ACTUAL USE OF MOTOR VEHICLES- fines paid can help assessee to establish actual use.

[C.A. DEV KUMAR KOTHARI]

TIMELY STEPS AND AVOIDANCE OF LAST MOMENT RUSH CAN AVOID CONTINGENCIES. 

Road transport vehicles usually require registration for plying on public roads yet in some circumstances the owner may use vehicle even without registration of a new vehicle or registration in his name in case of old vehicle. Once purchased, and having acquired domain over vehicle, the owner can claim depreciation if he can prove that vehicle was used for the purpose of business or profession. However, to satisfy tax authorities it is desirable that there should be a substantial evidence to prove use of vehicle during the previous year. An external evidence is always better than an internal/self-made evidence. In a recent judgment, it has been held that penalty/fine for plying vehicle before registration is evidence that vehicle was used prior to registration. On that basis alone the court allowed deprecation allowance claimed by the assessee. The author also suggests some more precautions and measures to establish actual user of asset by providing substantial evidence of user of assets. However, the best way is to take timely steps so that un-necessary litigation do not take place and one can be sure about his claims.

1. Registration:

Most of vehicles (other than by-cycle, tricycle of children) are required to be registered with Road Transport Authorities (RTA) who grant registration certificate, which entitles the vehicle to run on roads. Road tax is also to be paid. Without registration, a vehicle is not allowed to ply on public roads. In case of new vehicles registration is to be made first time in the name of the buyer, before registration the vehicle can be run on dealers licence for the purpose of taking the vehicle to the registration authority. In case of second hand vehicles vehicle is already registered with RTA, the buyer is required to get it registered in his name. However, in practice for some days or months the buyer may use the vehicle without transfer of registration in his name.

Plying vehicles without proper registration and other documents is irregular and improper and the RTA and/or local police under provisions like that of the Motor Vehicle Act can levy penalty. Therefore, it must always be advised to clients to take timely steps to place purchase order, take delivery, make vehicle fit for use and get it registered well within time (before 30th September or 31st March of the previous year).

Penalty for plying vehicle without registration may be considered as evidence of use of vehicle:

A vehicle owner or his driver-plying vehicle without registration may be committing breach of law attracting payment of penalty. However, in some circumstances such plying and paying penalty can be use full in achieving some other purposes like claim for depreciation allowance. Other use like use on private roads, or plying vehicle on dealers registration certificate can also be considered as use of the vehicle for claiming running expenses and depreciation. However, evidence of use must be placed in a foolproof manner. In case a penalty is paid for plying vehicle without registration, the order levying penalty and/or receipt of penalty/fine can be considered as an external and conclusive evidence for use of the vehicle because in the order or receipt details of vehicle, its owner, driver, and place where it was plying, and purpose for which it was plying are generally written by a government authority or a court hence this may be considered as an external and conclusive evidence of use.

Case before Allahabad High Court:

In ANIL BULK CARRIERS P. LTD v. COMMISSIONER OF INCOME-TAX 2004 -TMI - 10522 - (ALLAHABAD High Court) the assessee purchased trucks and applied for registration of trucks before 31.03.1997 however, registration was made only after 31.03.1997. Before registration the assessee used the truck and was caught hold by authorities and he was required to pay penalty to ply truck without registration. The assessee claimed depreciation for the assessment year 1997-98 based on actual user before end of the previous year that is 31.03.1997. Authorities up to the Tribunal disallowed the depreciation claim, hence assessee appealed before the High Court.

Twin conditions for claiming depreciation:

The two requirements to claim depreciation under section 32 of the Income-tax Act, 1961 are:

The asset should be owned (wholly or partly) by the assessee, and

(ii) it should be used for the purposes of business or profession during the previous year.

It has been held by courts that the expression "used" has to be given a wide meaning. The expression includes passive as well as active user.

Facts in the case:

The assessee-company was engaged in oil transport business for which trucks and tankers were used.

