2008 (5) TMI 7 - SC - Income Tax

Higher rate of depreciation on running of vehicle on hire - mere inclusion of Rs.12,50,639/- in the Total Business Income is not the determinative factor for deciding whether trucks were used by the assessee during the relevant year in a business of running them on hire matter remitted back for de novo examination of the case in accordance with law.

Summary

Issues:
1. Entitlement to depreciation at the rate of 40% on trailers and loaders.

Analysis:
The Civil Appeal was filed by the Department challenging the judgment of the Gujarat High Court regarding the entitlement of the respondent-assessee to claim depreciation at the rate of 40% on trailers and loaders. The High Court refused to interfere, citing questions of fact. However, the Supreme Court found a substantial question of law requiring interpretation of the Depreciation Table in the Income-tax Rules, specifically clause III which allows a higher rate of depreciation for motor trucks used in a business of running them on hire.

The Assessment Officer (AO) initially denied the higher rate of depreciation, stating that the assessee was primarily in the business of timber trading and only occasionally rented out trucks, thus not qualifying for the 40% depreciation rate. However, the CIT(A) and Tribunal disagreed, considering the transportation income from running the vehicles on hire as an integral part of the business. The Supreme Court highlighted that the key factor was whether the assessee was in the business of hiring out trucks in addition to timber trading, emphasizing the need for a business of running trucks on hire to claim the higher depreciation rate.

The Supreme Court criticized the CIT(A) for relying solely on the inclusion of transportation income in the business total, stating it was not determinative of whether the trucks were used for hire. The Court emphasized the importance of assessing if the trucks were genuinely used in a hire business, rather than just being part of the total business income. Consequently, the High Court's judgment was set aside, and the matter was remitted to the Commissioner of Income Tax (Appeals) for a fresh examination in accordance with the law, allowing the assessee to present its case and seek amendments to grounds of appeal.

The Supreme Court clarified that it expressed no opinion on whether the assessee was genuinely in the business of running motor lorries on hire, keeping contentions open for further examination. The Appeal was allowed with no order as to costs, ensuring a fair and thorough reconsideration of the depreciation entitlement issue by the tax authorities.