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TMI Blog2005 (8) TMI 82X X X X Extracts X X X X X X X X Extracts X X X X ..... ate of depreciation on such motor cars - - - - - Dated:- 2-8-2005 - Judge(s) : RAJESH BALIA., R. S. CHAUHAN. JUDGMENT These appeals raise common questions in respect of the claim to depreciation for the assessment years 1990-91, 1991-92, 1994-95 and 1995-96 respectively. The questions that have been raised in Appeal No. 83 of 2001 read as under: "Question No. 1: Whether, on the facts and circumstances of the case, on the findings recorded by the Tribunal, the 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, in view of the second proviso to section 32(1)(ii)? Question No. 2: Whether in view of the findings reached by the Tribunal, the Tribunal was justified in holding that the vehicles in question were used in a business of running them on hire? Question No. 3: Whether, on the facts and circumstances of the case, the 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 moto ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unning them on hire for tourists. For coming to this conclusion, the Tribunal relied on the articles of association of the assessee-company, which enables the company to run the business of running cars on hire; the foreign cars were imported by the assessee with the approval of the Reserve Bank of India under the taxi quota with the intention that the principal condition for running the cars on hire, and also on the circular issued by the Central Board of Direct Taxes on September 27, 1971, which, inter alia, stated that where the transportation service which provides as a package of tourist which may include lodging and boarding charges and service of guides, etc., would not alter the position that the cars owned by the transporter or by the travel agent or for transport operators will be eligible for depreciation, as car used for running the business run on hire for transportation of tourists. The Tribunal opined that merely because the business is running at restricted scale, does not take it out of the purview of the provision for making such cars eligible to depreciation on such business assets at the rate permissible under the Schedule and the additional depreciation in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , for the present purposes, the guideline of dominant business and incidental business of the assessee is not relevant. What is relevant is the conditions required for claiming benefit of deduction on account of depreciation on the cars manufactured outside India, i.e., imported cars, by the assessee are fulfilled, or the conditions for claiming additional depreciation as business assets are fulfilled. The condition is only one that such car must be used in the business of running it on hire for tourists or for business of running taxies. The hotel business is a major instrument of carrying on the business of tourism in India and the package of facility which it provides to the recipients are activities towards the tourism. The aforesaid circular had stated in no uncertain terms that where a transporter or travel agent renders such service by way of a package and which package includes transport, boarding and lodging, it fulfils the conditions of the proviso to sub-clause (1)(b) of section 32 of the Income-tax Act, 1961. If a total package of boarding or lodging and transportation by one person can result in bifurcation of service by providing for transport on hire to its cus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 30 per cent. The Assessing Officer, however, allowed the depreciation at the higher rate of 40 per cent. The Commissioner of Income-tax in exercise of power under section 263 opined that the correct rate to be applied in such case was only the regular rate of 30 per cent, of depreciation and not the extra rate. Consequently, the order was held erroneous and prejudicial to the interests of the Revenue. The Tribunal upturning the order of the Commissioner held that the assessee is entitled to the higher rate namely at 40 per cent. and set aside the order of the Commissioner. The Revenue's application under section 256(1) for referring the question of law arising from the order of the Tribunal to the High Court of Kerala was rejected by the Tribunal. On the application under section 256(2) of the Income-tax Act, 1961, the High Court rejected the application by holding that the Tribunal has rightly rejected the contention. It held that the ambulance van is kept by the assessee for the purpose of being used on hire and it is so plied. The plying of the ambulance van on hire itself constitutes the business of the assessee though it may be incidental to the running of the hospital. It h ..... X X X X Extracts X X X X X X X X Extracts X X X X
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