Partner car as asset in firm

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

24 November 2016 Dear All
One of the partner's car is being
Used for the purpose of business
However the car is in the name of
partner.
Query :- 1) can we consider this
Car as asset in firm for the chargability
of depreciation....2) can we claim
The fuel expenses in the firm....3)
Weather interest paid on this car's loan
is deductable in the debit side of
P&L in the firm,

Thanks In Advance...

KAVIRAJA ADDANGADI

KAVIRAJA ADDANGADI (Expert)
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24 November 2016 No, partner car can not be treated as firm Asset, fuel expenses pertaining to business can be claimed, Interest and Depreciation is not eligible to claim as business expenditure.

Suresha R

Suresha R (Expert)
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24 November 2016 Introduction

‘What’s in a name? That which we call a rose by any other name would smell as sweet.’ This Shakespearean quote seems to have inspired as many as five High Courts to hold that the Income-tax Department cannot refuse the claim for depreciation on a vehicle owned by a company or a firm, on a mere ground that it is not registered in its name, but stands in the name of its director or partner. Interestingly, there is no decision of any court or the Tribunal that has taken a contrary view on the subject.

Section 32 of the Income-Tax Act, 1961

Section 32 of the Income-Tax Act, 1961 entitles a taxpayer to claim depreciation at prescribed rates for assets owned and used by the taxpayer for assets owned and used by the taxpayer for assets owned and used by the taxpayer for purposes of his business or profession. In case of a vehicle such as a motor car, it is common to come across cases where the car is registered under the Motor Vehicles Act in the name of a partner or a director (since it is a lot more economical to do so), though the same has actually been purchased by a firm or company out of its own funds, or if acquired through borrowed funds the loan is repaid along with interest by the firm or company.

Relevant Case-Laws

In CIT v. Salkia Transport Associates [1983] 143 ITR 39/13 Taxman 191 (Cal.), CIT v. Nidish Transport Corpn. [1910] 185 ITR 669/[1989] 44 Taxman 351(Ker.), CIT v. Dilip Singh Bagga [1993] 201ITR 995/[1994] 77 Taxman 66(Bom.), CIT v. Navdurga Transport Co. [1999] 235 ITR 158 (All.) and CIT v. Basti Sugar Mills Co. Ltd. [2002] 257 ITR 88/123 Taxman 693 (Delhi), it has been clearly and consistently held that mere non-registration of a vehicles in the name of the company or firm under the Motor Vehicles Act cannot disentitle it in regard to its claim of depreciation, when the facts on record are undisputed that such company or firm has in fact made the investment in purchase of the vehicle and such vehicle is being used for its business. The requirement of section 32 is that the vehicle must be owned by the taxpayer and not that the taxpayer must be a ‘registered owner’ of the same under the Motor Vehicles Act.

For arriving at the above conclusion, various High Courts and the Tribunals on the above issue have also usefully relied upon the ratio of the Supreme Court in the case of Mysore Minerals Ltd. V. CIT [1999] 239 ITR 775/106 Taxman 166, wherein the Apex Court has held that the term ‘owned’ under section 32 must be assigned a wider meaning. In the case before the Supreme Court, although a building was formally not registered in the name of the taxpayer through execution of a conveyance deed, the Court held that since the taxpayer had actually invested in the asset and was utilizing the same and thereby incurring loss on account of wear and tear of such asset, it was entitled to claim depreciation in respect of the same.

Best Regards,
Suresha R, B.Com, CCA
Suresh & Assoicates
(Auditors & Tax Consultants)
No.15/36, 1st Floor, Palm Grove Cross Road,
3rd Cross, Victoria Layout,
Bangalore - 560 047
Mob : +91 88843 55543
Mob : +91 81230 07771
Phone :+91 080 4112 0431

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Expert : Anonymous

Expert : Anonymous (Expert)

24 November 2016 The judgments were on the fact that the assets are of the company, only registration were in the name of Directors. Here the car is owned by the partner, not merely registration in the name of partner. It appears that, depreciation may not be available.

Querist : Anonymous

Querist : Anonymous (Querist)

26 November 2016 Dear All
The car is owend by partner also the EMI of the car is being paid through partners's saving account not from firm's account however the car is being for business purpose. So in this scenario weather firm can claim depreciation and interest paid on loan

Expert : Anonymous

Expert : Anonymous (Expert)

26 November 2016 In my view no. Car is normally owned by the Firm, hence no question of depreciation in the hand of firm. Loan is also not of firm. Hence, no allowance of interest. The partner can charge hire charges from Firm and claim depreciation & interest in his indivisual retw.