2007 (8) TMI 401 - AT - Income Tax

Depreciation claimed in assessment year 1991-92 on two cranes Model - expression used for purposes of business - Conditions of section 32 satisfied or not - Difference Of opinion between learned Members - Third Member Oder - business of giving cranes and other equipments on hire - crane delivered - temporary registration only entitles the assessee to remove or transport crane but did not authorize its use for commercial purposes - crane was not used in the financial year. HELD THAT - The ld JM in the proposed order allowed claim of depreciation in assessment year 1993-94 in the light of discussion of this issue in assessment year 1991-92. The basis of allowing the claim was the finding that since the cranes were purchased during the year and ready for use for hiring or used for hirer hence assessee was entitled to the claim of depreciation. Before concluding the ld JM referred to decision of Supreme Court in the case of Shaan Finance (P.) Ltd. 1998 (3) TMI 8 - SUPREME COURT to the effect that where the business of assessee consist of hiring out machinery and where the income is derived by the assessee from the hiring of such machinery the assessee must be considered as having used the machinery for the purposes of its business. In the ultimate analysis the ld JM observed that for purposes of section 32 the word used means use of an asset for the purpose of business of assessee and do not refer to the use of asset by the hirer. Once a machinery is hired out that mayor may not be used by the hirer. The lessor company has put the machinery into use of business of hiring and is entitled for claim of depreciation. Above view according to ld JM is supported in the case of Dineshkumar Gulabchand Agrawal 2003 (1) TMI 19 - BOMBAY HIGH COURT . He accordingly reversed the finding of CIT (Appeals) and held that assessee be allowed depreciation. He allowed ground raised by the appellant in the memo of the appeal. The ld AM was of the opinion that decision in the case of Dineshkumar Gulabchand Agrawal was binding on the Tribunal. He further found that privity of contract between assessee and ONGC took place on 17-4-1991 when ONGC started paying hire charges to the assessee. The said date being after the close of the previous year the assessee was not entitled to deduction of depreciation for the assessment year 1991-92. The assessee could not claim depreciation merely by showing that machinery was dispatched to ONGC on 27-3-1991 through M/s. Assam Roadways. Apart from above observations the ld AM was in agreement with other findings of the ld JM. In regard to appeal for assessment year 1993-94 the ld AM found that cranes landed in Madras on 26-2-1993 and were cleared by Customs Authorities on 12-3-1993. Minor repairs were required to be carried out. The cranes were ready for use in the month of March 1993. He noted explanation of learned counsel for the assessee that for some technical reasons the ONGC backed out of the contract and therefore cranes could not be hired to ONGC though the cranes were ready for use. The ld AM also noted finding of CIT (Appeals) that assessee will be entitled to deduction only when these cranes have been actually used. The AM further held that facts in assessment year 1993-94 are similar to facts discussed by him in assessment year 1991-92. The decision in the case of Dineshkumar Gulabchand Agrawal was held to be applicable with full force in respect of these cranes also namely that user will start from the date cranes were given on hire and not from the date when they were ready to be giving on hire. He accordingly held that assessee is not entitled to deduct depreciation in respect of these cranes in this year. Third Member Order - I have given careful thought to the rival submissions of the parties. There is no dispute first condition for getting depreciation i.e. ownership of the asset has been fully established in this case. Crane Model No. 620 was purchased on 16-3-1991. The case of the assessee is that it was intended for use through hire to ONGC at Kariakal Tamil Nadu. However no cogent material is available on record to show that the said crane was hired in the period ending 31-3-1991. There is no direct or circumstantial evidence to show that it was hired to ONGC in the relevant accounting period. It is not necessary that the assessee should receive hire charges to prove user of the assets. Even an agreement to hire would tantamount to use of the asset. However even above evidence is not available in this case. The crane was delivered to transport company Assam Roadways on 27-3-1991 and that it reached Kariakal only in the second week of April 1991 where it was collected by the assessee. Thereafter contract of hiring was entered by the assessee and crane was hired. Thus even if a wider meaning is given to expression used for purposes of business the arrangement to hand over crane to take delivery at Kariakal in April 1991 cannot be treated as used for purposes of business on or before 31-3-1991. On facts it cannot be taken as even kept ready for use. Therefore on above facts revenue authorities were fully justified in not allowing depreciation on this crane. As far as Crane Model No. Cole 825 is concerned the same as per claim of the assessee was used as a back-up crane for use by M/s. Light Motive Calcutta who were making picture City of Joy . The Assessing Officer in order to verify the claim of the assessee summoned and recorded statement of Shri A.D. Sanghvi the Director of the assessee-company. My attention was drawn to his statement. The statement fully supports the case of the assessee that the said crane was kept ready as a back-up crane in case crane No. 830 already with above concern breaks down and needed repair. This step was taken by the assessee for business purposes and cannot be questioned. In the light of legal position discussed above I am of view that assessee was entitled to use the crane in the manner it liked and this would be user of crane for purposes of business. The assessee is entitled to depreciation on the above crane in the assessment year 1991-92. It may be mentioned that ld AM has not controverted any of the facts found or recorded by ld JM in respect of this crane. Thus depreciation on this crane is allowed. Claim of depreciation on two cranes imported by the assessee in the period relevant to assessment year 1993-94 is concerned the assessee has placed on record that it had placed tenders with ONGC authorities Chennai in March 1993 for hiring of these Kato cranes to above corporation. However ONGC wrongfully did not open tender of the assessee and accordingly assessee raised objections with the authorities. Copies of above objections are placed in the paper book. The assessee has further pointed out that objections of the assessee were accepted and these cranes were hired and duly used by ONGC at Chennai from April 1993 onwards. I am of view that assessee is entitled to depreciation on these cranes. The assessee has kept these cranes ready for use. In fact it placed tender with ONGC to hire these cranes in March 1993. On account of technical reasons noted above the cranes were not actually hired. But on that account depreciation could not be denied to the assessee. As already noted these cranes had temporary registration and even if permanent registration under the Motor Vehicles Act was not with the assessee that would not materially affect its claim for depreciation as per case law noted above. On facts of the case in my view the assessee was entitled to depreciation on two Kato cranes in assessment year 1993-94. For reasons given above I agree with learned Judicial Member for allowing depreciation on crane Cole No. 825 for assessment year 1991-92 and on two Kato cranes in assessment year 1993-94. I agree with learned Accountant Member that depreciation on crane Cole 620M in assessment year 1991-92 was rightly disallowed. The four questions referred to me are answered accordingly. The matter be placed now before the regular bench for an appropriate order in accordance with law.

