2023 (7) TMI 989 - AT - Income Tax

Partnership Firm Wins Appeal for Higher Depreciation Rate on Equipment

The Dy. Commissioner of Income Tax, Gandhidham Circle, Gandhidham Versus M/s. PC Patel And Co.

The Tribunal dismissed the Revenue's appeal, upholding the higher depreciation rate of 30% on specific equipment claimed by the Partnership Firm engaged ... Higher rate of depreciation on dumpers - @30% or @15% - HELD THAT:- As relying on HC own case [2018 (5) TMI 1172 - GUJARAT HIGH COURT] we have no hesitation in allowing the benefit of higher rate of depreciation @ 30% on Dumper, Tipper etc. to the assessee Thus the grounds raised by the Revenue is devoid of merits. ISSUES PRESENTED AND CONSIDERED 1. Whether dumpers, tippers and similar motor vehicles used by the taxpayer in execution of mining contracts qualify for higher rate of depreciation @ 30% under the applicable depreciation schedule for 'motor buses, motor lorries and motor taxis used in the business of running them on hire' rather than the standard rate @ 15%. 2. Whether the nature of the contract (award to perform mining work) precludes characterizing the taxpayer's activity as 'giving vehicles on hire' such that higher depreciation is inapplicable. 3. Whether, alternatively, if the taxpayer had taken equipment on hire (rather than given on hire), depreciation claim on such equipment would be impermissible. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Applicability of higher rate of depreciation @ 30% to dumpers/tippers used under mining contracts Legal framework: Section 32(1) (depreciation) and the relevant Appendix I (Part A, Capital-III) prescribe specific rates for tangible assets; sub-item [2] of Item [3] prescribes 30% for 'motor buses, motor lorries and motor taxis used in the business of running them on hire.' Precedent Treatment: The Tribunal and the Appellate authority had applied earlier judicial authority (including a High Court decision in the taxpayer's own case) and CBDT circulars interpreting the schedule to allow higher depreciation where motor lorries/vehicles are used in a business of running them on hire. The Court follows that High Court decision and the administrative circulars. Interpretation and reasoning: The contract/tender terms required the taxpayer to provide specified heavy equipment and motor vehicles for excavation, transportation of overburden and minerals, and to deploy such vehicles (tippers, dumpers etc.) at the direction of the principal. The terms restricted the taxpayer's control over deployment and barred removal of equipment without the principal's permission. Those contractual features establish that the taxpayer's business function under the contract was to provide equipment and vehicles on hire as part of the contract execution. Given that characterization, the vehicles fall squarely within the sub-item prescribing 30% where vehicles are used in the business of running them on hire. The Court also notes the CBDT Circulars which clarify that higher depreciation applies to motor lorries used in the business of transportation of goods on hire. Ratio vs. Obiter: Ratio - where contractual terms show that specialized vehicles and manpower are supplied on hire and deployed under the principal's control, such vehicles are 'used in the business of running them on hire' and are entitled to the 30% depreciation rate. Obiter - remarks querying whether use of equipment in the taxpayer's own direct mining operations (if that occurred) would alter the result; the Court observed the question but explicitly refrained from deciding it. Conclusion: The Court concludes that the vehicles qualify for the higher rate of depreciation @ 30%; the prior appellate findings are correctly followed and upheld. Issue 2 - Whether award of mining contract negates the characterization of activity as 'giving vehicles on hire' Legal framework: Same provisions of Section 32 and Appendix I; interpretive guidance from CBDT circulars addressing when vehicles are treated as used in business of running them on hire. Precedent Treatment: The High Court decision relied upon treated substantially similar facts and found no distinction between an awarded mining contract and a contract that effectively required provision of vehicles on hire; the Tribunal's view was affirmed by that High Court authority and is followed by the Court. Interpretation and reasoning: The Court analyzes the scope of contractual obligations - though the contract was framed as an award to carry out mining, its operative terms obligated the taxpayer to provide specified equipment and manpower, to operate under the principal's control, and to refrain from removing equipment without authorization. Those terms demonstrate the essential business activity was supplying equipment on hire. Even if the contract could be described as mining work, that characterization does not negate the factual matrix that the taxpayer's role was provision of equipment on hire. The Court also notes CBDT Circulars and prior jurisprudence which support that vehicles used in a business of providing/hiring transport services merit higher depreciation. Ratio vs. Obiter: Ratio - the nature of the contract (labeled 'mining') does not automatically preclude treating the activity as providing vehicles on hire where contract terms show the supply and control characteristics of hire arrangements. Obiter - ancillary observations concerning interplay with other jurisprudence (e.g., Supreme Court commentary referenced) which were noted but not necessary for the decision. Conclusion: The Court holds that awarding of a mining contract does not preclude the taxpayer from being treated as running vehicles on hire for purposes of claiming 30% depreciation where contract terms demonstrate provision and control consistent with hiring out equipment. Issue 3 - Alternative contention that if equipment were taken on hire by the taxpayer, depreciation could not be claimed Legal framework: Section 32(1) allows depreciation in respect of assets 'owned' by the taxpayer and used for business; assets taken on hire (leased) may not qualify for depreciation claim by the hirer depending on ownership and relevant tax principles. Precedent Treatment: The Court records that the Revenue advanced this alternative ground, but the primary record and authorities treated here concern the taxpayer as provider of equipment on hire. The Court notes the issue but does not find it arising on facts. Interpretation and reasoning: The Court finds no factual foundation on the record that the taxpayer had taken the equipment on hire; rather the contractual documentation and tender terms point to the taxpayer supplying equipment. Given the absence of factual basis for the alternative contention, the Court does not engage in substantive adjudication of the legal consequences if the taxpayer had been an acquirer of hired equipment. Ratio vs. Obiter: Obiter - the alternative submission that assets taken on hire would preclude depreciation is noted but not decided; the Court expressly refrains from determining that question because it does not arise on the record. Conclusion: The alternative ground is not accepted on the facts and is not adjudicated; depreciation entitlement is considered only in the context of the taxpayer supplying vehicles on hire. Disposition/concluding determination: Applying the statutory depreciation schedule, relevant administrative circulars and controlling precedent, the Court concludes that the concerned motor vehicles used under the contracts qualify for higher depreciation @ 30% and therefore dismisses the Revenue's appeal.