Gujarat H.C : Claim of the assessee for depreciation at a higher rate of 40 per cent. when the assessee had given vehicles on lease

High Court Of Gujarat

CIT vs. Aravali Finlease Ltd.

Section : 32

Akil Kureshi And Ms. Sonia Gokani, JJ.

Tax Appeal No. 1244 Of 2007

August 3, 2011

JUDGMENT

Akil Kureshi, J. – The Revenue has challenged the judgment of the Tribunal dated December 4, 2006, raising the following questions for our consideration :

“A.Whether the Appellate Tribunal was right in law and on facts in confirming the order passed by the Commissioner of Income-tax (Appeals) allowing the claim of the assessee for depreciation at a higher rate of 40 per cent. when the assessee had given vehicles on lease ?

B.Whether the Appellate Tribunal was right in law and on facts in confirming the order passed by the Commissioner of Income-tax (Appeals) allowing the depreciation claim of the assessee on the vehicle registered in the name of persons other than the assessee ?”

2. In so far as question A is concerned, the issue is covered against the assessee and in favour of the Revenue by virtue of the judgment of this court in Tax Appeal No. 100 of 2000 dated April 1, 2011 (since reported in Bhagwati Appliance v. ITO [2011] 337 ITR 286/199 Taxman 131 (Guj)). This view was followed in a subsequent judgment dated July 6, 2011, in Tax Appeal No. 311 of 2001 (since reported in Dy. CIT v. Pradip N. Desai (HUF) [2012] 341 ITR 277/21 taxmann.com 151 (Guj)) in which the following observations were made (page 279) :

“Heavy reliance was placed on the decision of the Division Bench of this court in Tax Appeal No. 100 of 2000 rendered on April 1, 2011, (since reported in Bhagwati Appliance v. ITO [2011] 337 ITR 286 (Guj)) in which case the Bench referring to and relying upon the decision of various High Courts as well as the decision of the apex court in the case of CIT v. Gupta Global Exim Pvt. Ltd. reported in [2008] 305 ITR 132 (SC) upheld the view of the Tribunal, denying the higher rate of depreciation to the assessee, who was not involved in the business of hiring out the vehicle.

Counsel drew our attention to the decision of the apex court in the case of CIT v. Gupta Global Exim Pvt. Ltd. [2008] 305 ITR 132 (SC), wherein the apex court observed as under (page 136) :

‘What is relevant for consideration under item (2)(ii) of heading III of Appendix I to the Income-tax Rules, 1962, is whether the assessee was in the business of hiring out his trucks in addition to his business of trading in timber. The order of assessment clearly indicates that the assessee was only in the business of trading in timber. We do not have the returns filed by the assessee before us. We do not have the constitution of the assessee-company before us. There is no evidence to indicate that the assessee was in the business of hiring out motor lorries for running them to earn business income. The entire inference is drawn by the Commissioner of Income-tax (Appeals) only on the footing that the Assessing Officer had treated Rs. 12,59,639 as part of total business income which is not determinative of the above test, viz., whether the trucks were used in the transportation business as claimed by the assessee.’

On the other hand, counsel for the respondent submitted that the Tribunal’s order requires no interference. Cogent reasons have been given for the conclusions. Tax appeal may be dismissed.

Before adverting to the rival submissions, for ready reference, we reproduce the relevant entries for depreciation as under :

Block of assets Depreciation allowance as percentage of written down value
III. Machinery and plant
(2)(ii) Motor buses, motor lorries and motor taxis used in a business of running them on hire

40

 

