Holding

The lessor, being the legal owner of the leased vehicles and using them in its leasing business, is entitled to claim depreciation at both normal and higher rates under Section 32 of the Income Tax Act, 1961.

Summary

M/S I.C.D.S. Ltd., a non‑banking finance company, purchased trucks and leased them to third parties, registering the vehicles in the lessees' names. The company claimed depreciation under Section 32 of the Income Tax Act, 1961 at both the normal and higher rates, arguing it owned the trucks and used them in its leasing business. The Revenue contended that ownership rested with the lessees because the registration certificates named them, and that the company did not use the vehicles itself. The Supreme Court held that ownership for tax purposes is determined by legal title and the lease agreement, not by registration, and that the company was the owner and used the assets in its business, satisfying both requirements of Section 32. Consequently, the Court allowed the appeals, granting depreciation at both normal and higher rates, and set aside the High Court’s reversal.

Issues considered

The appellant‑assessee’s entitlement to claim depreciation on leased vehicles under Section 32(1) of the Income Tax Act, 1961.
Whether the higher rate of depreciation is available when the vehicles are leased out.
The interpretation of ownership under the Motor Vehicles Act, 1988 s.2(30) versus ownership for tax purposes.

Legislation cited

Income Tax Act, 1961s. 2(13), s. 2(24), s. 32(1)
Motor Vehicles Act, 1988s. 2(30), s. 51(4), s. 51(5)

Subjects

depreciationownershipleaseIncome Tax ActMotor Vehicles Acthigher rate depreciationleasing businesslegal fiction

Judgment

[2013] 3 S.C.R. 1082

A M/S l.C.D.S. LTD.
V.
COMMISSIONER OF INCOME TAX, MYSORE & ANR.
(Civil Appeal No. 3282 of 2008)
JANUARY 14, 2013
B
[D.K. JAIN AND JAGDISH SINGH KHEHAR, JJ.]

Income Tax Act, 1961 - s.32(1) - Depreciation - On the
vehicle - Purchased and financed by the assessee but
C registered in the name of third parties to whom the assessee
leased the vehicles - Claim by assessee for depreciation at
normal rate as well as on higher rate - Entitlement - Held:
As per s.32, the asset must be 'owned' by the assessee and
'used for the purpose of the business' - In the facts of the case,
D the assessee as a lessor was the owner of the vehicles, and
also used them in the course of business i.e. the business of
running on hire - No inference can be drawn from the
registration certificate as to ownership of the legal title of the
vehicle - Therefore, assessee was entitled to depreciation at
E normal rate as well as higher rate - Motor Vehicles Act, 1988
- ss.2(30) and 51.

Motor Vehicles Act, 1988 - s.2(30) - 'Owner' - Meaning
- Applicability to general law - This provision is a deeming
provision that creates a legal fiction of ownership in favour of
F lessee only for the purpose of the Act - It is not a statement
of law on ownership in general.

Words and Phrases:

'Depreciation' - Meaning of.
G
'Own', 'Owner' and 'Ownership' - Meaning of.

The appellant-assessee, a non-banking finance
company sought depreciation on the vehicles, which
H 1082
l.C.D.S. LTD. v. COMMISSIONER OF INCOME TAX, 1083
MYSORE & ANR.

were ·financed and purchased by the assessee, but A
registered in the name of the third parties i.e. the parties
to whom it had leased out the vehicles. The assessee
also claimed depreciation at a higher rate on the ground
that the vehicles were used in the business of running
on hire. B

The question for consideration before this Court was
whether the assessee was entitled to depreciation on the
vehicles at normal rate as well as at higher rate.

Allowing the appeals, the Court c
HELD: 1.1. In the facts of the present case, the lessor
i.e. the assessee was the owner of the vehicles. As the
owner, it used the assets in the course of its business,
satisfying both requirements of Section 32 of the Income 0
Tax Act, 1961 and hence, was entitled to claim
depreciation in respect of the leased out vehicles. The
assessee fulfills even the requirements for a claim of a
higher rate of depreciation, and hence is entitled to the
same. [Paras 29 and 30] [1106-D-F]
E
1.2. The provision on depreciation in the Act reads
that the asset must be "owned, wholly or partly, by the
assessee and used for the purposes of the business".
Therefore, it imposes a twin requirement of 'ownership'
and 'usage for business' for a successful claim under F
Section 32 of the Act. [Para 13] [1093-D] ·

1.3. Depreciation is the monetary equivalent of the
wear and tear suffered by a capital asset that is set aside
to facilitate its replacement when the asset becomes G
dysfunctional. Allowance for depreciation is to replace
the value of an asset to the extent it has depreciated
during the period of accounting relevant to the
assessment year and as the value has, to that extent,
H
1084 SUPREME COURT REPORTS [2013] 3 S.C.R.

A been lost, the corresponding allowance for depreciation
takes place. [Para 10) [1092-B-D]

P.K. Badiani Vs. Commissioner of Income Tax, Bombay
(1976) 4 SCC562: 1977 (1) SCR 638 - referred to.

B Black's Law Dictionary (5th and 6th Edn.); Principles &
Practice of Valuation by Parks (Fifth Edn.); Account's
Handbook by Paton (3rdEdn.) - referred to.

