2010 (12) TMI 913 - AT - Income Tax

Depreciation - The assessee has been operating JCB Earth Moving Machines for which it had claimed depreciation at the rate of 30% which was scaled down to 15% by the AO on the ground that the actual depreciation allowable in respect of those machines was only at 15% - Held that - Mobile crane was registered as a heavy motor vehicle which was, therefore, enlisted to claim depreciation at a higher rate as in the case Gujco Carriers v. CIT 2002 (2) TMI 48 - GUJARAT High Court being relied upon by assessee whereas in the present case even the JCB Earth Movers have not been registered as a heavy motor vehicles with the Regional Transport Authorities - JCB is coming in the category of excavator and its main function is removing the soil or earth at the same time, JCB s another function is to carry or transport the removed soil and dump it at another site to discharge the function like transshipment and loading into another vehicle - Since JCB does not fall under sub-item (2), (3) and (8) of Part-III, it has to be necessarily included in sub-item (1) for which the permissible rate of depreciation is 15% - Decided against the assessee

Summary

Issues Involved:
1. Whether the depreciation rate for JCB Earth Movers should be 15% or 30%.

Detailed Analysis:

Issue: Depreciation Rate for JCB Earth Movers
The primary issue in this appeal was whether the depreciation rate for JCB Earth Movers should be 15% as determined by the Assessing Officer (AO) and upheld by the Commissioner of Income Tax (Appeals) [CIT(A)], or 30% as claimed by the assessee.

Background:
The assessee firm, Magtron Earth Movers, owned and operated JCB Earth Moving Machines and claimed depreciation at 30% for the assessment year 2006-07. The AO restricted the depreciation to 15%, classifying the JCB machines as plant and machinery rather than motor vehicles eligible for higher depreciation.

Arguments by the Assessee:
1. Registration Under Motor Vehicle Act: The assessee argued that JCB Earth Movers were registered under the Motor Vehicle Act and thus should be considered as motor vehicles eligible for higher depreciation.
2. Functionality: The assessee contended that JCB Earth Movers not only excavate soil but also transport it, functioning similarly to motor lorries, which justifies the higher depreciation rate.
3. Case Laws: The assessee relied on various case laws, including Gaylord Constructions vs. ITO and Bose Abraham vs. State of Kerala, asserting that these rulings supported the classification of JCBs as motor vehicles for higher depreciation.

Arguments by the Revenue:
1. Definition of Motor Vehicle: The Revenue argued that under the Motor Vehicle Act, a motor vehicle is defined as any mechanically propelled vehicle adapted for use upon roads, excluding vehicles used only in enclosed premises.
2. Preferential Treatment: Earth moving machinery is classified differently from motor vehicles for various tax purposes, including sales tax and excise duty, indicating a clear distinction.
3. Depreciation Rates: The Income Tax Act and Companies Act distinguish between earthmoving machinery and motor vehicles, prescribing different depreciation rates.

Tribunal's Analysis:
1. Function and Registration: The Tribunal noted that JCB Earth Movers are primarily designed for excavation and not for transporting goods, unlike motor lorries or trucks. The machines were registered as "Hydraulic Excavator London" and "Earth Moving Machinery" with the RTO, not as heavy motor vehicles.
2. Case Law Differentiation: The Tribunal distinguished the present case from the Gujco Carriers case, where the mobile crane was registered as a heavy motor vehicle, qualifying for higher depreciation. In contrast, JCB Earth Movers in this case were not registered as heavy motor vehicles.
3. Specific Functionality: The Tribunal emphasized that JCB machines are designed to excavate soil and not to transport it, which is a secondary and isolated function. The primary function of JCBs does not align with the functions of motor lorries or trucks.
4. Legal Provisions: The Tribunal referred to the specific provisions under the Income Tax Act and Motor Vehicles Act, concluding that the general definition of motor vehicles under the Motor Vehicles Act cannot be applied to the Income Tax Act for depreciation purposes.

Conclusion:
The Tribunal upheld the decision of the lower authorities, concluding that JCB Earth Movers fall under the category of plant and machinery with an applicable depreciation rate of 15%, not 30%. The assessee's appeal was dismissed.

Final Order:
The authorities below were justified in restricting the allow-ability of depreciation at 15% for JCB Earth Movers. The assessee's appeal was dismissed.