2020 (2) TMI 1571 - AT - Income Tax

Depreciation claim on vehicles to 15% instead of 30% claimed by the assessee - higher rate of deprecation - case of assessee being engaged in the business of contract - Whether contract entered between the assessee and the oil companies is not a case of hiring motor vehicles simplicitor? - HELD THAT - There was a clear finding to the effect that effective control and possession of the aircraft/vehicles was retained by the persons making the payments. In the instant case, from the reading of the terms of contract, it is clear that this is not a case of hiring of motor vehicles simplicitor. Unless the assessee is engaged in the business of hiring of motor vehicles simplicitor, she will not be entitled to the claim of higher rate of depreciation of 30%. In this case, the assessee is engaged in contract business and is not in the business of letting vehicles on hire simplicitor. Hence the assessee is not entitled to the claim of higher rate of depreciation. - Decided against assessee.

Summary

Issues:
- Whether the CIT(A) was justified in confirming the Assessing Officer's order in restricting the depreciation claim on vehicles to 15% instead of 30% claimed by the assessee.

Analysis:
1. Background and Assessment: The assessee, an individual proprietor of a transport business, claimed depreciation on vehicles at 30% for the assessment years 2008-09 to 2010-11. The Assessing Officer restricted the depreciation to 15% based on the nature of the contract work with Indian Oil Corporation Ltd. (IOCL) and Bharat Petroleum Corporation Ltd. (BPCL), where TDS was deducted under section 194C of the Income Tax Act.

2. First Appellate Authority: The CIT(A) examined the contract note and determined that the business was not solely about hiring vehicles but a bundled contract for transportation services. The CIT(A) concluded that it was a works contract, not vehicle hiring, citing a judgment of the Uttarakhand High Court regarding tax deduction on transportation contracts.

3. Tribunal Appeal: The assessee appealed to the Tribunal, arguing that the business was about 'charter hire business' or 'supply of tangible goods,' not mere vehicle hiring. The assessee cited various legal precedents to support the claim that the services provided fell under the category of Supply of Tangible Goods.

4. Tribunal Decision: The Tribunal considered the nature of the contract and the responsibilities of the assessee, determining that it was not a case of pure vehicle hiring. The Tribunal noted that effective control and possession of the vehicles were not with the assessee, leading to the conclusion that the assessee was engaged in a contract business, not vehicle hiring. Therefore, the claim for a higher rate of depreciation at 30% was denied, and the appeals were dismissed.

5. Legal Precedents: The Tribunal distinguished the legal precedents cited by the assessee, emphasizing the need for effective control and possession in cases of higher depreciation claims. The Tribunal upheld the decision based on the specific terms of the contract and the nature of the business conducted by the assessee.

6. Final Verdict: The Tribunal dismissed the appeals of the assessee, affirming the lower authorities' decision to restrict the depreciation claim on vehicles to 15% instead of the claimed 30%. The judgment was pronounced on 28th February 2020, concluding the legal proceedings in this matter.