Treatment of demo/test drive vehicle

Others 3857 views 3 replies

CA.Mkhandelwal

Practice

156 Points Joined March 2007

Dear All,

The brief facts of the case are as under:-

Assessee is a private limited company

Assessee company is an authorized dealer of a reputed car manufacturer

As per policy of manufacturer the dealer has to purchase and pay the price for the demo/ test drive car

The car is insured and registered in the name of the dealer

The car is used only for prospective customer demo/test drive purpose

As per the policy of manufacturer the demo/test drive car has to keep by dealer atleast for 2 years

After two years dealer can sell the car as used car.

In this matter my queries are as under:-

1. Accounting:-

Cost of Car should be capitalised or charged to revenue.

If capitalsed should be categorised under plant & machinery or under Motor car

2. Income Tax

If charged to revenue then whether allowable under the IT Act.

3. Service tax

If categorised as plant, Whether cenvet credit is available under service tax output category "Authorised service station" or "Business Auxiliarry servcies".

4. Wealth tax

If categorised as Motor Car, whether taxable under the wealth tax act, being more than one car.

Thanks

Replies (3)

hemant

job

468 Points Joined March 2010

Hello Sir,

Accounting: It should be capitalised under the head plant and machinery.

Income Tax: You can claim depreciaton on the same. (being used for business purpose and it will be allowed)

Service Tax: Yes cenvat credit is available under service tax output category "Business Auxillarry Service"

Wealth Tax: As it is used for business purpose no question of wealth tax arise. (not an assets as per definiton u/s 2 (ea) motor cars - (other than those used by the assessee in the business of running them on hire or as stock-in-trade);