1.4. It is not correct to say that since the lessees were
c actually using the vehicles, they were the ones entitled
to claim depreciation, and not the assessee. Section 32
requires that the assessee must use the asset for the
"purposes of business". It does not mandate usage of
the asset by the assessee itself. As long as the asset is
0 utilized for the purpose of business of the assessee, the
requirement of Section 32 will stand satisfied,
notwithstanding non-usage of the asset itself by the
assessee. In the present case, the assessee is a leasing
company which leases out trucks that it purchases.
E Therefore, on a combined reading of Section 2(13) and
Section 2(24) of the Act, the income derived from leasing
of the trucks would be business income, or income
derived in the course of business, and has been so
assessed. Hence, it fulfills the second requirement of
Section 32 of the Act viz. that the asset must be used in
F the course of business. [Para 15) [1093-F-H; 1094-A-B]

Commissioner of Income Tax, Kamataka Bangalore Vs.
ShaanFinance (P) Ltd., Bangalore (1998) 3 SCC 605: 1998
(2) SCR 367 - relied on.
G
1.5. The definitions of 'own', 'owner' and 'ownership'
essentially make ownership a function of legal right or
title against the rest of the world. However, it is "nomen
genera/issimum, and its meaning is to be gathered from
H
l.C.D.S. LTD. v. COMMISSIONER OF INCOME TAX, 1085
MYSORE & ANR.

the connection in which it is used, and from the subject- A
matter to which it is applied." [Para 21] [1099-B]

Mysore Minerals Ltd., M. G. Road, Bangalore Vs.
Commissioners of Income Tax, Karnataka, Bangalore (1999)
7 SCC 106: 1999 (2) Suppl. SCR 182 - referred to. B

1.6. As long as the assessee has a right to retain the
legal title of the vehicle against the rest of the world, it
would be the owner of the vehicle in the eyes of law. A
scrutiny of the sale agreement cannot be the basis of
raising question against the ownership of the vehicle. The C
clues qua ownership lie in the, lease agreement itself,
which clearly point in favour of the assessee. The
relevant clauses of the agreement between the assessee
and the customer specifically provided that: (i) The
assessee was the exclusive owner of the vehicle at all D
points of time; (ii) If the lessee committed a default, the
assessee was empowered to re-possess the vehicle (and
not merely recover money from the customer); (iii) At the
conclusion of the lease period, the lessee was obliged to
return the vehicle to the assessee; (iv) The assessee had E
the right of inspection of the vehicle at all times. [Paras
22 and 23] [1099-D-F; 1101-D-FJ

1.7. The only hindrance to the claim of the assessee
is Section 2(30) of the Motor Vehicles Act. The general
opening words of the Section say that the owner of a
F
motor vehicle is the one in whose name it is registered,
which, in the present case, is the lessee. The subsequent
specific statement on leasing agreements states that in
respect of a vehicle given on lease, the lessee who is in
possession shall be the owner. It cannot be said that in G
case of ownership of vehicles, the test of ownership is
the registration and certification; and that since the
certificates were in the name of the lessee, they would be
the legal owners of the vehicles and the ones entitled to
claim depreciation. Section 2(30) is a deeming provision H
1086 SUPREME COURT REPORTS [2013] 3 S.C.R.

A that creates a legal fiction of ownership in favour of
lessee only for the purpose of the MV Act. It defines
ownership for the subsequent provisions of the MV Act.
It is not a statement of law on ownership in general.
Section 2(30) must be read in consonance with sub-
B sections (4) and (5) of Section 51 of the MV Act. Thus, the
MV Act mandates that during the period of lease, the
vehicle be registered, in the certificate of registration, in
the name of the lessee and, on conclusion of the lease
period, the vehicle be registered in the name of lessor as
c owner. The Section leaves no choice to the lessor but to
allow the vehicle to be registered in the name of the
lessee. Thus, no inference can be drawn from the
registration certificate as to ownership of the legal title of
the vehicle. If the lessee was in fact the owner, he would
have claimed depreciation on the vehicles, which was
0
not done. It would be a strange situation to have no claim
of depreciation in case of a particular depreciable asset
due to a vacuum of ownership. The entire lease rent
received by the assessee is assessed as business
income in its hands and the entire lease rent paid by the
E lessee has been treated as deductible revenue
expenditure in the hands of the lessee. This reaffirms the
position that the assessee is in fact the owner of the
vehicle, in so far as Section 32 of the Act is concerned.
(Paras 24 to 26) (1102-H; 1103-C-F, G-H; 1103-A-E]
F
Commissioner of Income-Tax Vs. A.M. Constructions
(1999) 238 ITR775 (AP); Commissioner of Income- Tax Vs.
Bansal Credits Ltd. (2003) 259 ITR 69 (Del); Commissioner
of Income-Tax Vs. M.G.F. (India) Ltd. (2006) 285 ITR 142
G (Del.); Commissioner of Income-Tax Vs. Annamalai Finance
Ltd. 2005) 275 ITR 451 (Mad) - relied on.

Case Law Reference:
1998 (2) SCR 367 relied on Paras 6, 16
H
•
l.C.D.S. LTD. v. COMMISSIONER OF INCOME TAX, 1087
MYSORE & ANR.
1977 (1) SCR 638 . referred to .Para 10 A
. ·-' I

1999 (2) Suppl. SCR 182 referred to Para 20
(1999)23!1 ITR 775 (AP) . relied on Para 27
··· (2003) 259 ITR 69 (Del).· relied on Para 27
B
(2006) 285 ITR 142 (Del.) relied on Para 27
2005) 275 ITR 451 (Mad) relied on Para 27
CIVIL APPELLATE .JURISDICTION : Civil Appeal No.
3282 of 2008. · C

From the Judgment & Order dated 9.02.2007 of the High
Court of Karnataka in ITA Nos. 111 of 2000.

WITH
I . I
D
C.A~ Nos. 3286, 3287, 3288, 3289 & 3290 of 2008
- - .- .
· S. Ganesh, K.V. Mohan,. R.K. Raghavan, K.V.
Balakrishnari for the Appellant.

