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2014 (11) TMI 1295 - AT - Income TaxHigher rate of depreciation - disallowance of depreciation claimed at higher rate i.e. 30% when the assessee is eligible for a normal rate of depreciation i.e. @15% only - as per AO vehicles in question were not handed over to the client but were used by assessee himself to provide services including collection and transportation as per contracts - CIT(A) deleted addition Assessee is a partnership firm doing business of transportation of vehicles hiring to ONGC and other Corporates and also doing work of Municipal Corporations. Assessee is doing the work of garbage collection and its disposal HELD THAT - It is evident that garbage does not belong to assessee but to clients and the receipts of the assessee include very substantially the charges for transporting the garbage from various locations to common points and thereafter to the dumping points. This is the basic business of assessee and vehicles are basically used for transportation of garbage of the clients only. The trucks with special type of bodies were used mainly for transporting the garbage throughout the period. Most of the trucks were so specially designed that these could not have been used for any other purpose. The ownership of particular number and type of trucks was the basic requirement of the contracts awarded which shows that main services required by the clients was transportation of its garbage by these Vehicles. As in case of CIT vs. S. C. Thakur and Bros. 2009 (1) TMI 20 - BOMBAY HIGH COURT wherein assessee was a civil contractor whose receipts included substantially charges for transportation of earth from one place to another and not hiring the trucks directly it is held that it is entitled to depreciation at higher rates as it is doing business of transportation on hire. CIT (A) was justified in holding that assessee whose receipts included substantially charges for transportation of garbage from one point to another is entitled to depreciation at higher rates on vehicles used for the purpose of this business; as it is doing the business of transportation on hire. Therefore reasoned finding of CIT(A) whereby CIT (A) has deleted the addition made on account of disallowance of depreciation needs no interference from our side. Appeal filed by the Revenue is dismissed.
ISSUES PRESENTED and CONSIDERED
The core legal questions considered in this judgment are: 1. Whether the assessee is entitled to claim a higher rate of depreciation at 30% on vehicles used in its business operations, specifically in the context of garbage collection and disposal services, rather than the standard rate of 15%. 2. Whether the applicability of CBDT Circulars No. 609 and 652 supports the assessee's claim for a higher depreciation rate. ISSUE-WISE DETAILED ANALYSIS 1. Entitlement to Higher Depreciation Rate Relevant Legal Framework and Precedents: The primary legal framework involves the provisions of the Income Tax Act concerning depreciation rates applicable to assets used in business operations. The case of CIT vs. S. C. Thakur and Bros. by the Bombay High Court is a significant precedent, where the court allowed a higher depreciation rate for vehicles used in transportation services. Court's Interpretation and Reasoning: The Tribunal examined whether the vehicles used by the assessee in its garbage collection and disposal services qualify for a higher depreciation rate. The court emphasized that the business of running motor vehicles on hire includes transportation services where the receipts are substantially for transporting goods of third parties. The Tribunal noted that the assessee's business operations, which involved using vehicles for transporting garbage, align with the principles established in the precedent set by the Bombay High Court. Key Evidence and Findings: The Tribunal found that the assessee's contracts involved substantial receipts for transporting garbage, not merely hiring out vehicles. The vehicles, specifically designed for garbage transportation, were integral to fulfilling the contracts, indicating that the primary service was transportation. Application of Law to Facts: Applying the legal principles to the facts, the Tribunal concluded that the assessee's operations fall within the ambit of transportation services on hire. The vehicles were not merely incidental to the business but were essential for executing the contracts, thereby justifying the higher depreciation rate. Treatment of Competing Arguments: The Revenue argued that the vehicles were not hired out directly and were used by the assessee in its own business, thus warranting only the standard depreciation rate. However, the Tribunal rejected this argument, highlighting that the essence of the business was transportation on hire, consistent with the precedent. Conclusions: The Tribunal upheld the CIT (A)'s decision, affirming that the assessee is entitled to the higher depreciation rate of 30% for vehicles used in garbage transportation services. 2. Applicability of CBDT Circulars No. 609 and 652 Relevant Legal Framework: CBDT Circulars provide guidelines for interpreting tax provisions and their applicability to specific business scenarios. Circulars No. 609 and 652 pertain to depreciation claims and the classification of business activities. Court's Interpretation and Reasoning: The Tribunal considered whether these circulars support the assessee's claim for a higher depreciation rate. The Tribunal found that the circulars, when read in conjunction with the legal framework and precedents, support the classification of the assessee's business as one involving transportation services on hire. Key Evidence and Findings: The Tribunal noted that the circulars align with the interpretation that businesses substantially involved in transportation services qualify for higher depreciation rates. The evidence showed that the assessee's operations were consistent with the guidelines provided in the circulars. Application of Law to Facts: The Tribunal applied the circulars to the facts, reinforcing the conclusion that the assessee's business qualifies for the higher depreciation rate. The circulars were deemed applicable, supporting the assessee's claim. Treatment of Competing Arguments: The Revenue contended that the circulars were not applicable to the assessee's business model. However, the Tribunal found that the circulars, when interpreted in the context of the business operations and relevant legal principles, indeed supported the assessee's position. Conclusions: The Tribunal concluded that the CBDT circulars are applicable and support the assessee's entitlement to a higher depreciation rate. SIGNIFICANT HOLDINGS Preserve Verbatim Quotes of Crucial Legal Reasoning: "The business of running motor vehicle on hire includes business of transportation on hire where business can be said to be substantially include receipts for transportation of goods of third parties." Core Principles Established: The judgment establishes that businesses primarily engaged in transportation services, even if not directly hiring out vehicles, qualify for higher depreciation rates if the vehicles are essential to the business operations and the receipts are substantially for transportation services. Final Determinations on Each Issue: The Tribunal upheld the CIT (A)'s decision, affirming the assessee's entitlement to a higher depreciation rate of 30% for vehicles used in garbage transportation services. Additionally, the Tribunal confirmed the applicability of CBDT Circulars No. 609 and 652 in supporting the assessee's claim.
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