Summary

Issues Involved:
1. Depreciation on new cranes for the assessment year 1991-92.
2. Rate of depreciation on truck-mounted cranes.
3. Penalty under section 271(1)(c) for the assessment year 1991-92.
4. Depreciation on new cranes for the assessment year 1993-94.

Issue-Wise Detailed Analysis:

1. Depreciation on New Cranes for the Assessment Year 1991-92:
The primary issue was whether the cranes purchased at the end of the financial year were used for business purposes, thereby qualifying for depreciation under section 32 of the Income-tax Act. The assessee argued that the cranes were ready for use and thus eligible for depreciation, even if not actively used by the lessee.

- Crane Model No. Cole 620M: The crane was purchased on 16-3-1991, with temporary registration obtained on 19-3-1991 and dispatched on 27-3-1991. The Assessing Officer (AO) disallowed depreciation, arguing the crane was not used by the end of the financial year and the letter of intent from ONGC was transferred only in April 1991. The CIT(A) upheld this view, emphasizing the crane was not used actively or passively. The Tribunal, however, recognized the crane was purchased and dispatched within the financial year, but the Third Member concluded it was not ready for use by 31-3-1991, thus disallowing depreciation.

- Crane Model No. Cole 825: The crane was kept as a standby from 22-3-1991. The AO disallowed depreciation, noting the crane was not required as a standby and was not used commercially. The CIT(A) upheld this, but the Tribunal found sufficient evidence that the crane was kept ready for use as a backup, thus allowing depreciation.

2. Rate of Depreciation on Truck-Mounted Cranes:
The assessee claimed a higher depreciation rate for truck-mounted cranes, arguing they should be classified under "motor lorries" rather than "plant and machinery."

- The Tribunal referred to several case laws, including Gujco Carriers v. CIT and CIT v. Madan & Co., which supported the higher depreciation rate for mobile cranes. Consequently, the Tribunal directed the AO to apply the higher rate of depreciation.

3. Penalty under Section 271(1)(c) for the Assessment Year 1991-92:
The penalty was imposed for alleged concealment of income due to the disallowed depreciation claim.

- The Tribunal, having allowed the depreciation claim on the cranes, concluded there was no concealment of income. Consequently, the penalty under section 271(1)(c) was deleted.

4. Depreciation on New Cranes for the Assessment Year 1993-94:
The issue was whether the cranes imported during the year were used for business purposes, qualifying for depreciation.

- The AO disallowed depreciation, noting the cranes were only cleared from customs on 12-3-1993 and not used by 31-3-1993. The CIT(A) upheld this, following the precedent set for the assessment year 1991-92. The Tribunal, however, found that the cranes were ready for use and the assessee had placed tenders with ONGC, thus allowing the depreciation claim.

Conclusion:
The Tribunal allowed the depreciation claims for the cranes kept ready for use, emphasizing a broader interpretation of "used for business purposes." The penalty under section 271(1)(c) was deleted, and the higher depreciation rate for truck-mounted cranes was upheld. The Third Member's decision aligned with the Tribunal's broader interpretation, except for Crane Model No. Cole 620M, where the claim was disallowed due to the crane not being ready for use by the end of the financial year.