Depreciation
Vedangi Deshmukh (112 Points)
09 January 2018
Who can claim depreciaciation benefit under hire purchase agreement....??
4 Replies
Divakar
(Student CA Final )
(11857 Points)
Replied 09 January 2018
Buyer of the goods.... Rule of substance over form applicable here
Rishi Mehta
(Ur friend )
(1533 Points)
Replied 09 January 2018
Refer Circular No. 9 of 1943 R. Dis. No. 27(4) I.T. 43 dated 23-3-1943 issued by Central Board of Direct Tax. You will find detailed provisions regarding allowability of Depreciation in case of Hire purchase transaction.
Prajjwal Kaushik
(Finance Professional)
(6216 Points)
Replied 09 January 2018
In case an asset is purchased under a hire-purchase scheme, the depreciation is available to the hirer (the user of the asset).
But if it is taken on a lease, depreciation is allowed to the lessor (the financer). Hence, acquiring an asset on hire purchase is a better option than acquiring the same under lease, if the intention is to avail deduction for depreciation.
However, in a lease, although a lessee (the user) loses the benefit of depreciation, he can treat the lease rentals as an expense and reduce his taxable income accordingly.
The decision to go in for lease or hire purchase should depend on when the asset will be put to use, the rate of depreciation available on the asset and the cash flow position of the user, among others. Majority of judgments are in favor of the view that the depreciation is allowable in respect of assets acquired on hire purchase basis.
The Apex Court in Mysore Minerals Ltd. v. CIT (1999) 239 ITR 775 (SC) In the case of hire purchase the person who has taken the assets on hire purchase basis has the possession and the uses the assets for the purposes of his business or profession.
Further, as long as the hirer discharges his obligation, he has an uninterrupted right over the assets and the person giving the asset on hire purchase basis is eventful to lose all rights, title, and interest in them.
Therefore, so long as the hirer has possession of asset, he is discharging his obligation, he only is entitled to depreciation
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