For oil transportation tankers (steel body with fittings) are mounted on the chassis and body of truck instead of open body/full body or half body or covered body in case of trucks for transportation of other goods. The truck with tanker was ready on or after 26.03.1997.

In the assessment year 1997-98, assessee claimed depreciation on two new oil tankers.

These tankers were purchased by sale invoice dated February 17, 1997 and assessee took steps for fabrication and mounting oil tankers on the body of trucks which work was completed on or around 26.03.1997 as per bills. 

The documents produced during the assessment proceedings showed that complete tankers along with body were duly delivered to the assessee on March 26, 1997.

For registration certificates payment of road tax was also made on March 31, 1997 (with application for registration).

On 31.03.1997 the assessee plied truck and was fined for plying truck on public road without having obtained registration certificate. For which assessee produced challan (a sort of summon) but original challan were not produced.  

The criminal court also passed order dated January 12, 2000, imposing fine on the two vehicles for breach of the Motor Vehicle Act, committed by the tankers on 31.03.97.

The assessee claimed depreciation on the two vehicles, which was denied by the Assessing Officer, on the ground that the vehicles were not, actually used for the purpose of business in the relevant previous year because registration was not obtained.  The Assessing Officer did not accept (as evidence-added by author) the order of the criminal court dated October 12, 2000 imposing fine for the breach of the Motor Vehicles Act, committed by the disputed tankers on March 31, 1997.  The assessment order was confirmed in appeal by the Commissioner (Appeals) and the second appeal was also dismissed by the Tribunal on the ground "that the truck in respect of which certificate by the registration authority was issued only on April 1, 1997, could not have been plied on March 31, 1997".

Therefore the assessee preferred an appeal to the High Court. The high court considered all facts including levy of penalty/ fine for plying trucks on 31.03.1997 that is prior to registration certificate was granted.

Analysis, finding and order of the court: 

On consideration of the facts the high court observed and held on the following lines: 

About evidence:

That there is a presumption of existence of certain facts under section 114 of the Indian Evidence Act, 1872. The court may presume under clause (e) of section 114 of the Evidence Act that judicial and official acts have been regularly performed.

The judicial order passed by the criminal court could not be ignored, as had been done by the authorities below. The user of oil tankers even prior to obtaining registration from the registering authority or without payment of road tax, etc., may be violative of the provisions of the Motor Vehicles Act, 1988. But nonetheless if the vehicle was plied even without obtaining registration or payment of road tax, etc, it cannot be said as a matter of fact, that the vehicle has not been used.

The finding recorded by the Tribunal that oil tankers were not used on the last date of the previous year was not based on legal evidence, and had given rise to a substantial question of law involved in the appeal and, therefore, it was not correct to say that the appeal was concluded by finding of fact and was not maintainable. (In other words it can be said that the finding of the Tribunal was contrary to the finding of Criminal Court imposing fine for plying truck without registration-added by author)

The oil tankers along with mounted bodies were purchased for business purposes by the assessee who was a transporter during the accounting year. It was not the case of the Department that these oil tankers were not necessary for the business purposes of the assessee. The oil tankers were actually put to use in the relevant accounting year by the assessee for its business purposes. 

The assessee was also entitled to depreciation on these two oil tankers (means chassis and body of truck and tankers mounted on it) as they were purchased during the relevant accounting year for business purposes and were ready to use. Road tax was deposited and oil tankers were got registered with the registering authority on the last date of the accounting year. The assessee was entitled to depreciation on the two oil tankers for the assessment year 1997-98, as the truck and tanker were ready to use.

