INCOME TAX ACT, 1961

Section 37(1)

Capital or revenue expenditure - Life tax and registration charges paid on purchase of vehicle - -

Assessee company paid Rs. 55,025 towards Motor Vehicle Tax and Registration Charges with respect to purchase of Ford Ikon car and same was claimed as revenue expenditure. However, AO took the view that expenditure was capital in nature as it went to increase cost of the car utilization of which gives enduring benefit to assessee. Therefore, AO disallowed entire amount as deduction. CIT(A) held that Life tax and Registration Charges were one-time payments and certainly added to the value of asset and such expense had to be treated as capital expenditure entitled for claiming depreciation. Held: Motor Vehicle Tax for a stipulated period (normally for a period of 10 years or as the case may be) is collected in advance at the time of the sale of new vehicle, therefore, it is revenue expenditure which is pre-paid in nature. In such circumstances, pre-paid expenditure is to be proportionally treated as revenue expenditure over the period of validity of Motor Vehicle Tax collected in advance, i.e., if Motor Vehicle Tax is collected for a period of 10 years, pre-paid amount has to be allowed as deduction for the period of 10 years in equal instalments. It was pertinent to mention that as held by CIT(A), pre-paid Motor Vehicle Tax could also be treated as expenditure which went to add cost of the vehicle because predominantly life of the vehicle was considered to be the same as the period for which Motor Vehicle Tax is collected in advance. In such case, assessee would be entitled for benefit of depreciation towards cost of the vehicle and pre-paid Motor Vehicle Tax paid in advance as held by the CIT(A). AO was directed to either allow depreciation or the pre-paid expenditure in instalment whichever being more beneficial to assessee. With respect to Registration Charges paid at the time of acquiring new vehicle, no doubt it was attributable to cost of the vehicle as held by CIT(A) for which assessee was entitled for depreciation.

REFERRED :

FAVOUR : Partly in assessee's favour.

A.Y. :

INCOME TAX ACT, 1961

Section 37(1)

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