‘Leasing firm entitled to depreciation if the lessee uses the vehicle for hiring’

It is not necessary that the assessee must have used the asset itself in order to be entitled to depreciation, held the Supreme Court in ICDS Ltd v CIT. It was contended by the revenue that one of the requirements for grant of depreciation is use of the asset by the assessee and in case of lease of the asset by the assessee, it simply could not have used the asset as it was physically with the lessee. The apex court, while rejecting this contention, held that user contemplated was for the purpose of business. It was indeed used for the purpose of business when the asset was leased and the lessee used it. That the vehicle was registered in the name of the lessee with the transport authorities, need not come in the way of grant of depreciation, said the court. It also upheld the claim of the leasing company that since the lessee used the vehicle for his business of running it on hire, the vehicle should beget heightened depreciation reserved for such vehicles. In short, in case of leasing, the tax benefits predicated on the type of use would devolve on to the leasing company from the lessee.

(The author is a New Delhi-based chartered accountant)

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