A Lessee can Claim depreciation on Vehicle taken on Lease; ITAT Mumbai [Read Order]

The Mumbai Bench of Income Tax Appellate Tribunal, in a recent ruling held that, the lessee of a vehicle can claim depreciation on vehicles taken on lease. The Tribunal, while passing order observed that while granting depreciation, the beneficial ownership is more relevant than the legal ownership.

The assessee, in the instant case, is in the business of providing vehicles of different types on, as stated, operating lease basis, to its’ customers. Apart there-from, it provides allied services like repairing, maintaining, insuring, providing drivers, providing relief vehicles and emergency break-down services. Its other activities include distribution and wholesale trading in vehicles. The receipts from the principle activity of leasing and providing allied services are booked under the head of account ‘lease rentals’ and ‘fleet maintenance charges’ respectively.

The Assessing Officer (A.O.), while completing the assessment, disallowed the claim for depreciation vehicles given on lease, which though was allowed by the ld. CIT(A). The Revenue preferred appeal before the ITAT challenging the order of the CIT(A).

Regarding the issue of depreciation,The Revenue contended that the CIT(A) allowed depreciation to the assessee on vehicles given on lease without appreciating the fact that the vehicles were not registered in the name of the assessee and the same were directly delivered to the parties using it and not to the assessee. The Tribunal refused to accept this contention and allowed the claim on the basis of various judicial decisions. It was observed that “This is as, admittedly, it is not the form but the substance (of the transaction) that matters and, further, what is relevant is the beneficial (de facto) ownership of the vehicle as against its’ titular (djure) ownership, and which, in case of a financial lease, vests with the lessee. Such confirmations could be provided, however, only by a few customers.”

Read the full text of the order below.

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