Last Chance: Get 10% OFF on CAclubindia Pro Subscriptions. Subscribe Now!

Allowable or disallowable expense

1044 views 1 replies

SHIVANNA B

CA Student

28 Points Posted on 20 January 2014

Hi All,

I have a doubt on the depreciation charged on finance lease assets.

For example Company purchased few vehicles on finance lease to provide them to its key employees for official use and company accounted them as asset as specified by AS 19 & AS 10. Now the question is:
1) is this depreciation charged on the finance lease asset is allowable or disallowable expense while calculating company's tax liability?
2)If it is a disallowable expenses, then why? , Please clarify in detail
3) If not, please clarify in detail

Thanks
Shivanna B
CA Student

Replies (1)

CA Raj Doshi

Practising CA

8954 Points Posted on 22 January 2014

In case of Finance leased asset, depreciation is charged to the p/l as per companies act. But under income tax act, the basic condition for charging depreciation stands violated,i.e. Assessee must be the owner of the asset. So while calculating the amount for the head "Profits and Gains from business or profession" , Depreciation( also the finance/interest charges as per companies act gets disallowed , and the lease payments gets allowed. Note: The leased asset is not entitled for depreciation in the income tax act act for the lessee as he is not the owner. So the question is who will claim depreciation on such asset ??? Ans is the lessor will claim depreciation as he is the owner of the asset. Regards Raj C Doshi