2011 (7) TMI 304 - HC - Income Tax

Rate of depreciation on truck - 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, 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.

Summary

Issues:
Interpretation of higher rate of depreciation for vehicles used in business of running them on hire.

Analysis:
The High Court of Gujarat addressed the issue of whether an assessee is entitled to claim higher depreciation at a rate of 50% on a truck when it is used in the business of running on hire. The case involved the respondent assessee purchasing a truck during the relevant assessment year and claiming higher depreciation based on its usage by the lessee for running on hire. The Assessing Officer initially allowed normal depreciation, leading to an appeal by the assessee. The CIT(Appeals) ruled in favor of the assessee, but the Tribunal remanded the issue back to the Assessing Officer for further verification. The Tribunal emphasized the need to determine if the truck was indeed used for running on hire by the lessee to grant higher depreciation. The Court highlighted the importance of verifying the actual usage of the vehicle for hire before allowing higher depreciation rates.

The Revenue, being aggrieved by the Tribunal's decision, contended that the assessee, not being involved in the business of hiring vehicles on rent, should not be entitled to claim higher depreciation. The Revenue argued that irrespective of the lessee's actions, the assessee could not claim higher depreciation if not engaged in the hiring business. The Court referred to a Division Bench decision and the Apex Court's judgment in a similar case, emphasizing the requirement of the assessee being in the business of hiring vehicles to claim higher depreciation rates. The Court reiterated that the essential test for claiming higher depreciation is the actual usage of vehicles in the business of transportation or hire, which the present assessee did not satisfy.

The Court analyzed the relevant provisions of the Income Tax Rules regarding depreciation rates for motor vehicles used in the business of running on hire. Citing previous decisions, the Court upheld the Tribunal's view and dismissed the appeal. It was concluded that the assessee, not being engaged in the business of hiring vehicles, was not entitled to higher depreciation rates. The Court set aside the Tribunal's decision to remand the issue for fresh consideration and reversed the CIT(Appeals) order, ultimately allowing the Tax Appeal in favor of the Revenue. The judgment emphasized the necessity of meeting specific criteria, such as engaging in the business of hiring vehicles, to claim higher depreciation rates under the Income Tax Rules.