Various cases referred to by court:

The court referred to several judgments about ownership, lack of registration of vehicles in name of assessee and allowability of  depreciation base don ownership and use, active and passive use of assets for business, ground realities about registration of assets like buildings and vehicles, evidence of use etc. including the following:

CIT v. Basti Sugar Mills Co. Ltd. 2002 -TMI - 12428 - (DELHI High Court). [Para 12, p.631]

CIT v. Dilip Singh Sardarsingh Bagga 1992 -TMI - 21201 - (BOMBAY High Court). [Para 12, p.631]  

CIT v. Nidish Transport Corporation 1989 -TMI - 23433 - (KERALA High Court). [Para 11, p.631]

CIT v. Pepsu Road Transport Corporation 2001 -TMI - 13077 - (PUNJAB AND HARYANA High Court). [Para 14, p.632]

CIT v. Poddar Cement Pvt. Ltd. [2008 -TMI - 5598 - SUPREME Court]. [Para 9, p.630]

CIT v. Refrigeration and Allied Industries Ltd. 2000 -TMI - 14585 - (DELHI High Court). [Para 13, p.631]

CIT v. Salkia Transport Associates 1982 -TMI - 28582 - (CALCUTTA High Court) [Para 10, p.630]

K. L. Johar and Co. v. Deputy CTO [1965] 16 STC 213 (SC). [Para 10, p.631]

Machinery Manufacturers Corporation Ltd. v. CIT [1957] 31 ITR 203 (Bom). [Para 13, p.631]

Mysore Minerals Ltd. v. CIT [2008 -TMI - 5760 - SUPREME Court]. [Para 9, p.630]

 In view of these judgments the court considered that the assessee was owner of tankers, he used (passively) tankers, and he also used tankers actively by plying on March 31, 1997 as evidenced by the challan and order of criminal court.

Other relevant factors, which could be considered:

In this case or in similar cases some more relevant facts and points could be placed before authorities and lines of arguments could be advanced as follows:

The steps required to be taken for registration are also for the purpose of business. Before purchase of vehicle one cannot apply for registration. Therefore, various steps taken for and movement of truck during course of registration are for the purpose of business. Complying with statutory requirement for doing business is definitely a business activity and assets used for that purpose is used for the purpose of business.

Therefore, presenting truck before registering authorities for their examination is also for the purpose of business. Therefore, plying vehicle from show room to registering authorities (may be on dealers registration certificate) is also an active use of vehicle and the use is for the business purpose.

Plying of truck chassis from dealers show room to workshop for fabrication and mounting to tankers (or other bodies) is also use for the purpose of business.

The process of taking measurements, doing fabrication of tankers, installing tanker upon the chassis of truck etc. is for the purpose of business. Therefore, the chassis of truck can be said to have been used for the purpose of business right from the point of delivery and plying of chassis of truck to the workshop or registration authority in case of other vehicles. It is need less to mention that during this course also the vehicle suffers wear and tear and is subject to risks of damages and accidents.

Use of truck chassis or truck body within own organization is also for the purpose of business. Therefore, use of vehicle within own compound for transportation of material or men can be considered as business use. 

Displaying vehicle in ready condition or in the process of being made ready to customers for booking of vehicle or freight is also use for the purpose of business because on that basis one can book freight or can book vehicle to hire some days later on. 

Loading of material on truck if made will satisfy condition of actual use. Loading can be made even if registration certificate has not been received. Suppose RTA has inspected vehicle, it may take few days to grant registration, the vehicle can come to owners place and goods can be loaded. When registration certificate is made available, the vehicle can move on public roads.

Earlier article:

In 191 CTR part III dt. 8.10.04 another article entitled "DEPRECIATION - ACTUAL USER OF ASSETS- A NEW CONTROVERSY. (FACTS MUST BE IN YOUR FAVOUR, THE LAW ALONE MAY NOT HELP YOU) written by the author was publishes in which detailed discussion on actual use was made. It was also suggested that timely steps should be taken for purchase, delivery, installation, inspection, registration and actual use of assets and last minutes rush should be avoided. The readers may refer to that article for more elaborate discussion on relevant aspects so as to avoid similar controversies.