A'.S. Chandhiok, ASG, Arijit Prasad, Reena Singh, E
Gurpeet S. Parwanda, Monika Tyagi, Yatinder Chaudhary, Anil
Katiyar (for B.V. Balaram Das) for the Respondents. '
- ' j. - ' • ' '.·' '.. . ~ ,...._. < ~ • • • : -- --- - •

The Judgment of the Court was delivered by. ,
F
D.K. JAIN, J. 1. In all these appeals, by grant of special
leave, by the Revenue, the common question of Jaw relates to
. the claim of.the assessee for depreciation under.Section 32
of the, Income Tax Act, 1961 (for short "the·Act"). The
ass.essment years involved are 1991-1992 to·1996-1997; G
. ·. 2. The assesses is a public limited company, classified
· by the Rese·rve Bank of India (RBI) as a non-banking finance
company. It is engaged in the business of hire purchase,
leasing and real estate etc. The vehicles, on which depreciation
was claimed, are stated to have been purchased by the H
1088 SUPREME COURT REPORTS [2013) 3 S.C.R.

A assessee against direct payment to the manufacturers. The
assessee, as a part of its business, leased out these vehicles
to its customers and thereafter, had no physical affiliation with
the vehicles. In fact, lessees were registered as the owners of
the vehicles, in the certificate of registration issued under the
B Motor Vehicles Act, 1988 (hereinafter referred to as "the MV
Act").

3. In its return of income for the relevant assessment years,
the assessee claimed, among other heads, depreciation in
relation to certain assets, (additions made to the trucks) which,
C as explained above, had been financed by the assessee but
registered in the name of third parties. The assessee also
claimed depreciation at a higher rate on the ground that the
vehicles were used in the business of running on hire.

D 4. The Assessing Officer disallowed claims, both of
depreciation and higher rate, on the ground that the assessee's
use of these vehicles was only by way of leasing out to others
and not as actual user of the vehicles in the business of running
them on hire. It had merely financed the purchase of these
E assets and was neither the owner nor user of these assets.
Aggrieved, the assessee preferred appeals to the
Commissioner of Income Tax. In so far as the question of
depreciation at normal rate was concerned, the Commissioner
(Appeals) agreed with the assessee. However, assessee's
F claim for depreciation at higher rate did not find favour with the
Commissioner.

5. Being dissatisfied, both the assessee and the Revenue
carried the matter further in appeal before the Income-tax
Appellate Tribunal (for short "the Tribunal"). The Tribunal agreed
G with the assessee on both the counts. On the question of claim
for depreciation on normal rate, the following observations by
the Tribunal are very significant:

" ... In the present case the business of the assessee-
H appellant is leasing and hiring of vehicles and other
l.C.D.S. LTD. v. COMMISSIONER OF INCOME TAX, 1089
MYSORE & ANR. [D.K. JAIN, J.]

machinery. It is definitely not a hire purchase, as seen from A
the lease agreements, copies of some of which are on
record. Further, allowing only depreciation is not the matter
of dispute in the instant case. The lower authorities have
already allowed the depreciation, of course in the normal
rates. Therefore, ownership of the vehicles and its use is B
not at all disputed at any stage before the Assessing
Officer and the first appellate authority.

Nothing is brought on record, whether the lessees of
the vehicles have claimed the depreciation which were C
used by them. From this the only inference that can be
drawn is that the lessees have not claimed depreciation
and it is the appellant alone who has claimed the
depreciation being the actual owner of the vehicles."

On the higher rate of depreciation, the Tribunal culled out D
· the observations of the Commissioner of Income Tax (Appeals)
as under:

''The CIT (Appeals) considered that the appellant has only
financed to purchase the trucks. Therefore, according to E
him, leasing out the trucks or hiring them does not assume
the character of doing business of hiring the trucks.
According to the CIT (Appeals) the appellant must use the
trucks for its own business of running them on hire to claim
the higher rate of depreciation. But the main activity of the
appellant is to lease out or give the trucks on hire to others.
F

*** *** ***

... In the opinion of the CIT (Appeals), the language used
in the rules clearly specified that enhanced depreciation G
allowance is available only when the trucks are used in the
business of running them on hire also. The appellant has
only a leasing business and it does not run a business of
hiring trucks to the public. According to the department the
distinction is very clear and there is no case for the ti
1090 SUPREME COURT REPORTS [2013] 3 S.C.R.

A appellant to claim the enhanced depreciation on the
business of hiring the trucks."

6. Relying on the decision of this Court in Commissioner
of Income Tax, Karnataka, Bangalore Vs. Shaan Finance (P)
Ltd., Bangalore, 1 the Tribunal held that the assessee, having
8
used the trucks for the purpose of business, was entitled to a
higher rate of depreciation at 50% on the trucks leased out by
it.

7. Being aggrieved, the revenue preferred an appeal to the
C High Court under Section 260A of the Act. The High Court
framed the following substantial questions of law for its
adjudication:-

"Whether the Appellant (assessee) is the owner of the
0 vehicles which are leased out by it to its customers and

Whether the Appellant (assessee) is entitled to the higher
·rate of depreciation on the said vehicles, on the ground
that they were hired out to the Appellant's customers."

E 8.Answering both the questions in favour of the revenue,
the High Court held that in view of the fact that the vehicles were
not registered in the name of the assessee, and that the
assessee had only financed the transaction, it could not be held
to be the owner of the vehicles, and thus, was not entitled to
F claim depreciation in respect of these vehicles. Hence, these
appeals by the assessee.

9. Section 32 of the Act on depreciation, pertinent for the
controversy at hand, reads as follows:
G "32.(1) In respect of depreciation of-
(1) buildings, machinery, plant or furniture, being tangible
assets;

H 1. (19B8J a sec eos.
l.C.D.S. LTD. v. COMMISSIONER OF INCOME TAX, 1091
MYSORE & ANR. [D.K. JAIN, J.]

