2011 (4) TMI 40 - HC - Income Tax

High Court rules against leasing company's claim for higher depreciation rate, distinguishing between 'lease' and 'hire.'

The High Court upheld the Tribunal's decision denying a leasing company's claim for a higher depreciation rate of 50% on leased vehicles, ruling that the ... Depreciation allowance - Higher rate of depreciation - under Entry No. III(2)(ii) of Appendix-I - The assessee company is a leasing company which is engaged in leasing of plant and machinery, motor cars, etc. to its client - It is neither the case of the assessee nor is there anything on record to indicate that the assessee uses the vehicles in question in its business of transportation or that the assessee is engaged in the business of hire - In the circumstances, the basic requirement for being entitled to depreciation at the higher rate of 50 per cent under Entry No. III(2)(ii) of Appendix-I to the Rules is not satisfied by the appellant - In other words, appellant does not pass the test for the applicability of Entry No. III(2)(ii) of Appendix-I appended to the Rules, viz., the user of the vehicles in the business of the assessee of transportation or the business of hire - The Tribunal was, therefore, justified in holding that the appellant is entitled to depreciation at the rate of 33.33 per cent and not at the rate of 50 per cent as claimed by it. Hence the question is answered in the affirmative, that is, in favour of the revenue and against the appellant-assessee - The Income-tax Appellate Tribunal was right in law, in holding that the appellant was not entitled to depreciation allowance under Entry No. III(2)(ii) of Appendix-I of the Income-tax Rules, 1962, in respect of vehicles given on lease - The appeals are accordingly dismissed with no order as to costs. Issues Involved:1. Entitlement to depreciation allowance under Entry No. III(2)(ii) of Appendix-I of the Income-tax Rules, 1962, for vehicles given on lease.Detailed Analysis:Issue 1: Entitlement to Depreciation Allowance under Entry No. III(2)(ii)Facts and Procedural History:The appellant, a leasing company, challenged the orders of the Income-tax Appellate Tribunal for the assessment years 1989-90, 1990-91, 1991-92, and 1992-93, wherein the Tribunal denied the higher depreciation rate of 50% on leased motor vehicles, allowing only 33.33%. The appellant contended that vehicles given on lease should qualify for the higher depreciation rate as they are used for the business of running them on hire.Appellant's Arguments:The appellant argued that the Tribunal erred in interpreting Entry No. III(2)(ii) of Appendix-I of the Income-tax Rules, 1962. According to the appellant, vehicles given on lease should be treated as vehicles used for hire, thereby qualifying for the higher depreciation rate of 50%. The appellant relied on the decisions of the Karnataka High Court in CIT v. BPL Sanyo Finance (P.) Ltd. and the Kerala High Court in CIT v. Balakrishna Transports, which supported the view that vehicles used for hire, whether by the owner or lessee, should qualify for higher depreciation.Respondent's Arguments:The respondent supported the Tribunal's decision, emphasizing that the appellant's primary business was leasing, not hiring. The respondent argued that the term 'hire' should not be interpreted to include 'lease,' as the language of Entry No. III(2)(ii) explicitly uses 'hire.' The respondent cited the Supreme Court's decision in CIT v. Gupta Global Exim (P.) Ltd., which held that higher depreciation is admissible only for motor trucks used in the business of running them on hire.Tribunal's Findings:The Tribunal held that the appellant was not entitled to the higher depreciation rate of 50% as it was not engaged in the business of running vehicles on hire. The Tribunal distinguished between 'lease' and 'hire,' stating that the higher depreciation rate applies only to vehicles used in the business of running them on hire.Judicial Precedents:1. Karnataka High Court in CIT v. BPL Sanyo Finance (P.) Ltd.: The court held that vehicles hired out by the assessee qualify for higher depreciation, irrespective of whether they are hired to a sister concern or a third party.2. Kerala High Court in CIT v. Balakrishna Transports: The court emphasized that the key question is whether the vehicles are used for hire in the assessee's business.3. Supreme Court in CIT v. Gupta Global Exim (P.) Ltd.: The court clarified that higher depreciation is admissible only for motor trucks used in the business of running them on hire.High Court's Analysis:The High Court agreed with the Tribunal's interpretation, stating that the appellant's business of leasing does not qualify for the higher depreciation rate under Entry No. III(2)(ii). The court emphasized the distinction between 'hire' and 'lease,' noting that the legislative intent was to grant higher depreciation only for vehicles used in the business of running them on hire. The court found that the appellant's business model did not meet this criterion, as the vehicles were leased and not hired out.Conclusion:The High Court concluded that the appellant was not entitled to the higher depreciation rate of 50% under Entry No. III(2)(ii) of Appendix-I of the Income-tax Rules, 1962. The appeals were dismissed, and the Tribunal's decision was upheld, affirming that the appellant was entitled to depreciation at the rate of 33.33%.Final Judgment:The question was answered in the affirmative, in favor of the revenue and against the appellant-assessee. The appeals were dismissed with no order as to costs.