M J Antony: Depreciation of leased vehicles

Last Updated: Mon, Jan 28, 2013 06:24 hrs

The Supreme Court ruled last week that a leasing company is entitled to the benefit of depreciation under Section 32 of the Income Tax Act for vehicles it had let out to its customers. In this batch of cases involving non-banking finance companies, the assessees bought vehicles from manufacturers and leased them out to its customers as part of business. The lessees were registered as owners under the Motor Vehicles Act. When the companies claimed depreciation, the revenue authorities denied it on the ground that they were neither owners of the vehicles nor users. The dispute travelled to various appellate forums. In the lead case, ICDS Ltd vs Commissioner of IT, the Karnataka high court agreed with the revenue department. Reversing this view, the Supreme Court stated that the leasing firm was the owner as well as the user. The registration in the name of the lessee was only to fulfil the requirement of the Motor Vehicles Act. Otherwise, the leasing firms fulfilled the requirements of the IT Act, the court said.

TDS doesn't show total income
Payment of advance tax by an assessee firm would not by itself amount to disclosure of income. Also, mere deduction of tax at source could not be taken as disclosure of income, the Supreme Court stated last week while allowing the appeal of the revenue authorities in the case, Asst CIT vs AR Enterprises. It set aside the judgment of the Madras high court on this point. The dispute arose when the authorities searched the premises of another firm, AR Mercantile ( P) Ltd and found some documents related to AR Enterprises. Based on that, the department found that AR Enterprises had not filed returns for the income. The assessee stated that it had paid advance tax and it amounted to disclosure of income. The assessing officer did not accept it, but the tribunal did. The high court also agreed with the assessee. Reversing the Supreme Court stated that advance tax and TDS deduction did not amount to disclosure of income. "Since TDS is computed on the estimated income, such deduction cannot result in the disclosure of total income," the judgment said. Similarly, advance tax is also based on estimated income and does not disclose the total income which must be declared in the returns.

Qatar Airways has no immunity
A division bench of the Bombay high court has dismissed the appeal of Qatar Airways challenging the demand of Shapoorji Pallonji & Co for dues on the ground that it was a foreign state' and permission of the Union Government under Section 86 of the Civil Procedure Code has not been obtained to file a lawsuit. According to Qatar Airways, it is owned and controlled by the State of Qatar and by its ruling family. On that basis it was asserted that it was a "foreign state". Earlier, the Indian company had asked for clarification from the External Affairs Ministry and it had replied that no sanction was necessary to file a suit. Rejecting the airline's argument on the maintainability of the suit, the high court said: "The airline is not a foreign state within the meaning of Section 86(1). It has a distinct legal personality of its own which finds recognition in the contractual relationships into which it enters. Those contractual relationships occasioned by its business activities in India would be subject to the jurisdiction of a competent court in this country."

Missing arbitration clause
The Delhi high court last week appointed a former judge of the court as arbitrator in the dispute between Indeen Bio Power Ltd and Dalkia India Ltd, a subsidiary of a French corporation. There was a contract to set up a mustard residue biomass plant in Rajasthan. The French firm is alleged to have withdrawn from the project midway, starting the dispute. It disputed there was any arbitration clause in the agreement and did not name its arbitrator. Therefore the Indian company moved the high court for appointment of an arbitrator. The high court did so without going into the question whether there was an arbitration clause as the issue has to be determined by the arbitrator, under Section 16 of the Arbitration and Conciliation Act. The judgment said that where the existence or non-existence of arbitration agreement was not clear from exchange of documents between the parties, it was proper for the arbitrator to decide such question. The court's power is administrative in nature. It is initially for the arbitral tribunal to decided its jurisdiction.

No evidence of tyre cartel
The Competition Commission of India has stated that there was no sufficient evidence to show that there was a cartel of major tyre manufacturers, namely Apollo, MRF, J.K. Tyre, Birla, Ceat and their association. The All-India Tyre Dealers Federation had complained that they have been "reeling under the exploitative behaviour of a handful of domestic tyre majors." After investigation by the director general of the commission it stated that "on a superficial basis the industry displays some characteristics of a cartel" but there has been no substantative evidence of it."

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