(it) know-how, patents, copyrights, trade marks, licences, A
franchises or any other business or commercial rights of
similar nature, being intangible assets acquired on or after
the 1st day of April, 1998, owned, wholly or partly, by the
assessee and used for the purposes of the business or
profession, the following deductions shall be allowed- s
(i) in the case of assets of an undertaking engaged
in generation or generation and distribution of
power, such percentage on the actual cost thereof
to the assessee as may be prescribed ;]
c
(ii) in the case of any block of assets, such percentage
on the written down value thereof as may be
prescribed

Provided that no deduction shall be allowed under this 0
clause in respect of-

(a) any motor car manufactured outside India, where such
motor car is acquired by the assessee after the 28th day
of February, 1975 but before the 1st day of April, 2001,
unless it is used- E

(i) in a business of running it on hire for tourists ; or

(ii) outside India in his business or profession in
another country ; and
F
(b) any machinery or plant if the actual cost thereof is
allowed as a deduction in one or more years under an
agreement entered into by the Central Government under
section 42
G
Provided further that where an asset referred to in clause
(i) or clause (ii) or clause (iia) as the case may be, is
acquired by the assessee during the previous year and
is put to use for the purposes of business or profession
for a period of less than one hundred and eighty days in H
1092 SUPREME COURT REPORTS [2013] 3 S.C.R.

A that previous year, the deduction under this sub-section
in respect of such asset shall be restricted to fifty per cent
of the amount calculated at the percentage prescribed for
an asset under clause (i) or clause (ii) [or clause (iia)],
as the case may be."
B
(Emphasis supplied)

10. Depreciation is the monetary equivalent of the wear
and tear suffered by a capital asset that is set aside to facilitate
its replacement when the asset becomes dysfunctional. In P.K.
C Badiani Vs. Commissioner of Income Tax, Bombay, 2 this
Court has observed that allowance for depreciation is to replace
the value of an asset to the extent it has depreciated during the
period of accounting relevant to the assessment year and as
the value has, to that extent, been lost, the corresponding
D allowance for depreciation takes place.
11. Black's Law Dictionary (5th Edn.) defines
'depreciation' to mean, inter alia:

"A fall in value; reduction of worth. The deterioration or the
E loss or lesser.ing in value, arising from age, use, and
improvements, due to better methods. A decline in value
of property caused by wear or obsolescence and is usually
measured by a set formula which reflects these elements
over a given period of useful life of property .... Consistent
F gradual process of estimating and allocating cost of capital
investments over estimated useful life of asset in order to
match cost against earnings ... "
The 6th Edition defines it, inter alia, in the following ways:
G "In accounting, spreading out the cost of a capital asset
over its estimated useful life.

A decline in the value of property caused by wear or

H 2. (1976) 4 sec ss2.
l.C.D.S. LTD. v. COMMISSIONER OF INCOME TAX, 1093
MYSORE & ANR. [D.K. JAIN, J.]

obsolescence and is usually measured by a set formula A
which reflects these elements over a given period of useful
life of property."

12. Parks in Principles & Practice of Valuation (Fifth Edn.,
at page 323) states: As for building, depreciation is the 8
measurement of wearing out through consumption, or use, or
effluxion of time. Paton has in his Account's Handbook (3rd
Edn.) observed that depreciation is an out-of-pocket cost as
any other costs. He has further observed-the depreciation
charge is merely the periodic operating aspect of fixed asset C
costs.

13. The provision on depreciation in the Act reads that the
asset must be "owned, wholly or partly, by the assessee and
used for the purposes of the business". Therefore, it imposes
a twin requirement of 'ownership' and 'usage for business' for D
a successful claim under Section 32 of the Act.

14. The Revenue attacked both legs of thi$ portion of the
section by contending: (i) that the assessee is not the owner
of the vehicles in question and (ii) that the assessee did not E
use these trucks in the course of its business. It was argued
that depreciation can be claimed by an assessee only in a
case where the assessee is both, the owner and user of the
asset.

15. We would like to dispose of the second contention F
before considering the first. Revenue argued that since the
lessees were actually using the vehicles, they were the ones
entitled to claim depreciation, and not the assessee. We are
not persuaded to ayree with the argument. The Section requires
that the assessee must use the asset for the "purposes of G
business". It does not mandate usage of the asset by the
assessee itself. As long as the asset is utilized for the purpose
of business of the assessee, the requirement of Section 32 will
stand satisfied, notwithstanding non-usage of the asset itself
by the assessee. In the present case before us, the assessee H
1094 SUPREME COURT REPORTS [2013] 3 S.C.R.

A is a leasing company which leases out trucks that it purchases.
Therefore, on a combined reading of Section 2(13) and Section
2(24) of the Act, the income derived from leasing of the trucks
would be business income, or income derived in the course of
business, and has been so assessed. Hence, it fulfills the
B aforesaid second requirement of Section 32 of the Act viz. that
the asset must be used in the course of business.