Having thus heard learned counsel for the parties, we are of the opinion that the issue is squarely covered by the decision of the Division Bench of this court in Tax Appeal No. 100 of 2000 (since reported in Bhagwati Appliance v. ITO [2011] 337 ITR 286 (Guj)). In the said case before the Division Bench, the facts were that the assessee, a leasing company, was engaged in the business of leasing plant and machinery, motor cars, etc., to its clients. The assessee had claimed depreciation on motor vehicles at a higher rate of 50 per cent., which was denied by the Assessing Officer on the ground that the vehicles were not run on hire by the assessee. The issue ultimately reached the Tribunal which confirmed the view of the Revenue authorities denying higher depreciation to the assessee on the terms that the assessee was not carrying on the business of hiring of the vehicle. The Bench, referring to the decision of the Karnataka High Court in the case of CIT v. BPL Sanyo Finance Private Ltd. reported in [2006] 287 ITR 69 (Karn) and the decision of the Bombay High Court in the case of Kotak Mahindra Finance Ltd. v. Deputy CIT reported in [2004] 265 ITR 114 (Bom) and other decisions of other High Courts, held as under (page 293 of 337 ITR) :

‘In the facts of the present case, as noticed hereinabove, all the authorities below have recorded that the assessee-company is a leasing company which is engaged in leasing of plant and machinery, motor cars, etc., to its client. It is neither the case of the assessee nor is there anything on record to indicate that the assessee uses the vehicles in question in its business of transportation or that the assessee is engaged in the business of hire. In the circumstances, the basic requirement for being entitled to depreciation at the higher rate of 50 per cent. under entry No. III (2)(ii) of Appendix I to the Rules is not satisfied by the appellant. In other words, the appellant does not pass the test for the applicability of entry No. III(2)(ii) of Appendix I appended to the Rules, viz., the user of the vehicles in the business of the assessee of transportation or the business of hire. The Tribunal was, therefore, justified in holding that the appellant is entitled to depreciation at the rate of 33.33 per cent. and not at the rate of 50 per cent. as claimed by it.

In the light of the above discussion, the question is answered in the affirmative, that is, in favour of the Revenue and against the appellant-assessee. On the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in law in holding that the appellant was not entitled to depreciation allowance under entry No. III(2)(ii) of Appendix I to the Income-tax Rules, 1962, in respect of vehicles given on lease. The appeals are accordingly dismissed with no order as to costs.’

We are convinced that the abovementioned decision squarely covers the present fact situation also. We are also of the opinion that the observations made by the apex court in the case of CIT v. Gupta Global Exim Pvt. Ltd. [2008] 305 ITR 132 (SC) noted hereinabove would also apply in the case on hand.

In the result, the question is answered in favour of the Revenue. The decision of the Tribunal of remanding the issue to the Assessing Officer for fresh consideration, in the light of the observations made in the order, is set aside. Resultantly, the Commissioner of Income-tax (Appeals) order with respect to this issue is also reversed. Tax appeal is allowed.”

3. In the result, question A is answered in favour of the Revenue and against the assessee.

4. So far as question B is concerned, we may notice that the vehicle though registered in the name of the director was used for the purpose of business of the company, income derived is from leasing the vehicle was shown as income of the company and the entire fund for purchase of the vehicle had also gone from the coffers of the company.

5. Under similar circumstances, in the subsequent year, when the Revenue sought to raise such question, a Division Bench of this court by order dated July 28, 2008, passed in Tax Appeal No. 1273 of 2007 declined to entertain the question making following observations.

“4. So far as question B is concerned, the Tribunal has observed in its order that the vehicles were actually owned by the company though they were registered in the names of the directors on behalf of the company and that the lease rent from these vehicles were received by the company and as such the lease rent was also shown as income of the company. Since this being a finding of fact, the Tribunal is right in allowing the claim of the assessee for depreciation in respect of the vehicles registered in the names of the directors and not in the name of the assessee-company. Therefore, we are of the view that no substantial question of law arises. Therefore, question B is not formulated for the determination and consideration of this court.”

6. Under the circumstances, question B is answered in favour of the assessee and against the Revenue.

7. To the extent mentioned above, the decision of the Tribunal is modified. Tax appeal is disposed of accordingly.

[Citation : 341 ITR 282]

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