Yes it is permissible..still you consult your ca for appropriate remedy.
Depreciation claim under Sec 57 iii for car used to generate income from Other Sources
Having retired from service, I am a Company Director and Advisor earning sitting fees and commission from Directorships. This income is reported under Other Sources. I have bought a new high end office car solely for the purpose of travel and commuting in this connection. I have a separate small car for personal use. I have claimed all office car related running expenses including driver's salary as a deduction. I have also claimed depreciation on the value of the office car in my return for Ass year 2018-19. The IT dept has sent a communication saying that the depreciation claim is an error with the remark: Depreciation expense can be claimed in Schedule OS provided Rental income from plant and machinery is greater than zero Under Sec 57 iii is it permissible for me to claim such a deduction for depreciation on my office car? If yes, what response should be sent to the IT Dept to justify this deduction?
Asked 7 years ago in Taxation
5 Answers
To claim depreciation on vehicles following conditions have to be fulfilled:
- You must be the owner of the vehicle.
- The vehicle must be actually used by you for the purpose of business or profession.
- The vehicle must be used during the financial year
The rate of depreciation for a motor car is 15%.
regards
If u read the IT communication, it is not denying the depreciation
It only says that depreciation can be claimed provided income from plant and machinery is greater than 0
The Gujarat High Court in Virmati Ramkrishna vs. CIT (1981) 131 ITR 659, has observed the following propositions in respect of deduction of an expenditure under sec. 57(iii) of the Act (See also Eastern Investments Ltd. vs. CIT (1951) 20 ITR 1 (SC), Seth R. Dalmia vs. CIT (1977) Taxation 49(3)-57, 110 ITR 644 (SC) :
(1) in order to decide whether an expenditure is a permissible deduction u/s 57(iii), the nature of the expenditure must be examined.
(2) the expenditure must not be in the nature of capital expenditure or personal expenses of the assessee;
(3) the expenditure must have been laid out or expended wholly and exclusively for the purpose of making of earning “income from other sources”;
(4) the purpose of making or earning such income must be the sole purpose for which the expenditure must have been incurred, that is to say, the expenditure should not have been incurred for such purpose as also for another purpose, or for a mixed purpose;
(5) the distinction between purpose and motive must always be borne in mind in this connection, for, what is relevant is the manifest and immediate purpose and not the motive or personal considerations weighing the mind of the assessee in incurring the expenditure;
(6) if the assessee has no option except to incur the expenditure in order to make the earning of the income possible, such as when he has to incur legal expenses for preserving and maintaining the source of income, then undoubtedly, such expenditure would be an allowable deduction; however, where the assessee has an option and the option which he exercises has no connection with the making or earning of the income and the option depends upon personal considerations or motives of the assessee, the expenditure incurred in consequence of the exercise of such option cannot be treated as an allowable deduction;
(7) it is not necessary, however, that the expenditure incurred must have been obligatory; it is enough to show that the money was expended not of necessity and with a view to an immediate benefit to the assessee but voluntarily and on the ground of commercial expediency and in order indirectly to facilitate the making or earning of the income;
(8) if, therefore, it is found on application of the principles of ordinary commercial trading that there is some connection, direct or indirect, but not remote, between the expenditure incurred and the income earned, the expenditure must be treated as an allowable deduction;
(9) it would not, however, suffice to establish merely that the expenditure was incurred in order indirectly to facilitate the carrying on of the activity which is the source of the income; and nexus must necessarily be nexus must necessarily be between the expenditure incurred and the income earned;
(10) it is not necessary to show that the expenditure was a profitable one or that in fact income was earned;
(11) the test is not whether the assessee benefited thereby or whether it was a prudent expenditure which resulted in ultimate gain to the assessee but whether it was incurred legitimately and bonafide for making or earning the income;
(12) the question whether the expenditure was laid out or expended for making or earning the income must be decided on the facts of each case, the final conclusion being on of law
Dear Sir,
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57(iii) of Income Tax Act, 1961. ... Clause (iii) to section 57 makes admissible the deduction of any other expenditure (not being in the nature of capital expenditure) laid out or expended wholly and exclusively for the purpose of making or earning such income (income chargeable under the head income from other sources).
Under section 57(iii), deduction will not be allowed if the expenditure is not incurred for the purpose of earning income falling under the head “income from other sources”
section 57(iii) provides for deduction only of expenditure incurred wholly and exclusively “for the purpose of making or earning such income”. “Such income” refers to “income from other sources”.
In order that an expenditure may be admissible under section 57(iii) it is necessary that the primary motive of incurring it is directly to tern income falling under the head “income from other sources”
You can interpret the above proposition while giving reply to the authorities for the notice received.
