2003 (4) TMI 29 - HC - Income Tax

Vehicle leasing vs 'running on hire' for higher depreciation rate under Appendix I; higher depreciation denied for lease rentals.

The dominant issue was whether a financing and leasing assessee qualified for the higher depreciation rate under Appendix I applicable to 'motor buses, ... Interpretation of an entry in Appendix I--'Depreciation Table', which prescribes the table of rates at which depreciation is admissible - Motor buses, motor lorries and motor taxis used in a business of running them on hire - Difference between 'hire' and 'lease' for depreciation purposes - HELD THAT:- There is a basic difference between 'lease' and 'hire'. This difference is borne out by the basic difference in the meaning of the expression 'property' and the expression 'possession'. A transaction of hire is essentially a contract of bailment of a vehicle. In the case of a hire, only a licence is given to the hirer to use the vehicle for a temporary period the vehicle so hired. In the case of hire, the hirer has an option to buy the equipment which is one of the main distinguishing features between the words 'hire' and 'lease'. The assessee is a leasing and financing company. Its income is from lease rent, bill discounting and service charges. Therefore, merely because the assessee lets out motor buses, motor trucks and motor vans to its customers, it cannot be stated that the assessee is using the said vehicles in the business of running them on hire - there is a basic difference between 'lease' and 'hire' - Tribunal was right in holding that the assessee was not entitled to higher depreciation as the assessee did not run motor trucks, motor buses and motor vans on hire nor did it carry on the business of running them on hire Issues:Interpretation of entry in Appendix I - 'Depreciation Table' for machinery and plant.Claim of higher depreciation on trucks, buses, and motor vans.Difference between 'hire' and 'lease' for depreciation purposes.Applicability of higher depreciation rate based on previous years' treatment.Interpretation of Entry in 'Depreciation Table':The case involved the interpretation of an entry in the 'Depreciation Table' for machinery and plant, specifically concerning the claim of higher depreciation on trucks, buses, and motor vans. The assessee contended that the words 'hire' and 'lease' should be considered equivalent for the purposes of this entry. However, the court found that there is a fundamental difference between 'hire' and 'lease' in terms of possession and property rights. The entry required the assessee to run the vehicles on hire or carry on the business of running them on hire. Since the assessee was a leasing and financing company with income from lease rent, bill discounting, and service charges, merely leasing out vehicles did not qualify as running them on hire. Therefore, the claim for higher depreciation was rejected.Claim of Higher Depreciation:The assessee argued that it was entitled to higher depreciation based on the treatment of the same assets in previous years. The court noted that each assessment year is a separate event, and the principles of res judicata do not apply to income tax proceedings. The Department was not bound to grant higher depreciation for the current year based on previous treatment. The court emphasized that the assessee had already received normal depreciation, and the dispute was solely about the interpretation of the entry in the 'Depreciation Table.'Difference Between 'Hire' and 'Lease':The court highlighted the distinction between 'hire' and 'lease' in the context of depreciation. It explained that a transaction of hire involves a temporary license to use the vehicle, with the option to purchase, while lease involves conveying the property for a prescribed term in exchange for periodic payments. The entry required the assessee to be actively engaged in running the vehicles on hire, which was not fulfilled by merely leasing out vehicles as a leasing and financing company. Therefore, the claim for higher depreciation was deemed unjustified.Applicability of Higher Depreciation Rate:The court concluded that the Department was justified in denying the claim for higher depreciation as the assessee did not meet the criteria of running the vehicles on hire. The judgment clarified that the benefit of normal depreciation was granted, and the dispute centered on the interpretation of the entry. The court dismissed the appeal, affirming the decision in favor of the Department and against the assessee. The argument that higher depreciation should be granted based on previous treatment was rejected, emphasizing the separate nature of each assessment year.