2005 (8) TMI 82 - HC - Income Tax

Depreciation - section 32(1)(ii) - claim to deduction on account of depreciation on imported cars as well as additional depreciation on the Indian made cars owned by the respondent-assessee. - assessee was owning these cars for running them on hire for tourists. no force in contention of Revenue that that even if the vehicle is used for running on hire, the same is not entitled to the benefit of higher rate of depreciation or in the case of imported cars, ordinary rate of depreciation, merely because the vehicle is run on hire as a business incidental to his main business and is carried on to run the principal business more advantageously. - Tribunal was justified in allowing the deduction on account of depreciation in respect of motor cars manufactured outside India which are acquired by the assessee after February 28,1975- Tribunal was justified to hold that the assessee was engaged in the business of running the motor cars, manufactured inside India, on hire, so as to the assessee is entitled for higher rate of depreciation on such motor cars

Summary

Issues:
Claim to depreciation for assessment years 1990-91, 1991-92, 1994-95, and 1995-96 regarding imported and Indian-made cars used for hire.

Analysis:
The appeals revolve around the claim to depreciation on imported and Indian-made cars used for hire by the respondent-assessee. The questions raised include whether the Tribunal was justified in allowing depreciation on motor cars manufactured outside India acquired after February 28, 1975, and whether the vehicles were used in the business of running them on hire. The Assessing Officer and the Commissioner of Income-tax (Appeals) initially rejected the claim, but the Tribunal found that the assessee was indeed running the cars on hire for tourists, based on various supporting documents and legal provisions.

The Tribunal's decision was based on the company's articles of association allowing the business of running cars on hire, approval from the Reserve Bank of India for importing cars under the taxi quota, and a circular from the Central Board of Direct Taxes. The Tribunal emphasized that even if the business was running on a restricted scale, it still qualified for depreciation benefits. The Revenue argued that the primary business was hotelier, and providing cars on hire was incidental, citing other court decisions. However, the High Court found that the dominant business and incidental business distinction was not relevant; what mattered was fulfilling the conditions for claiming depreciation on the cars used for hire.

The High Court referenced a Kerala High Court case involving an ambulance used for hire by a hospital, where the higher rate of depreciation was allowed. This case supported the view that running vehicles on hire, even incidentally, constitutes a business for depreciation purposes. The court also distinguished other cases cited by the Revenue, emphasizing that the use of vehicles for running on hire qualified for higher depreciation rates. Ultimately, the High Court dismissed the appeals, finding no merit in the Revenue's contentions and upholding the Tribunal's decision in favor of the assessee.