2011 (7) TMI 1265 - HC - Income Tax

Summary

Issues Involved:
1. Whether the Appellate Tribunal is right in law and on facts in confirming the order passed by the CIT [A] in allowing the depreciation of Rs. 54,877/= @ 40% on vehicles leased to AMC?

Summary:

Issue 1: Depreciation Rate on Leased Vehicles

2. This appeal is filed by the Revenue challenging the judgement of ITAT dated 9.1.2009. The primary issue is: "Whether the Appellate Tribunal is right in law and on facts in confirming the order passed by the CIT [A] in allowing the depreciation of Rs. 54,877/= @ 40% on vehicles leased to AMC?"�

4. The respondent assessee claimed depreciation at the rate of 40% on vehicles leased to Ahmedabad Municipal Corporation (AMC), asserting that the higher rate was applicable as the vehicles were used in the business of hire. The Revenue contended that since the assessee did not use the vehicles for running them on hire, they were eligible only for the normal depreciation rate of 25%. The Assessing Officer denied the higher depreciation claim, but the CIT(A) allowed it. The tribunal dismissed the Revenue's appeal, leading to the present appeal.

5. The Revenue's counsel argued that the issue is settled by the Supreme Court in Commissioner of Income Tax v. Gupta Global Exim P. Ltd. (2008) 305 ITR 132(SC), which ruled against the assessee. The Division Bench of this Court in Bhagwati Appliance (Now Dairyden Ltd.) v. I.T.O. also held that higher depreciation was not permissible under similar circumstances.

6. The respondent's counsel contended that the Supreme Court's decision in Commissioner of Incometax v. Shaan Finance(P) Ltd. (1998) 231 ITR 308 supports the assessee's claim, as it held that machinery used for hiring out qualifies for higher depreciation. The counsel also cited Commissioner of Incometax v. Pinnacle Finance Ltd. (2004) 268 ITR 395 and other cases to support their argument.

7. The Court noted that it is undisputed that the assessee is not in the business of running vehicles on hire and had leased the vehicles to AMC, which might have used them for hire.

8. The Division Bench in Bhagwati Appliance held that leasing out vehicles does not qualify for higher depreciation as the assessee was not using the vehicles in the business of running them on hire.

9. The Court found that the decision in Bhagwati Appliance was not solely based on Gupta Global Exim P. Ltd. and thus, the attempt to distinguish the facts of Gupta Global Exim P. Ltd. does not affect the applicability of Bhagwati Appliance to the present case.

10. The decision in Shaan Finance(P) Ltd. was rendered in the context of investment allowance u/s 32A, not depreciation rates.

11. The relevant Schedule to the Rules specifies that higher depreciation is for "Motor buses, motor lorries and motor taxis used in a business of running them on hire."

12. The Division Bench in Bhagwati Appliance concluded that the assessee not being in the business of running vehicles on hire cannot claim higher depreciation.

13. The Court held that the decision in Bhagwati Appliance is not per incuriam, as it was not rendered in ignorance of any statutory provision or binding decision.

14. The Court emphasized the importance of judicial precedents and consistency in Revenue matters, noting that each assessment year gives rise to a new cause of action.

15. The Court concluded that the assessee is entitled to the normal rate of depreciation, not the higher rate of 40%. The Tribunal's order was reversed to this extent, and the appeals were disposed of accordingly.