2009 (4) TMI 410 - HC - Income Tax

Depreciation- The respondent-assessee is a private limited company deriving its income primarily from leasing out lorries and buses to interested third parties. The assessee claimed depreciation on the trucks/buses at the rate of 40 percent under clause 3(ii) of Part A under head III of Appendix I of the rule. While Assessing Officer held that the assessee was entitled to depreciation under clause (2) of item III of par A of Appendix I to the Rule. Commissioner and Tribunal held that assessee was entitled to depreciation at the rate of 40 percent. Held that- clause 3(ii) relates to the user of a vehicle by a third party for consideration. The Tribunal had rightly determined the depreciation under clause 3(ii). Dismissing the appeal.

Summary

Issues:
1. Claim of depreciation under different clauses of Part A under the head "III Machinery and plant" of the old Appendix I.
2. Interpretation of the terms "lease" and "hire" in the context of depreciation claims.
3. Justification of the appellate authorities' decisions regarding depreciation claims.
4. Applicability of relevant legal precedents in determining depreciation claims.

Analysis:

1. The respondent-assessee declared income and claimed depreciation on trucks/buses at 40% under clause (3)(ii) of Part A. The Assessing Officer later disallowed the claim, considering it should fall under clause (2) instead. The Commissioner of Income-tax (Appeals) reversed this decision, upholding the depreciation claim under clause (3)(ii).

2. The main controversy revolved around whether the respondent-assessee's activity of leasing trucks and buses constituted "hire" or "lease." The appellant argued that the vehicles were hired out for consideration, not leased. The court analyzed the definitions of "hire" and "lease" from Black's Law Dictionary to differentiate the terms.

3. The court determined that clause (3)(ii) applied to cases where vehicles were used in a business of running them on hire, involving consideration from third parties. It rejected the Revenue's argument that clause (2) should apply, emphasizing that the vehicles were used by third parties for consideration, justifying the appellate authorities' decisions.

4. The court referenced the Madras High Court judgment in CIT v. Madan and Company, which supported the interpretation that the term "hire" in the context of depreciation rules denoted vehicles used by third parties for consideration. The court found this precedent relevant and upheld the decisions of the appellate authorities, dismissing the appeal.

Overall, the court concluded that the respondent-assessee was entitled to claim depreciation under clause (3)(ii) for leasing out trucks and buses, as the vehicles were used by third parties for consideration, aligning with the legal interpretations and precedents cited.