16. In the case of Shaan Finance {P) Ltd. (supra), this
Court while interpreting the words "used for the purposes of
C business" in case of analogous provisions of Section 32A(2)
and Section 33 of the Act, dealing with Investment Allowance
and Development Rebate respectively, held thus: -

"9. Sub-section (2) of Section 32-A, however, requires to
be examined to see whether there is any provision in that
D sub-section which requires that the assessee should not
merely use the machinery for the purposes of his business,
but should. himself use the machinery for the purpose of
manufacture or for whatever other purpose the machinery
is designed. Sub-section (2) covers all items in respect of
E which investment allowance can be granted. These items
are, ship, aircraft or machinery or plant of certain kinds
specified in that sub-section. In respect of a new ship or a
new aircraft, Section 32-A(2)(a) expressly prescribes that
the new ship or the new aircraft should be acquired by an
F assessee which is itself engaged in the business of
operation of ships or aircraft. Under sub-section (2)(b),
however, any such express requirement that the assessee
must himself use the plant or machinery is absent. Section
32-A(2)(b) merely describes the new plant or machinery
which is covered by Section 32-A. The plant or machinery
G
is described with reference to its purpose. For example,
sub-section (2)(b)(1) prescribes "the purposes of business
of generation or distribution of electricity or any other form
of power". Sub-section (2)(b)(i1) refers to small-scale
industrial undertakings which may use the machinery for
H the business or manufacture or production of any article
l.C.D.S. LTD. v. COMMISSIONER OF INCOME TAX, 1095
MYSORE & ANR. (D.K. JAIN, J.) .

and sub-section (2)(b)(iii) refers to the business of A
construction, manufacture or production of any article or
thing other than that specified in the Eleventh Schedule.
Sub-section 2(b), therefore, refers to the uses to which the
machinery can be put. It does not specify that the assessee
himself should use the machinery for these purposes. In B
the present case, the person to whom the machinery is
hired does use the machinery for specified purposes under
Section 32-A(2)(b)(ii1). That person, however, is not the
owner of the machinery. The High Courts of Karnataka and
Madras have held that looking to the requirements c
specified in Section 32-A the assessees, in the present
case, fulfil all the requirements of that section, namely, ( 1)
the machinery is owned by the assessees; (2) the
machinery is used for the purpose of the assessees'
business and; (3) the machinery is as specified in sub-
0
section (2).

10. We are inclined to agree with this reasoning of the High
Courts of Karnataka and Madras."

17. The same judgment commented on the analogous E
1
nature of Section 33 on Development Rebate and clarified that
the phrase "used for the purpose of business" does not
necessarily require a usage of the asset itself. It held thus:

"11. The provisions relating to investment allowance are
akin to the provisions under Section 33 of the Income Tax F
Act, 1961 relating to development rebate ...

*** *** ***

12. Since the provisions of Section 33 dealing with G
development rebate are similar to the provisions of Section
32-A, it is necessary to look at cases dealing with the grant
of development rebate under Section 33. In the case of
CIT v. Castlerock Fisheries (1980) 126 /TR 382 the
Kerala High Court considered the case of an assessee H
1096 SUPREME COURT REPORTS [2013] 3 S.C.R.

A which temporarily let out its cold-storage plant to a sister
concern. The income derived by such letting was assessed
by the Income Tax Officer in the hands of the assessee as
business income of the assessee for the relevant
accounting years. The assessee claimed development
B rebate in respect of the cold-storage plant. The High Court
said that it was accepted by the department that in letting
out the plant and machinery, the assessee was still doing
business and the hire charges which it had received, had
been assessed as business income of the assessee.
Hence the assessee had complied with all the conditions
c for the grant of development rebate including the condition
that the assessee had used the machinery for the purposes
of its business. The High Court said that it must, therefore,
necessarily be assumed that the conditions laid down in
Section 33(1 )(a) that the machinery or plant is wholly used
D
for the purposes of the business carried on by the
assessee, is duly satisfied and the assessee is entitled
to development rebate. In appeal before this Court, a
Bench of three Judges of this Court upheld the decision
of the Kera:a High Court in the above case in CIT v. Castle
E Rock Fisheries (1997) 10 SCC 77. This Court also held
that since the department has proceeded on the explicit
basis that despite the fact that the plant had been
temporarily let out by the assessee to a sister concern, the
plant and machinery was nevertheless being used by the
F assessee for its business purpose by treating the income
dP.rived by the assessee by such letting out as business
income of the assessee, the development rebate must be
considered as having been rightly granted. Therefore,
where the business of the assessee consists of hiring out
G machinery and/or where the income derived by the
assessee from the hiring of such machinery is business
income, the assessee must be considered as having used
the machinery for the purposes of its business.

13. A similar view has been taken by the Andhra Pradesh
H
l.C.D.S. LTD. v. COMMISSIONER OF INCOME TAX, 1097
MYSORE & ANR. [D.K. JAIN, J.]

High Court in the case of CIT v. Vinod Bhargava-(1988) A
169 ITR 549 (AP) where Jeevan Reddy, J. (as he then
was) held that where leasing of machinery is a mode of
carrying on business by the assessee the assessee would
be entitled to development rebate. The Court observed (p.
551): 8

"[O]nce it is held that leasing out of the machinery
is one mode of doing business by the assessee
and the income derived from leasing out is treated
as business income it would be contradictory, in C
terms, to say that the machinery is not used wholly
for the purpose of the assessee's business."

18. Hence, the assessee meets the second requirement
discussed above. The assessee did use the vehicles in the
course of its leasing business. In our opinion, the fact that the D
trucks themselves were not used by the assessee is irrelevant
for the purpose of the section.

19. We may now advert to the first requirement i.e. the
issue of ownership. No depreciation allowance is granted in
E
respect of any capital expenditure which the assessee may be
obliged to incur on the property of.others. Therefore, the entire
case hinge.s on the question of ownership; if the assessee is
the owner of the vehicles, then he will be entitled to the claim
on depreciation, otherwise, not.
F
20. In Mysore Minerals Ltd., M.G. Road, Bangalore Vs.
Commissioners of Income Tax, Kamataka, Bangalore, 3 this
Court said thus:

"... authorities shows that the very concept the depreciation G
suggests that the tax benefit on account of depreciation
legitimately belongs to one who has invested in the capital
asset is utilizing the capital asset and thereby losing
gradually investment caused by wear and tear, and would •
3. (1999) 7 sec 106. H
1098 SUPREME COURT REPORTS [2013] 3 S.C.R.

