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TMI Blog2003 (1) TMI 258X X X X Extracts X X X X X X X X Extracts X X X X ..... as enjoyed by the assessee-company under the following condition which is reproduced below: "The said goods(vehicles) shall not be sold, transferred, leased or otherwise disposed off, for a period of five years from the date of importation, other than by sale to other specified importers, without prior approval of the Director General of Tourism." 4. During the course of assessment proceedings it was observed by the AO that these imported cars were leased to 3 Indian companies for a period of 5 years. As per s. 32. the assessee-company is not eligible for depreciation on imported cars unless it is used for the business of giving it on hire for tourists or outsideIndiain its business or profession in another country. Since the above conditions were not fulfilled by the assessee-company the AO disallowed the claim of depreciation on these imported cars as none of these companies to whom they were leased out were tourist-oriented companies. 5. CIT(A) confirmed the action of the AO. The relevant part of the order of the CIT(A) is reproduced as given below: "I have considered the submission carefully and have perused the assessment orders of the AO. I do not find force in the su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m the date of importation, other than by sale to other specified importers, without prior approval of the Director General of Tourism.' It is under these conditions that the assessee has availed of a special duty rate The assessee was, vide ordersheet entry dt.16th March, 1999, given a show-cause notice that is reproduced as under: 'He (the assessee-company) has claimed depreciation on imported cars. He is asked to justify his claim and to show-cause as to why this should not be disallowed as they (the cars) have not been used for tourist purposes. He is asked to justify his claim with evidences on a car-by-car basis.' The assessee filed a reply, vide letter dt.23rd March, 1999. In this, it claims that in the year under review 'we had claimed depreciation on three imported cars, which were used in the business of running them for tourists. The details of which are as under......'. The assessee then gave the registration number of the car, date of purchase, amount of purchase, rate of depreciation, amount of depreciation. The total amount of depreciation claimed by the assessee on such cars is Rs. 32,13,244 during the year. The assessee has also given a list of the companies t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mitted rental agreements with various companies that are listed above. A study of the records shows that the cars have been given out on rent for extended periods. (a) Agreement with Western India Securities Ltd.: (i) The said agreement is for a period of 60 months, viz., five years. (ii) There is no provision for monthly or for that matter any periodic payment of any rent. All the amounts to be paid are in one lump sum amount. (iii) In no place in the agreement is it mentioned that the car shall be used for tourist purposes. (iv) The car shall at all times, throughout the term period of the agreement remain in the control and possession of the renter. (b) Agreement with Flex Industries Ltd.: (i) The said agreement is for a period of 60 months, viz., five years. (ii) There is no provision for monthly or for that matter any periodic payment of any rent. All the amounts to be paid are in one lump sum amount. (iii) In no place in the agreement is it mentioned that the car shall be used for tourist purposes. (iv) The car shall at all times, throughout the term period of the agreement remain in the control and possession of the renter. (b) Agreement with Quality Fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st April, 1992and the provisions which are effective from1st April, 1992, reads as under: "Provided [...] that no deduction shall be allowed under this clause in respect of (a) any motor car manufactured outsideIndia, where such motor car is acquired by the assessee afterthe 28th Feb., 1975(but before the 1st day of April, 1991), unless it is used (i) in a business of running it on hire for tourists; or (ii) outsideIndiain his business or profession in another country;" A perusal of the above shall show that there is no much change in the words used in the earlier provisions and the amended provision except making it more clear from1st April, 1992. CBDT had issued circular in respect of depreciation to be allowed on motor cars manufactured outsideIndia, appearing at p. 1543 Income-tax Law by Chaturvedi Pithisaria Fifth Edn., Vol. I, as under: "I. Allowance of depreciation on motor vehicles owned and used by tour operators and travel agents in the business of running these vehicles on hire for tourists The second proviso to s. 32(1)(ii) of the IT Act, 1961, which disallows depreciation on foreign motor cars, is reproduced below: 'Provided further that no deduction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of rental agreement with M/s JCT Electronics Ltd. and broad features as apparent from different clauses of the agreement are that assessee had let out Toyota Land Crusher, foreign manufactured motor car to, this company and received Rs. 50,41,240 as fixed term advance of sixty months. The period of lease and the monthly rent was Rs. 84,020 which was to be adjusted out of the advance of Rs. 50,41,240. Clause IV of this agreement provided general terms and sub-cl. (b) reads as under: "Renter shall be allowed to use the rented car for its purpose anywhere inIndia. The owner undertakes to obtain all Indiapermit for the rented car for the use of the renter." 15. This indicates that assessee-company had allowed renter, i.e., M/s JCT Electronics Ltd., the use of the rented car for any purpose. The right to use is not restricted anywhere and s. 32 as reproduced above provides that depreciation shall be allowed in respect of motor cars manufactured outside India, if it is used in a business of renting it on hire for tourists. No doubt, the assessee had fulfilled the first requirement of rented out the motor car, manufactured outside India, on hire but the important word "tourist" is mi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he case of Smt. Sherline B. Swati, the motor car was hired by European Asian Bank for their tourists while in the case of Textile Leasing Finance Co., only one car was purchased by that company and let out to its sister concern who certified that said car was being used for tourists only. Facts of the said case are not identical to the facts of the present case. In the instant case, we have gone through the agreement entered in between assessee and the Indian company who had taken the motor cars manufactured outsideIndiaon lease and admittedly they were not for tourists purpose. Even the assessee failed to prove the fact that cars were being utilized by Indian companies for foreign tourists at that time during currency of the agreement. Later on, some certificates had been filed but those certificates are not going to help the case of the assessee because mere using the car once or twice by foreign tourists of those company would not make any difference as dominant purpose of letting out the motor car, as is apparent from the copy of agreement, is for unrestricted use by the renter company and no restrictions have been imposed by the assessee while entering into agreement with th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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