2006 (2) TMI 133 - HC - Income Tax

Depreciation for the motor vehicles which are used in business of running them on hire - When once on the facts it was found that the assessee was carrying on the business of hiring its vehicles, and they were not used for its own other business, the assessee is entitled to 40 per cent. depreciation as provided in the Appendix and not at 20 per cent. as wrongly held by the Assessing Officer. - It is immaterial whether the vehicles are hired to a sister concern or to a third party or to a total stranger.

Summary

Issues:
Challenge to depreciation allowance for motor vehicles used in business of running them on hire.

Analysis:
The High Court of Karnataka heard a case where the Revenue challenged the order of the Income-tax Appellate Tribunal regarding the depreciation allowance for motor vehicles used in the business of running them on hire. The respondent-assessee had leased motor vehicles to ferry employees for its sister concern and claimed 40% depreciation. The Assessing Officer restricted it to 20%, stating that 40% depreciation is only applicable when vehicles are hired to the public, not to a sister concern. The Commissioner allowed 40% depreciation, which was affirmed by the Tribunal. The court analyzed Item III of Appendix I to the Income-tax Rules, which specifies depreciation rates for different types of vehicles. It highlighted that 40% depreciation is allowed for vehicles used in the business of running them on hire. The court emphasized that the key factor is "running them on hire," regardless of whether the vehicles are hired to a sister concern or a third party. Therefore, if the assessee uses the vehicles for the business of hiring them, they are entitled to 40% depreciation, as provided in the rules. The court concluded that the appellate orders were correct, and the Revenue's appeal was rejected.