Hon’ble Supreme Court addressed a similar issue recently: whether the purchase of motor cars by a company, provided as prerequisites to its whole-time directors, falls under the category of ‘commercial purpose’ or ‘personal consumption.’
Here are the key points from the Supreme Court’s ruling:
1. Nexus with Profit Generation: The purchase of goods or services should be closely and directly related to profit-generating activities.
2. Identity Not Conclusive: The identity of the purchaser alone does not determine whether the purpose is commercial. Instead, the dominant intention behind the transaction matters.
3. Personal Use vs. Profit Generation: If the primary purpose of purchasing the goods or services is personal use (by the purchaser or their beneficiary), it may not be considered for commercial purposes.
4. In this case, the company bought a car for the personal use of its whole-time director and immediate family members. Therefore, the dominant purpose was to provide it as a perquisite to the director.
5. Lack of Evidence for Commercial Use: There is no record indicating that the company used the car for any commercial purpose.
6. Income Tax Benefit: The fact that the company claimed an income tax deduction does not alter the analysis unless a clear nexus to profit generation is established.
ref- CA 353/2008
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