2015 (10) TMI 2740 - HC - Income Tax

Higher rate of depreciation u/s 32 on trucks used for its business purpose - @40% or 30% - determinative factor for deciding whether trucks were used by the assessee during the relevant year in a business of running them on hire - Held that - In the present case admittedly the assessee is in the business of civil construction. The assessee had engaged his own Trucks for transporting earth to facilitate laying of roads. Under such circumstances the assessee cannot be said to be in the business of hiring out his Trucks for removal of earth to make him entitled for higher rate of depreciation as removal and transportation of earth are only sub-processes of his main business of laying of roads. The order of CIT (A) entitling the assessee for higher rate of depreciation on the premise that his motor vehicles were used for removal of earth and since the earth did not belong to the assessee therefore the use of his motor vehicles was on hire in the opinion of this Court is not correct either on facts or in law besides not being in conformity with the test laid down by the Apex Court in Gupta Global Exim (P) Ltd. 2008 (5) TMI 7 - SUPREME COURT and also with the Board s Circular No.609/Circular No. 652 dt. 14/6/93. - Decided in favour of revenue.

Summary

Issues:
1. Entitlement to special rate of 30% depreciation on trucks purchased for civil construction business.
2. Interpretation of higher rate of depreciation allowance for motor vehicles used in business activities.

Analysis:
1. The case involved the question of whether the assessee, engaged in civil construction business, was entitled to a special rate of 30% depreciation on trucks purchased during the relevant assessment year. The Assessing Officer disallowed the claim, stating that the higher rate of depreciation was only applicable if the trucks were used for running them on hire, not for civil construction purposes. The CIT (Appeals) allowed the claim, citing that the transportation of earth by the appellant could be considered as part of the business receipts for transporting goods. However, the ITAT, on appeal by the Revenue, upheld the Assessing Officer's decision, relying on previous judgments emphasizing the specific use of vehicles for hire to qualify for higher depreciation rates.

2. The interpretation of the higher rate of depreciation allowance for motor vehicles used in business activities was a crucial aspect of the judgment. The court referred to relevant provisions in the Income Tax Rules, Circulars issued by the CBDT, and previous judicial decisions to determine the applicability of the special depreciation rate. The court highlighted that the use of vehicles in the business of running them on hire was the key criterion for availing the higher rate of depreciation. In this case, the court found that the appellant's use of trucks for transporting earth in the civil construction business did not meet the criteria for higher depreciation rates, as it was considered a sub-process of the main business activity, not hiring out the vehicles. The court also distinguished previous cases where different types of business activities were involved, emphasizing the specific context of the present case.

3. The judgment underscored the importance of aligning the use of motor vehicles with the criteria specified for higher depreciation rates under the Income Tax Rules. The court emphasized that the business purpose of running vehicles on hire was distinct from using them for internal operational activities like transportation within the same business. By analyzing relevant legal provisions, circulars, and precedents, the court concluded that the appellant's claim for the special rate of 30% depreciation on trucks used in civil construction was not justified. The decision upheld the order passed by the ITAT, dismissing the appeal in favor of the Revenue.