2011 (8) TMI 865 - HC - Income Tax

Depreciation at higher rate - in respect of assets given on lease by the assessee - Division Bench of this court in Tax Appeal No.100 of 2000 decided on 1.4.2011 held that higher rate of depreciation was not available to the assessee and the vehicles would be eligible only for normal rate of depreciation - 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 - Decided in favor of the revenue

Summary

Issues:
Challenge to Tribunal's judgment on depreciation rate for assets given on lease.

Analysis:
The High Court addressed the challenge to the Tribunal's judgment regarding the depreciation rate for assets provided on lease. The primary issue revolved around whether the Appellate Tribunal was correct in allowing depreciation at a higher rate of 40% for assets leased by the assessee. The Court noted a Division Bench judgment that established that a higher rate of depreciation was not available to the assessee, as the vehicles were only eligible for the normal rate of depreciation. The Court referred to various precedents, including a decision by the Apex Court, to support its conclusion.

The Court highlighted the importance of the assessee being engaged in the business of hiring out the vehicles to qualify for the higher rate of depreciation. It emphasized that the assessee must meet specific criteria to be entitled to the increased depreciation rate under the relevant tax rules. The Court reiterated that the basic requirement for claiming higher depreciation was not satisfied by the appellant in this case, as there was no evidence to indicate that the vehicles were used in the transportation business as claimed by the assessee.

Based on the precedent set by the Division Bench and the interpretation of the relevant tax rules, the Court concluded that the appellant was not entitled to depreciation at the higher rate and upheld the Tribunal's decision. The Court ruled in favor of the Revenue, setting aside the Tribunal's decision and reversing the CIT(Appeals) order on the issue. Consequently, the Tax Appeal was allowed, and the judgment of the Tribunal was reversed in favor of the Revenue.

In summary, the High Court's judgment clarified the criteria for claiming higher depreciation rates for assets given on lease. It emphasized the necessity for the assessee to be engaged in the business of hiring out the vehicles to qualify for increased depreciation rates under the tax rules. The Court relied on precedents and legal interpretations to support its decision in favor of the Revenue, setting aside the Tribunal's judgment and reversing the CIT(Appeals) order on the issue.