2020 (11) TMI 1015 - HC - Income Tax

Higher rate of depreciation - Depreciation on the vehicles as supplied to the Indian Oil Corp. Ltd. and Bharat Petroleum Corporation Ltd., under a contract for transporting LPG cylinders - @ 30% or 15% - nature of assessee business - whether an assessee is entitled to claim higher depreciation at the rate of 30%? - HELD THAT - Admittedly, the assessee is involved in supplying her vehicles on the basis of a contract, for the purpose of transportation of LPG Cylinders of M/s. Indian Oil Corporation and Bharat Petroleum Corporation Ltd. This clearly shows that the business of the appellant is, facilitating transportation. The consideration is paid by the hirers on the basis of rates per kilometre. Thus as relying on decision of Commissioner of Income Tax v. S.C.Thakur and Bros. 2009 (1) TMI 20 - BOMBAY HIGH COURT holding that higher rate of depreciation of 30% is applicable to motor lorries used in transportation business. - Decided in favour of assessee.

Summary

Issues:
Claiming higher depreciation rate on vehicles used for transporting LPG cylinders under a contract.

Analysis:
The appeals were filed challenging the orders of the Income Tax Appellate Tribunal related to assessments for the years 2006-07 and 2007-08. The main legal issue was whether the assessee could claim depreciation on vehicles supplied to Indian Oil Corp. Ltd. and Bharat Petroleum Corporation Ltd. at a rate of 30% instead of 15%. The assessee argued that as the nature of the business involved hiring vehicles, depreciation at the higher rate of 30% should be allowed. On the other hand, the Department contended that the nature of the business was a "transport contract business," thus allowing depreciation only at 15%. The Assessing Officer found that the assessee had claimed depreciation at 40%, leading to a revision by the Commissioner of Income Tax under Section 263 of the Income Tax Act. The Tribunal initially dismissed the appeal on procedural grounds but was later remitted by the High Court for a decision on merits. Ultimately, the Tribunal rejected the claim of the assessee, leading to the current appeal.

During the proceedings, the counsel for the appellant referred to Circular No.652 issued by the Central Board of Direct Taxes, clarifying that higher depreciation would be admissible for vehicles used in the business of transportation of goods on hire. The circular left no room for doubt that the assessee would be entitled to claim depreciation at the rate of 30%, regardless of whether the business was running vehicles on hire or a transport contract business. Citing a Supreme Court decision, the counsel argued that the test for claiming higher depreciation was the use of vehicles in the transportation business. In this case, the appellant was facilitating transportation by supplying vehicles under contract for LPG cylinder transport, indicating eligibility for the higher depreciation rate. The counsel also highlighted a Bombay High Court decision supporting the applicability of a higher rate of depreciation to motor lorries used in transportation business.

The Court, considering the law, circular, and Supreme Court precedent, concluded that the orders issued by the Commissioner of Income Tax and the Tribunal could not be sustained. The original order of the Assessing Authority allowing depreciation at 30% was restored. The Court ruled in favor of the assessee, allowing the Income Tax Appeals and directing each party to bear their respective costs.