The division bench of the Rajasthan High Court, in the case of DCIT Jaipur v. M/s. Baid Leasing & Finance Co. Ltd, held that the lessor of vehicle is entitled to depreciation under section 32 of the Income Tax Act. Confirming the order of the Appellate Tribunal, the bench held that the interest paid on advances provided to the persons related to the Directors for non-business purposes is also allowable as deduction.
In the instant case, the assessee-company, a lessor of the vehicles claimed depreciation under section 32(1) of the IT Act. The assessing officer took a view that assessee is not entitled to depreciation. It was further found that the assessee is not entitled to deduction in respect of interest paid on the loans/ advances provided to the persons related to the Directors for non-business purposes.The Appellate Tribunal, on second appeal, reversed the assessment order and allowed the claim.
The bench, referring to various judicial decisions confirmed that depreciation is allowable to the asssessee though the vehicle were not actually owned and used but merely financed by the assessee and in the case of financing agreement the benefit of depreciation would be available to the assessee, financer and not to the real owner purchaser of the vehicle.
Regarding the deduction of interest, the bench, relied upon various Apex Court decisions and observed thatit was not interest which was from the borrowed fund which was running from the finance which is justified by CIT and the Tribunal. Therefore, the claim was also allowed.
Read the full text of the order below.