PQR Ltd a non-banking finance company was engaged in the business of leasing and hire purchase. It purchased motor cars from Ramada Motors and leased out these vehicles to its customers. The lease agreement with the cust

The issue under consideration in this case is whether depreciation on leased vehicles can be denied to the lessor PQR Ltd on the ground that the vehicles are registered in the name of the lessee and that the lessor is not the actual user of vehicles. Supreme Court in case of I.C.D.S. Ltd. vs. CIT (2013) 350 ITR 527 observed that section 32 of the Income tax Act, 1961 imposes a twin requirement of "ownership" and "usage for business" as conditions for claim of depreciation. Satisfaction of these requirements entitles the lessor to claim depreciation on the leased out assets. As far as usage of the asset is concerned, the section requires that the asset must be used in the course of business. It does not mandate actual usage by the assessee. In this case, the assessee PQR Ltd, the lessor used the vehicles in the course of its leasing business. Hence, the requirement of section 32 "usage for business" has been fulfilled, notwithstanding the fact that PQR Ltd, was not the actual user of the leased vehicles. The Supreme Court further observed that the Motor Vehicle Act, 1988 contains a deeming provision which creates a legal fiction of ownership in favour of the lessees only for that Act and not for the purpose of law in general. No inference could be drawn from the registration certificate as to ownership of the vehicles, since registration in the name of the lessee during the period of lease is mandatory as per the Motor Vehicles Act, 1988. Therefore, as long as the lessor has a right to certain the legal title against the rest of the word, it would be the owner of the asset in the eyes of law. In this case, PQR Ltd, the lessor, is the exclusive owner of the vehicle at all points of time as they are empowered to repossess the vehicle, in case the lessee committed a default. The proof of ownership lies in the lease agreement itself, which clearly points in favour of PQR Ltd. Applying the rationale of the Supreme Court ruling in I.C.D.S Ltds' case, the action of the Assessing Officer in this case denying the depreciation claim of ₹15 lakhs to POR Ltd. is not valid.