What the courts have decided on section 33 (Act of 2025), in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.
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I.C.D.S. Ltd v CIT
Supreme CourtHelps taxpayer
I am a finance company. I bought the vehicles, I lease them to my customers, and the customer is shown as the owner in the registration certificate. The assessing officer says that makes the customer the owner and refuses me depreciation. Is he right?
No. The Supreme Court held that the lessor, not the lessee, is entitled to depreciation on vehicles leased out in the course of a leasing business. Two conditions have to be met under section 32 - ownership and use for the purposes of the business - and the Court held both were satisfied. On ownership, the lease agreement provided that the assets remain at all times the sole and exclusive property of the lessor, and the lessor kept the right to repossess, to inspect and to require the vehicles back; the entry of the lessee as owner in the registration certificate does not displace that, because section 2(30) of the Motor Vehicles Act is a deeming provision creating a fiction of ownership in favour of the lessee only for the purposes of that Act. As long as the assessee has a right to retain the legal title of the vehicle against the rest of the world, it is the owner in the eyes of law. On use, the Court held that section 32 requires the asset to be used for the purposes of business but does not require the assessee to use it himself; leasing was this assessee's business and the lease income was its business income. The Court went further and held the assessee entitled to the higher rate as well, because its main activity was leasing out or hiring the vehicles. The appeals were allowed and the High Court's judgments set aside.
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CIT v Madras Auto Service (P) Ltd
Supreme CourtHelps taxpayer
I demolished my landlord's building and put up a new one at my own cost, and the new building belongs to him. I got a 39-year lease at a fraction of the market rent for it. Is what I spent capital or revenue?
Revenue, on these facts. The Supreme Court held that the expenditure has to be looked at from a commercial point of view and asked what advantage the assessee actually got. It got no capital asset, because the building belonged to the lessor from the moment the first brick was laid, and it could therefore claim no depreciation. What it got was a long lease of suitable premises at a rent far below the market, which is a saving of future rent - a saving in the revenue field. Whatever substitutes for revenue expenditure should normally be considered as revenue expenditure.
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Escorts Ltd v Union of India
Supreme CourtHelps department
I wrote off the whole cost of a laboratory building and its equipment under the scientific research provision. Can I also take depreciation on the same assets in later years, and can the department deny it for years before 1980 using an amendment made in 1980?
No to the first, and yes to the second, and the reason for the second is the answer to the first. Section 35(2)(iv) as substituted by the Finance (No.2) Act 1980, with retrospective effect from 1 April 1962, provides that where a deduction is allowed for any previous year under section 35 in respect of expenditure represented wholly or partly by an asset, no deduction shall be allowed under clauses (i), (ii) and (iii) of section 32(1) for the same or any other previous year in respect of that asset. The petitioners said that was a new burden imposed on closed years and attacked it under Articles 14, 19(1)(g) and 300-A. The Supreme Court dismissed the petitions. It held that even before the 1980 amendment the Act did not permit depreciation on the cost of a capital asset acquired for scientific research to the extent that cost had been written off under the scientific research provision, so the amendment effected no change at all except to set out more clearly and categorically what the provision said even earlier. Being clarificatory, it took away no vested right. The reason the pre-amendment law was already to that effect is the sentence the case is now known for: there is an axiom, unwritten but fundamental, that no legislature could have intended a double deduction for the same business outgoing, and if it is intended it will be clearly expressed.
Listed strongest first: Supreme Court, then High Court, then Tribunal, then CBDT. Nothing here has yet been read in full by a chartered accountant — open an entry to see where it came from.
