2010 (7) TMI 652 - AT - Income Tax

Disallowance of depreciation - The assessee is a partnership firm carrying on business as Stevedor, Clearing & Forwarding Agent and Contractor of Commercial Vehicles and leases out Earth Moving Vehicles - Assessee claim depreciation @ 30% - CIT directed the AO to disallow and add back to the total income of the assessee, the excess depreciation claimed @ 15% i.e. Rs. 39,02,625/- out of Rs. 78,05,251 - was submitted that a mobile crane or an excavator which is registered as a heavy motor vehicle with the RTO would clearly fall within the expression motor lorries in entry IIIE(1A) of Table in Appendix I under Rule 5 of the Income Tax Rules, 1962 - Therefore in the instant case, the Tata, JCB and 400V wheel loaders are covered within the expression motor lorries which are used in business of running them on hire and the AO had correctly allowed the claim of depreciation u/s. 32 in the sum of Rs. 78,05,251/- applying the rate of 30% - Appeal is allowed

Summary

Issues:
Claim of excess depreciation @ 30% disallowed by Ld. CIT under section 263 of the I. T. Act for assessment year 2006-07.

Analysis:
The appellant, a partnership firm engaged in various businesses including leasing out Earth Moving Vehicles, claimed depreciation @ 30% on Tata, JCB, and 400V Wheel Loaders. The Ld. CIT initiated proceedings under section 263, contending that the claimed depreciation was in excess of the allowable 15%. The appellant argued that the vehicles fell under the category of "motor lorries" as per the Income Tax Rules, 1962, and were eligible for the higher depreciation rate. The appellant emphasized that the vehicles were registered as heavy or medium motor vehicles, used for excavation purposes within short distances, and fitted with diesel engines, hydraulic brakes, and pneumatic tires. The appellant further supported their claim with legal precedents and interpretations of "motor lorries" to include vehicles used for special services like lifting loads or moving materials horizontally.

The Ld. CIT's decision to restrict the depreciation to 15% was challenged by the appellant, who maintained that the vehicles met the criteria for depreciation @ 30% as "motor lorries" used in the business of hiring them out to others. The Tribunal analyzed the facts, noting that the vehicles were indeed used in the business of leasing and were registered as heavy or medium motor vehicles, falling within the definition of "motor vehicles" under the Motor Vehicles Act, 1988. The Tribunal referenced legal precedents supporting the eligibility of similar vehicles for higher depreciation rates when used for specific purposes like excavation or transport within short distances.

Based on the arguments presented and the legal interpretations provided, the Tribunal concluded that the appellant was entitled to claim depreciation @ 30% on the Tata, JCB, and 400V Wheel Loaders as they qualified as "motor lorries" under the relevant provisions. The Tribunal found the Ld. CIT's direction to restrict the depreciation to 15% as erroneous and contrary to established legal principles. Consequently, the Tribunal allowed the appeal of the assessee, overturning the decision of the Ld. CIT and upholding the higher depreciation rate of 30% for the specified vehicles used in the business of leasing them out.