2006 (4) TMI 234 - AT - Income Tax

Summary

Issues:
1. Dispute over depreciation calculation for computing short-term capital gains from the sale of vehicles used in the business of hiring.

Analysis:
The appeal by the Revenue challenges the CIT(A)'s decision to allow the assessee's claim after reworking the depreciation at 20% for computing short-term capital gains from the sale of two mini vans used in the business of hiring. The assessee initially declared the capital gain at Rs. 11,102 without claiming any depreciation. However, the AO requested the assessee to rework the capital gain considering depreciation. The AO recalculated the WDV of the vehicles and assessed the short-term capital gains at Rs. 1,66,736. The CIT(A) directed the AO to work out depreciation at 20% since no hire charges were collected from hiring the vans to others. The Revenue argued that under s. 44AE, deemed depreciation at 40% should be allowed for vehicles used in hiring. The Tribunal agreed with the Revenue, stating that if the assessee declares income under s. 44AE from hiring the vehicles, deemed depreciation at 40% is considered allowed. The Tribunal found the CIT(A)'s conclusion regarding the absence of hire charges as incorrect, as admitted by the assessee, and set aside the CIT(A)'s order in favor of the Revenue.

In conclusion, the Tribunal allowed the Revenue's appeal, emphasizing the applicability of deemed depreciation at 40% for vehicles used in hiring under s. 44AE. The decision highlighted that once the assessee declares income under s. 44AE from hiring the vehicles, the deemed depreciation is considered allowed at 40%, leading to the recalculated WDV and short-term capital gains assessment by the AO. The Tribunal found the CIT(A)'s reasoning flawed regarding the absence of hire charges and upheld the Revenue's claim, setting aside the CIT(A)'s order.