid down by the Supreme Court in the case of Mysore Minerals Ltd. v. CIT . This claim of the appellant was declined by the Assessing Officer vide his order dated March 28, 2003 holding that the company was a legal person capable of holding any property in its own name distinct from its directors and as the motor vehicle was registered in the name of the director, the claim of depreciation was disallowed. Aggrieved by this order, the appellant preferred an appeal before the Commissioner of Income-tax (Appeals), who while affirming the finding of facts recorded by the Assessing Officer, held as under :
"It is an admitted position that no perquisite value for the use of the car was added in the remuneration of the directors and no log book for the car or call register for the telephones was maintained. It is also admitted that telephones expenses included charges on account of telephones installed at the residences of the directors. I am of the view that in these circumstances exclusive business use of vehicles and telephones is not established. Every person including a company has to establish that the expenditure claimed in its income tax proceedings has been incurred wholly and exclusively for the purposes of business in terms of Section 37 of the Act. The onus is on the appellant to substantiate the claim of admissibility of the expenditure. In the case of New Ambadi Estates Pvt. Ltd. v. State of Tamil Nadu [2002] 256 ITR 64 (Mad), which was also the case of a company, the Madras High Court held that onus was not on the authorities to prove that motor car expenses were partly for personal usage ; rather the onus lay on the petitioner who claimed that it was not used for personal usage. The court, in the absence of trip sheets upheld the disallowance of 25% of the motor car expenses. In the case of the appellant also in the absence of the log book and call records, disallowance out of vehicle expenses and telephone expenditure is confirmed."
3. Dissatisfied with the order of the Commissioner of Income-tax (Appeals) dated June 24, 2003, the assessed preferred an appeal before the Income-tax Appellate Tribunal. The Tribunal further noticed the fact that the vehicle had been purchased by Manmohan Singh himself. Not only that, Manmohan Singh himself had incurred a liability by raising bank finance for the purpose of the vehicle. According to the Tribunal, there was no legal ownership vested in the assessed-company and even the beneficial ownership also did not vest in the company. Having declined to believe that dominion of the vehicle was vested in the company, the Tribunal disallowed the claim of depreciation vide its order dated May 18, 2005, giving rise to the present appeal under Section 260A of the Income-tax Act.
4. Learned counsel appearing for the appellant while relying upon the judgment of the Division Bench of this court in the case of CIT v. B.L. Passi and the judgment of the Supreme Court in Mysore Minerals Ltd. contended that the findings recorded by the authorities are perverse in law inasmuch as the dominion over the car vested in the company and the records clearly reflected its utility and benefit to the advantage of the company, as such it ought to have been treated as an asset of the appellant and consequently granted the allowance for depreciation. On the other hand, learned counsel appearing for the respondent while relying upon the judgment of the Supreme Court in the case of Tamil Nadu Civil Supplies Corporation Ltd. v. CIT [2001] 249 ITR 214 refuted the submission made on behalf of the petitioners and argued that the condition precedent to claim of depreciation is ownership of the asset. In the present case, the registered owner of the vehicle is the director in his own right. The vehicle was being used for personal benefit of the director and was not reflected in the books of the company as a perk provided to the director of the company. As such a claim of depreciation in favor of the company could not be accepted by the authorities. Before an assessed can sustain the claim for depreciation, it must satisfy the twin essentials, i.e. firstly, the asset is wholly or partly owned by the assessed, and, secondly, the asset is used for the purposes of business or profession of the assessed. Both these ingredients are conditions precedent for successfully making a claim within the provisions of Section 32 of the Act. Even in the grounds before us, it has not been averred as to how the car was in the dominion of the company and was being utilised for the benefit of the company in the normal course of its business or even for matters strictly incidental thereto.
5. The Supreme Court in the case of Tamil Nadu Civil Supplies Corporation Ltd. [2001] 249 ITR 214 had considered the judgment of that court in Mysore Minerals Ltd. and it was held by the court that the word "owned" appearing in Section 32 had been interpreted broadly and keeping in view the peculiar circumstances of that case. The assessed in that case had acquired possession of the house in question but the deed of conveyance was not executed until after the completion of the financial year in question. The assessed's claim for depreciation thus was allowed in the case of Mysore Minerals Ltd. . That case has no application to the facts of the present case. In the present case, a finding of fact has been recorded by the Assessing Officer, Commissioner of Income-tax (Appeals) and lastly by the Tribunal that the assessed-company had no ownership or dominion over the vehicle in question. The ownership of an asset in his personal capacity by the director of the company, cannot be an asset deemed to be in the vested ownership or beneficial utility of the company. They are two distinct and independent legal entities. This is not a question of law, but is primarily a question of fact. All the three authorities have given additional reasons for rejecting the claim of the appellant for depreciation. The reliance on the case of B.L. Passi by the appellant again is misplaced and is of no help to the appellant. In that case, there was no evidence to support the finding recorded by the Revenue authorities. In the present case, it is an admitted case that the registered owner of the vehicle is the director of the company and nothing was there to show the authorities that the company had dominion over the vehicle and it was provided as a perk to the director of the company. On the contrary, no such records were produced by the assessed to show that the utility of the vehicle was in the normal course for the benefit of the company. In fact, as per the findings recorded by the Tribunal, even beneficial ownership also does not vest in the asses-see-company. We see no reason to disturb the concurrent view taken by the authorities. The question proposed by the appellant thus cannot be stated to be a substantial question of law arising from the order of the Tribunal in the facts and circumstances of the present case. Accordingly, the appeal is dismissed while leaving the parties to bear their own costs.