The Delhi bench of the ITAT, on Friday held that depreciation under section 32 of the Income Tax Act, 1961 cannot be disallowed to a Company merely for the reason that the equipment was installed in the premises of the Managing Director.
In the instant case, Assessee, Claridges Hotels Pvt. Ltd, installed gym equipments in the premises of Managing Director. According to them, as per the corporate policy the provision of fitness centre has been done for purposes to ensure employees to stay fit and healthy. It claimed that in any case, it can be treated as perquisite in hands of Managing Director but cannot be disallowed in the hands of the assessee-company.
Both the Assessing Officer and the first appellate authority rejected the claim of the assessee and held that though ownership belongs to the assessee, but installation of the equipment at residential premises of the Directors share holders makes its usage private which cannot be held to be for the business purpose.
After hearing both the parties, the bench noted that it is not in dispute that the equipment has been bought by the company and is appearing at the fixed assets in the balance sheet of the assessee company and said assets has been acquired during the running of hotel business.
“Then simply because it is being used by Managing Director it cannot be held to be for private use so as to warrant disallowance of depreciation. At the most if any equipment has been placed for exclusive use of Managing Director the same should be added as perquisite in the hands of the said Director but cannot be disallowed in the hands of the assessee company when this asset already forms part of the block of the assets and depreciation has been allowed earlier,” the bench said.
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