Calcutta H.C : the assessee which are engaged in the business of leasing out commercial vehicles are entitled to depreciation at the higher rate of 40 per cent as provided in item III(2)(ii ) of Appendix I

High Court Of Calcutta

Agarwal Finance Co. (P.) Ltd. Vs. CIT

Assessment Year : 1996-97

Section : 32

Sankar Prasad Mitra And Pinaki Chandra Ghose, JJ.

IT Appeal No. 118 Of 2002

January  20, 2009 

JUDGMENT

1. This appeal was admitted on the following substantial questions of law :

“(a) Whether a disallowance made in an intimation under section 143(1)(a) of the Income-tax Act, 1961 which is not repeated in the assessment made under section 143(3) continues to have any existence and whether the Tribunal was justified in not dismissing the Revenue’s appeal with reference to such disallowance/intimation as infructuous?

(b) Whether and in any event a prima facie adjustment under section 143(1)(a) can be made in respect of depreciation claimed at 40 per cent in terms of item III(2)(ii) of Appendix I to the Income-tax Rules, 1962, and any such adjustment would be beyond the scope of the power conferred by section 143(1)(a)?

(c) Whether and in any event the depreciation at 40 per cent is admissible in respect of leased motor trucks/lorries used in the business of running them on hire and the Tribunal was justified in law in disallowing the appellant’s claim ?”

2. The facts of this case, as they appear briefly, are that the assessee-company is engaged in the business of leasing out motor trucks and lorries. The assessee-company received lease rent from the lessees and filed the return for the assessment year 1996-97 under appeal claiming depreciation at 40 per cent on leased out vehicles. However, the Assessing Officer while processing the return filed by the assessee allowed the depreciation at 25 per cent on the ground that as per rule 5 of the Income-tax Rules, 1962. The grievance of the appellant that 40 per cent depreciation is allowable when in a business, motor lorries and motor taxis are used. In a business of running motor vehicles on hire such depreciation is allowable but in the case of the assessee the profit and loss account shows income from lease rental and no income from hire charges have been shown. The assessee, being aggrieved, filed an appeal before the first appellate authority. The Commissioner of Income-tax (Appeals) accepted the contention of the assessee and allowed the depreciation at 40 per cent on the leased out vehicles as against 25 per cent as allowed by the Assessing Officer. In turn, now the Department has filed an appeal before the Tribunal. The Tribunal after considering the facts and further considering a decision of this High Court in the case of Soma Finance & Leasing Co. Ltd. v. CIT [2000] 244 ITR 440 /[2001] 116 Taxman 173 (Cal.), came to the conclusion that when the vehicles in question are not run by the assessee on hire, the depreciation rate is 30 per cent which is specified in the Appendix annexed to the Income-tax Rules and reversed the order of the Commissioner of Income-tax (Appeals) and upheld the order of Assessing Officer that the assessee is not entitled for higher rate of depreciation on the leased vehicles/ lorries.

3. Mr. J.P. Khaitan, learned advocate appearing in support of this appeal pointed out that the said decision was, in fact, decided without hearing the assessee since the assessee did not appear, although the matter appeared before the Bench on a number of occasions. He tried to point out that the assessee could not place the facts before the Bench when the Bench considered the decision of the Tribunal and came to the conclusion in Soma Finance & Leasing Co. Ltd.’s case (supra).

4. In the instant case, the Department did not appear before us and the tables have been turned. We have granted time on a number of occasions to enable them to appear before us and make their submissions on the point but our wishes have not been fulfilled and they did not appear before us when we finally took up the matter today after granting adjournment on a number of occasions. Mr. Khaitan also drew our attention to item III(2)(ii) of Appendix I under rule 5 of the Income-tax Rules, 1962, which is set out hereunder :

“APPENDIX I

III. Machinery and plant :

(2) . . . . (ii) Motor buses, motor lorries and motor taxis used in a business of running them on hire” [40]

5. He further drew our attention to a decision of Delhi High Court in CIT v. Bansal Credits Ltd. [2003] 259 ITR 69 / 126 Taxman 149 , where the court held that the assessee which are engaged in the business of leasing out commercial vehicles are entitled to depreciation at the higher rate of 40 per cent as provided in item III(2)(ii ) of Appendix I to the Income-tax Rules, 1962. He further drew our attention to the said decision and contended that in the said decision the Delhi High Court took note of Soma Finance & Leasing Co. Ltd.’s case (supra) and decided the question and came to the conclusion that on a plain reading of section 32 of the Income-tax Act, 1961, an entry made under item III(2)(ii) of Appendix I to the Income-tax Rules, it is clear that it is the end user of the specified asset which is relevant for determining the percentage of depreciation. Section 32 requires that the asset should be used for the purpose of the assessee’s business and the entry under the Appendix refers to the user it should be put to. Once it is accepted that the leasing out of the vehicles is one of the modes of doing business by the assessee and, in fact, the income from such leasing is treated as business income of the assessee, it would be clearly contradictory in terms to hold that the vehicles in question were not used wholly for the purpose of the assessee’s business and the assessee is bound to get the benefit under such Appendix I and thereby should get the benefit of receiving the percentage of depreciation at higher rate which is specified in the said entry at 40 per cent.

6. Consequently it appears to us that a special leave petition was filed from the said order of the Delhi High Court and which in a subsequent judgment of the Delhi High Court has been specifically recorded that the special leave petition against the decision in Bansal Credits Ltd.’s case (supra) was dismissed by the Apex Court ([2003] 263 ITR (St.) 2) and, in fact, the Division Bench of the Delhi High Court held that the order so passed by the Delhi High Court in Bansal Credits Ltd.’s case (supra) has been indirectly confirmed by the Supreme Court. Needless to join any issue in regard thereto by us in respect of such statement as has been made in the decision in CIT v. Goodwill India Ltd. [2004] 268 ITR 480 / 141 Taxman 1 (Delhi). It further appears to us that the Delhi High Court after taking into account a decision of the Supreme Court in CIT v. Shaan Finance P. Ltd. [1998] 231 ITR 308/ 97 Taxman 435, 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 purpose of its business. Following the said principle, it appears to us that the Delhi High Court decided the question in Bansal Credits Ltd.’s case (supra) with regard to the depreciation so to be allowed to the assessee at a higher rate after taking into consideration and after construing the language used by the Legislature in the taxing statutes and, therefore, we cannot, in our considered opinion, differ from the principle laid down by the said decision and furthermore, the decision of this High Court has also been taken note of by the Delhi High Court and the said order has also been confirmed by the Supreme Court and we have to take note of that in deciding the question after placing such facts on record the Supreme Court indirectly affirmed the order so passed by the Delhi High Court in Bansal Credits Ltd.’s case (supra). Therefore, in our considered opinion, the questions which are to be answered in this matter have to be in favour of the assessee and we do not find that there is any reason to differ from the decision of the Delhi High Court taking into account the facts and circumstances of this case and accordingly we answer the question in favour of the assessee and allow the appeal. We further keep it on record that the assessee is entitled to get depreciation as claimed at the rate of 40 per cent.

7. We further cannot brush aside the fact as we have been informed by Mr. Khaitan that a letter was addressed in this matter which was also placed before the Tribunal which did not appear in the order so passed by the Tribunal. For the said assessment year 1996-97 the Assessing Officer at the time of final assessment of the file of the petitioner allowed the depreciation as prayed for by them at that rate, i.e., 40 per cent.

8. The appeal is allowed in favour of the appellant.

[Citation : 332 ITR 549]

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