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Issues: (i) Whether the assessee was entitled to depreciation at the higher rate on motor vehicles given on lease, and whether remand to the Assessing Officer was warranted. (ii) Whether amounts transferred to the special reserve under Section 45-IC of the Reserve Bank of India Act, 1934 and the debt redemption reserve were liable to be added back while computing book profit under Section 115JB of the Income-tax Act, 1961.
Issue (i): Whether the assessee was entitled to depreciation at the higher rate on motor vehicles given on lease, and whether remand to the Assessing Officer was warranted.
Analysis: Depreciation under Section 32 of the Income-tax Act, 1961 is available where the asset is used for the purposes of the assessee's business, and the decisive consideration is business use rather than direct use by the assessee itself. Vehicles given on lease were treated as given on hire, and the position stood covered by the binding decision of the Supreme Court, which recognised the lessor's entitlement to depreciation at the higher rate applicable to hired vehicles. On that basis, no further verification by the Assessing Officer was necessary.
Conclusion: The assessee was entitled to the higher rate of depreciation and the remand was unwarranted. The issue is decided in favour of the assessee.
Issue (ii): Whether amounts transferred to the special reserve under Section 45-IC of the Reserve Bank of India Act, 1934 and the debt redemption reserve were liable to be added back while computing book profit under Section 115JB of the Income-tax Act, 1961.
Analysis: Clause (b) of Explanation 1 to Section 115JB requires addition back of amounts carried to any reserve by whatever name called, and the statutory reserve created under Section 45-IC was an appropriation of profits after they were earned, not a diversion at source or a liability. The debt redemption reserve was also not shown to be an ascertained liability or a provision for a known liability. Amounts falling within clause (b), and unascertained provisions within clause (c), were therefore includible in book profit.
Conclusion: The additions to book profit were correctly made. The issue is decided in favour of the Revenue.
Final Conclusion: The appeal succeeds only on the depreciation issue and fails on the computation of book profit, with the result that the challenge is accepted in part and rejected in part.
Ratio Decidendi: For section 32 depreciation, leased vehicles used in the course of the assessee's business can qualify as vehicles used on hire; for section 115JB, statutory or other amounts appropriated to reserves, and amounts not shown to be ascertained liabilities, are includible in book profit under the statutory adjustments.
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