A need to replace the same by having lost its value fully over
a period of time."

21. Black's Law Dictionary (6th Edn.) defines 'owner' as
under:
8 "Owner. The person in whom is vested the ownership,
dominion, or title of property; proprietor. He who has
dominion of a thing, real or personal, corporeal or
incorporeal, which he has a right of enjoy and do with as
he pleases, even to spoil or destroy it, as far as the law
c permits, unless he be prevented by some agreement or
covenant which restrains his right.

The term is, however, a nomen generalissimum, and its
meaning is to be gathered from the connection in which it
D is used, and from the subject-matter to which it is applied.
The primary meaning of the word as applied to land is one
who owns the fee and who has the right to dispose of the
property, but the terms also included one having a
possessory right to land or the person occupying or
cultivating it.
E
The term "owner" is used to indicate a person in whom one
or more interests are vested his own benefit. The person
in whom the interests are vested has 'title' to the interests
whether he holds them for his own benefit or the benefit of
F another. Thus the term "title" unlike "owner" .. "

It defines the term 'ownership' as -

"Collection of right to use and enjoy property, including
right to transmit it to others .... The right of one or more
G
persons to possess or use a thing to the exclusion of
others. The right by which a thing belongs to some one in
particular, to the exclusion of all other persons. The
exclusive right of possession, enjoyment or disposal;
involving as an essential attribute the right to control,
H
l.C.D.S. LTD. v. COMMISSIONER OF INCOME TAX, 1099
MYSORE & ANR. [D.K. JAIN, J.]

handle, and dispose." A

The same dictionary defines the term "own" as 'To have a good
legal title'.

These definitions essentially make ownership a function of
legal right or title against the rest of the world. However, B
as seen above, it is "nomen generalissimum, and its
meaning is to be gathered from the connection in which it
is used, and from the subject-matter to which it is applied."

22. A scrutiny of the material facts at hand raises a c
presumption of ownership in favour of the assessee. The
vehicle, along with its keys, was delivered to the assessee upon
which, the lease agreement was entered into by the assessee
with the customer. Moreover, the relevant clauses of the
agreement between the assessee and the customer 0
specifically provided that:

(i) The assessee was the exclusive owner of the
vehicle at all points of time;

(ii) If the lessee committed a default, the assessee was E
empowered to re-possess the vehicle (and not
merely recover money from the customer);

(iii) At the conclusion of the lease period, the lessee
was obliged to return the vehicle to the assessee;
F
(iv) The assessee had the right of inspection of the
vehicle at all times.

For the sake of ready reference, the relevant clauses of the
lease agreement are extracted hereunder:- G

"2. Lease Rent

The lessee shall, during the period of lease punctually pay
to the lessor free of any deduction whatsoever as rent for
the assets the sum of moneys specified in the Schedule H
1100 SUPREME COURT REPORTS [2013] 3 S.C.R.

A 'B' hereto. All rents shall be paid at the address of the
Lessor shown above or as otherwise directed by the
Lessor in writing. The rent shown in Schedule 'B' shall be
paid month on 1st day of each month and the first rent shall
be paid on execution thereof.
B
4. Ownership

The assets shall at all times remain the sole and exclusive
property of the lessor and the lessee shall have no right,
title or interest to mortgage, hypothecate or sell the same
c as bailee

9. Inspection

The Lessor shall have the right at all reasonable time to
enter upon any premises where the assets is believed to
D be kept and inspect and/or test the equipment and/or
observe its use.

18. Default

E If the lessee shall make default in payment of moneys or
rent payable under the provisions of this agreement, the
Lessee shall pay to the Lessor on the sum or sums in
arrears compensation at the rate of 3% per month !Jntil
payment thereof, such compensation to run from the day
to day without prejudice to the lessor's rights under any
F
terms, conditions and agreements herein expressed or
implied. All costs incurred by the Lessor in obtaining
payment of such arrears or in endeavoring to trace the
whereabouts of the equipments or in obtaining or
endeavouring to obtain possession thereof whether by
G action, suit or otherwise, shall be recoverable from the
lessee in addition to and without prejudice to the lessors
right for breach of this lease.

19. Expiration of Lease:
H
l.C.D.S. LTD. v. COMMISSIONER OF INCOME TAX, 1101
MYSORE & ANR. [D.K. JAIN, J.]

Upon the expiration of this Lease, the Lessee shall deliver A
to the Lessor the assets at such place as the Lessor may
specify in good repair, condition and working order. As
soon as the return of the asset the Lessor shall refund the
amount of security deposit. If the lessee fails to deliver the
equipment to the Lessor in accordance with any direction B.
given by the Lessor, the Lessee shall be deemed to be
the tenant of the assets at the same rental and upon the
same terms herein expressed and such tenancy may be
terminated by the Lessor immediately upon default by the
lessee hereunder or upon 7 days notice previously given .." c
23. The Revenue's objection to the claim of the assessee
is founded on the lease agreement. It argued that at the end of
the lease period, the ownership of the vehicle is transferred to
the lessee at a nominal value not exceeding 1% of the original
cost of the vehicle, making the assessee in effect a financer. D
However we are not persuaded to agree with the Revenue. As
long as the assessee has a right to retain the legal title of the
vehicle against the rest of the world, it would be the owner of
the vehicle in the eyes of law. A scrutiny of the sale agreement
cannot be the basis of raising question against the ownership •· E
of the vehicle. The clues qua ownership lie in the lease
agreement itself, which clearly point in favour of the assessee.
We agree with the following observations of the Tribunal in this
regard:
F
"20. It is evident from the above that after the lessee takes
possession of the vehicle under a lease deed from the
appellant-company it (sic.) shall be paying lease _rent as
prescribed in the schedule. The ownership of the vehicl.es
would vest with the appellant-company viz., ICDS as. per G
clause (4) of the agreement of lease. As per clause (9) of
the Lease agreement, M/s. ICDS is having right of
. inspection at any time it wants. As per clause (18) of the
Lease agreement, in case of default of lease rent, in
addition to expenses, interest etc. the appellant company
H
1102 SUPREME COURT REPORTS [2013] 3 S.C.R.

