M/S L.C.D.S. LTD. versus COMMISSIONER OF INCOME TAX, MYSORE & ANR.

Citation: [2013] 3 S.C.R. 1082 · Decided: 14-01-2013 · Supreme Court of India · Bench: D.K. JAIN · Disposal: Appeal(s) allowed

Cited by 1 judgment(s) · see the full citation network in Lexace

Judgment (excerpt)

A 
B 
[2013] 3 S.C.R. 1082 
M/S l.C.D.S. LTD. 
V. 
COMMISSIONER OF INCOME TAX, MYSORE & ANR. 
(Civil Appeal No. 3282 of 2008) 
JANUARY 14, 2013 
[D.K. JAIN AND JAGDISH SINGH KHEHAR, JJ.] 
Income Tax Act, 1961 - s.32(1) - Depreciation - On the 
vehicle -
Purchased and financed by the assessee but 
C registered in the name of third parties to whom the assessee 
leased the vehicles - Claim by assessee for depreciation at 
normal rate as well as on higher rate - Entitlement - Held: 
As per s.32, the asset must be 'owned' by the assessee and 
'used for the purpose of the business' - In the facts of the case, 
D the assessee as a lessor was the owner of the vehicles, and 
also used them in the course of business i.e. the business of 
running on hire -
No inference can be drawn from the 
registration certificate as to ownership of the legal title of the 
vehicle - Therefore, assessee was entitled to depreciation at 
E normal rate as well as higher rate - Motor Vehicles Act, 1988 
- ss.2(30) and 51. 
Motor Vehicles Act, 1988 - s.2(30) - 'Owner' - Meaning 
- Applicability to general law - This provision is a deeming 
provision that creates a legal fiction of ownership in favour of 
F lessee only for the purpose of the Act - It is not a statement 
of law on ownership in general. 
G 
Words and Phrases: 
'Depreciation' - Meaning of. 
'Own', 'Owner' and 'Ownership' - Meaning of. 
The appellant-assessee, a non-banking finance 
company sought depreciation on the vehicles, which 
H 
1082 
l.C.D.S. LTD. v. COMMISSIONER OF INCOME TAX, 1083 
MYSORE & ANR. 
were ·financed and purchased by the assessee, but A 
registered in the name of the third parties i.e. the parties 
to whom it had leased out the vehicles. The assessee 
also claimed depreciation at a higher rate on the ground 
that the vehicles were used in the business of running 
on hire. 
B 
The question for consideration before this Court was 
whether the assessee was entitled to depreciation on the 
vehicles at normal rate as well as at higher rate. 
Allowing the appeals, the Court 
HELD: 1.1. In the facts of the present case, the lessor 
c 
i.e. the assessee was the owner of the vehicles. As the 
owner, it used the assets in the course of its business, 
satisfying both requirements of Section 32 of the Income 
0 
Tax Act, 1961 and hence, was entitled to claim 
depreciation in respect of the leased out vehicles. The 
assessee fulfills even the requirements for a claim of a 
higher rate of depreciation, and hence is entitled to the 
same. [Paras 29 and 30] [1106-D-F] 
E 
1.2. The provision on depreciation in the Act reads 
that the asset must be "owned, wholly or partly, by the 
assessee and used for the purposes of the business". 
Therefore, it imposes a twin requirement of 'ownership' 
and 'usage for business' for a successful claim under 
F 
Section 32 of the Act. [Para 13] [1093-D] · 
1.3. Depreciation is the monetary equivalent of the 
wear and tear suffered by a capital asset that is set aside 
to facilitate its replacement when the asset becomes 
G 
dysfunctional. Allowance for depreciation is to replace 
the value of an asset to the extent it has depreciated 
during the period of accounting relevant to the 
assessment year and as the value has, to that extent, 
H 
1084 
SUPREME COURT REPORTS 
[2013] 3 S.C.R. 
A been lost, the corresponding allowance for depreciation 
takes place. [Para 10) [1092-B-D] 
P.K. Badiani Vs. Commissioner of Income Tax, Bombay 
(1976) 4 SCC562: 1977 (1) SCR 638 - referred to. 
B 
Black's Law Dictionary (5th and 6th Edn.); Principles & 
Practice of Valuation by Parks (Fifth Edn.); Account's 
Handbook by Paton (3rdEdn.) - referred to. 
1.4. It is not correct to say that since the lessees were 
c actually using the vehicles, they were the ones entitled 
to claim depreciation, and not the assessee. Section 32 
requires that the assessee must use the asset for the 
"purposes of business". It does not mandate usage of 
the asset by the assessee itself. As long as the asset is 
0 utilized for the purpose of business of the assessee, the 
requirement of Section 32 will stand satisfied, 
notwithstanding non-usage of the asset itself by the 
assessee. In the present case, the assessee is a leasing 
company which leases out trucks that it purchases. 
E Therefore, on a combined reading of Section 2(13) and 
Section 2(24) of the Act, the income derived from leasing 
of the trucks would be business income, or income 
derived in the course of business, and has 

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