2006 (10) TMI 262 - AT - Income Tax

Depreciation on a higher rate - applicable to motor car acquired - commercial vehicle - HELD THAT - As per the IIIrd proviso to section 32 of the Act, in respect of the asset being commercial vehicle acquired between 2-10-1998 and 31-3-1999, the depreciation has to be allowed on such percentage on the written down value thereof as may be prescribed. However, for our purpose the material provision is that the actual cost of the asset so acquired would fall within that block in the year of acquisition and thereafter the W.D.V., i.e., the actual cost less depreciation allowed thereon would be material for computing depreciation in subsequent years. Thus the cost of car is to be treated as W.D.V. for computing depreciation thereon at the specified percentage. If the provisions of Explanation to this proviso and the definition of maxi-cab and motor cab as given in Motor Vehicles Act, 1988 are read together then motor vehicles used for hire or reward would not be covered under this proviso to section 32 of the Act, and such motor vehicles would be covered under entry (2)( ii ) of Item-3 of Part-A of Appendix-I to rule 5 of the Rules. This conclusion further leads to an interference that the Legislature has given benefit of higher depreciation to the assessees not engaged in the business of Motor Buses, Motor Lorries and Motor Taxies on hire and defining such light motor vehicles as commercial vehicles though intentionally excluding vehicles commercially exploited for yielding income from the definition of commercial vehicle further supports the case of the assessee. Therefore, nomenclature of commercial vehicle should not be so construed to deprive the assessee of higher depreciation when all the conditions specified in the Act and the Rules have been met by the assessee. We also hold that, till such car is used by the assessee for its business purpose the assessee would get the depreciation at the rate of 40 per cent as per the IIIrd proviso to section 32 of the Act. Thus, Ground Nos. 1 to 3 of the assessee stand accepted. In the result, the appeal filed by the assessee stand partly allowed.

Summary

Issues:
1. Rate of depreciation for the use of car
2. Validity of reopening of assessment under section 147 of the Act

Analysis:
1. Rate of Depreciation for the Use of Car:
- The appellant purchased a car for business purposes and claimed depreciation at 40%, allowed under section 143(1)(a).
- The Assessing Officer restricted the depreciation to 20% based on the car not being considered a commercial vehicle by RTO authorities.
- The appellant argued that the definition of "commercial vehicle" in the Income-tax Act should prevail, citing relevant provisions and definitions from the Motor Vehicles Act, 1988.
- The Tribunal analyzed the statutory provisions and held that the car qualified as a commercial vehicle under the specified conditions, entitling the appellant to 40% depreciation.
- The Tribunal concluded that until the car was used for business purposes, the appellant was entitled to the higher depreciation rate, as per the IIIrd proviso to section 32 of the Act.

2. Validity of Reopening of Assessment under Section 147:
- The issue of the validity of reopening the assessment under section 147 was raised in the appeal for the assessment year 1999-2000.
- The Tribunal did not provide a detailed analysis in the judgment regarding this issue, but it can be inferred that the Tribunal focused on the substantive issue of depreciation rate for the car.

Conclusion:
- The Tribunal partly allowed the appeal for the assessment year 1999-2000 and allowed the appeal for the assessment year 2001-02.
- The Tribunal emphasized the importance of statutory definitions and provisions in determining the rate of depreciation for assets, particularly in the context of commercial vehicles.
- The judgment highlights the significance of meeting specified conditions for claiming depreciation benefits and the need to interpret relevant legal provisions accurately to determine tax liabilities.