A is entitled to take possession of the vehicle that was
leased out. Finally, as per clause (19), on the expiry of the
lease tenure, the lessee should return the vehicle to the
appellant company in working order.

21. It is true that a lease of goods or rental or hiring
B
agreement is a contract under which one party for reward
allows another the use of goods. A lease may be for a
specified period or in perpetuity. A lease differs from a
hire purchase agreement in that lessee or hirer, is not given
an option to purchase the goods. A hiring agreement or
c lease unlike a hire purchase agreement is a contract of
bailment, plain and simple with no element of sale inherent.
A bailment has been defined in S.148 of the Indian
Contract Act, as ·~the delivery of goods by one person to
another for some purpose, upon a contract that they shall,
D when the purpose is accomplished, be returned or
otherwise disposed of according to the directions of the
person delivering them.

22. From the above discussion, it is clear that the
E transactions occurring in the business of the assessee-
appellant are leases under agreement, but not hire
purchase transactions. In fact, they are transactions of
'hire'. Even viewed from the angle of the author of 'Lease
Financing and Hire Purchase', the views of whom were
F discussed in pages 16 and 17 of this order, the
transactions involved in the appellant business are nothing
but lease transactions.
23. As far as the factual portion is concerned now we could
come to a conclusion that leasing of vehicles is nothing but
G hiring of vehicles. These two aspects are one and the
same. However, we shall discuss the case law cited by
both the parties on the point."

24. The only hindrance to the claim of the assessee, which
H is also the lynchpin of the case of the Revenue, is Section 2(30)
1.C.D.S. LTD. v. COMMISSIONER OF INCOME TAX, 1103
MYSORE & ANR. [D.K. JAIN, J.]

of the MV Act, which defines ownership as follows: - A

""owner" means a person in whose name a motor vehicle
stands registered, and where such person is a minor, the
guardian of such minor, and in relation to a motor vehicle
which is the subject of a hire-purchase agreement, or an
B
agreement of lease or an agreement of a hypothecation,
the person in possession of the vehicle under that
agreement."

25. The general opening words of the Section say that the
owner of a motor vehicle is the one in whose name it is C
registered, which, in the present case, is the lessee. The
subsequent specific statement on leasing agreements states
that in respect of a vehicle given on lease, the lessee who is in
possession shall be the owner. The Revenue thus, argued that
in case of ownership of vehicles, the test of ownership is the D
registration and certification. Since the certificates were in the
name of the lessee, they would be the legal owners of the
vehicles and the ones entitled to claim depreciation. Therefore,
the general and specific statements on ownership construe
ownership in favour of the lessee, and hence, are in favour of E
the Revenue.

26. We do not find merit in the Revenue's argument for
more than one reason: (i) Section 2(30) is a deeming provision
that creates a legal fiction of ownership in favour of lessee only
for the purpose of the MV Act. It defines ownership for the
F
subsequent provisions of the MV Act, not for the purpose of law
in general. It serves more as a guide to what terms in the MV ·
Act mean. Therefore, if the MV Act at any point uses the term
owner in any Section, it means the one in whose name the
vehicle is registered and in the case of a lease agreement, the G
lessee. That is all. It is not a statement of law on ownership in
general. Perhaps, the repository of a general statement of law
on ownership may be the Sale of Goods Act; (ii) Section 2(30)
of the MV Act must be read in consonance with sub-sections
(4) and (5) of Section 51 of the MV Act, which were referred to H
1104 SUPREME COURT REPORTS [2013] 3 S.C.R.

A by Mr. S. Ganesh, learned senior counsel for the assessee. The
provisions rea"Ci as follows: - ·

"(4) No entry regarding the transfer of ownership of any
motor vehicle which is held under the said agreement shall
be made in the certificate of registration except with the
8
written consent of the person whose name has been
specified in the certificate of registration as the person with
whom the registered owner has entered into the said
agreement.
c (5) Where the person whose name has been specified in
the certificate of registration as the person with whom the
registered owner has entered into the said agreement,
satisfies the registering authority that he has taken
possession of the vehicle from the registered owner owing
D to the default of the registered owner under the provisions
of the said agreement and that the registered owner
refuses to deliver the certificate of registration or has
absconded, such authority may, after giving the registered
owner an opportunity to make such representation as he
E may wish to make (by sending to him a notice by
registered post acknowledgment due at his address
entered in the certificate of registration) and
notwithstanding that the certificate of registration is not
produced before it, cancel the certificate and issue a fresh
F certificate of registration in the name of the person with
whom the registered owner has entered into the said
agreement:
Provided that a fresh certificate of registration shall not be
issued in respect of a motor vehicle, unless such person
G pays the prescribed fee:
Provided further that a fresh certificate of registration
issued in respect of a motor vehicle, other than a transport
vehicle, shall be valid only for the remaining period for
H which the certificate cancelled under this sub-section
l.C.D.S. LTD. v. COMMISSIONER OF INCGME TAX,. pas
MYSORE & ANR. [D.K. JAIN, J.]
would have·been in force." 'A

Therefore, the MV Act mandates that during the period of·
lease, the vehicle be registered.. in the certificate. of . '
registration, in the name ofthe lessee and, 9n·conclusion .
of the. lease period, the vehicle be registered in the name
8
of lessor as owner. .The Section leaves no choice to the
lessor but to allow the vehicle to be re.gistered in the n'ame
of the lessee Thus; no inference can be drawn.frqrri the·
registration certificate as to ownership of the legal title. of
the vehicle;. and (iii) if the lessee was in fact the owner, he C
would have claimed depreciation on the vehicles, which,
as specifically recorded in the order of the Appellate ·
Tribunal, was not done. It would be a strange situation to
have no claim of depreciation in case of a particular
depreciable asset due to a vacuum of ownership. As .
afore-noted, the entire.lease rent receiv~d by the asses~ee. D
is assessed as business income in its hands and the
entire lease rent paid by the le.ssee has been treated as . ·
deductible revenue expenditure iri the hands of the lessee. ·.
This reaffirms the position that the asses~ee is in fact the .
owner of the vehicle, iri so far as Section 32 of the Act is ·· E
concerned.

27. Finally, learned senior counsel appearing on behalf of
the assessee also pointed out a large number of cases,
accepted and unchallenged by the Revenue, wherein the lessor F
has been held as the owner of an asset in a lease agreement.
[Commissioner of Income-Tax Vs. AM. Constructions; 4
Commissioner of Income- Tax Vs. Bansal Credits Ltd.; 5
Commissioner of Income-Tax ·vs. M. G:F. (India) Ltd.; 6 •
· Commissioner· of Income-Tax v.s. ,,6,nnamalai F=inance Ltd.]. 7 G
In each of these cases, the leasing company. was held to be
4. {1999) 238 ITR 775 (AP).
5. (2003) 259 ITR 69 (D!!I).
6. (2006) 285 ITR 142 (Del).
7. {2005) 275 ITR 451 (Mad). H
1106 SUPREME COURT REPORTS [2013] 3 S.C.R.

., '

A the ow{l~r of. the asset, and accordingly held entitled to claim
depreciation.-and also at the higher rate applicable on the asset
hired out. We are in complete agreement with these decisions
on the said point.

28. There was some controversy regarding the invoices
8
issued by the manufacturer - whether they were issued in the
name of the lessee or the lessor. For the view we have taken
above, we deem it unnecessary to go into the said question
as it is of no consequence to our final opinion on the main issue.
From a perusal of the lease agreement and other related
C factors, as discussed above, we are satisfied of the assessee's
ownership of the trucks in question.

29. Therefore, in the facts of the present case, we hold that
the lessor i.e. the assessee is the owner of the vehicles. As
D the owner, it used the assets in the course of its business,
satisfying both requirements of Section 32 of the Act and hence,
is entitled to claim depreciation in respect of additions made
to the trucks, which were leased out.

E 30. With regard to the claim of the assessee for a higher
rate of depreciation, the import of the same term "purposes of
business", used in the second proviso to Section 32(1) of the
Act gains significance. We are of the view that the interpretation
of these words would not be any different from that which we
ascribed to them earlier, under Section 32 (1) of the Act.
F Therefore, the assessee fulfills even the requirements for a
claim of a higher rate of depreciation, and hence is entitled to
the same.
31. In this regard, we endorse the following observations
G of the Tribunal, which clinch the issue in favour of the assessee.
"15. The CBDT vide Circular No. 652, dated 14-6-1993
has clarified that the higher rate of 40% in case of lorries
etc. plying on hire shall not apply if the vehicle is used in a
non- hiring business of the assessee. This circular cannot
H
l.C.D.S. LTD. v. COMMISSIONER OF INCOME TAX, 1107
MYSORE & ANR. [D.K. JAIN, J.]

be read out of its context to deny higher appreciation in A
case of leased vehicles when the actual use is in hiring
business.

(Emphasis supplied)

Perhaps, the author meant that when the actual use of the B
vehicle is in hire business, it is entitled for depreciation at
a higher rate .
••• ••• •••
39. The gist of the decision of the apex court in the case
c
of Shaan Finance (P) Ltd. is that where the business of
the assessee consists of hiring out machinery and/ or
where the income derived by the assessee from the hiring
of such machinery is business income, the assessee must
be considered as having used the machinery for the D
purpose of business.

40. In the present case, the business of the assessee
consists of hiring out machinery and trucks where the
income derived by the assessee from hiring of such E
machinery is business income. Therefore, the assessee-
appellant viz. ICDS should be considered as having used
the trucks for the purpose of business.

41. It was further brought to our notice that the Hon'ble
F
Karnataka High Court in its judgment in ITRC No. 789 of
1998 for the asst. year 1986- 87 in the case of the
assessee- appellant itself (viz. ICDS) has already decided
the issue in question in favour of the assessee, confirming
the decision of the CIT (A) and the ITAT holding that the
assessee company is entitled to the investment allowance G
and additional depreciation. In this judgment of the
Karnataka High Court the decision of the Supreme Court
reported in 231 ITR 308 was relied upon. Therefore we
have no hesitation to hold that the appellant- company is
H
1108 SUPREME COURT REPORTS [2013) 3 S.C.R.

A entitled to a higher rate of depreciation at 50% on the trucks
l~ased out by it. We therefore, reverse the orders of the
CIT (Appeals) on this issue."

32. For the foregoing reasons, in our opinion, the High
Court erred in law in reversing the decision of the Tribunal.
8
Consequently, the appeals are allowed; the impugned
judgments are set aside and the substantial questions of law
framed by the High Court, extracted in para 6 (supra), are
answered in favour of the assessee and, against the Revenue.
There will, however, be no order as to costs.
c
K.K.T. Appeals allowed.