1991 (2) TMI 165 - AT - Income Tax

Appellate tribunal upholds 30% depreciation rate for vehicles not used for hire business.

The appellate tribunal ruled in favor of the revenue, holding that the trucks owned by the assessee were not used in the business of running them on hire, ... Higher Rate, Rate Of Depreciation Issues:1. Dispute over depreciation rate on trucks owned by the assessee - 30% or 40%.Detailed Analysis:The appellate tribunal addressed the dispute raised by the revenue regarding the entitlement of the assessee to depreciation at either 30% or 40% on the trucks owned by them. The assessee, a Private Limited Company running a flour mill, had purchased two trucks for Rs. 4,09,818 during the relevant period. The disagreement arose as the trucks were used for both the company's business and running them on hire. The initial claim for 40% depreciation was rejected by the Income Tax Officer (ITO), allowing only 30% depreciation. However, the Commissioner of Income Tax (Appeals) accepted the higher depreciation claim based on the trucks being registered as Public Carriers and primarily used for transporting goods for customers, directing the ITO to allow 40% depreciation.The dispute revolved around the interpretation of the relevant entries in the 'Table of Depreciation' under Part III of Appendix I to the Income-tax Rules, 1961. The tribunal highlighted the distinction between the rates of depreciation for motor buses, lorries, and taxis used in different types of businesses. Entry D(9) allowed 30% depreciation for vehicles not used in the business of running them on hire, while Entry E(1A) permitted 40% depreciation for vehicles specifically used in the business of running them on hire. The tribunal emphasized that the nature of the business in which the vehicles were used determined the applicable depreciation rate.The tribunal further analyzed the legislative intent behind the differential treatment of assets for depreciation. It compared the treatment of motor buses, lorries, and taxis, emphasizing that vehicles used in the business of running them on hire were eligible for higher depreciation rates. The tribunal also considered a circular by the Central Board of Direct Taxes (CBDT) regarding the depreciation rate for motor vans, aligning them more closely with lorries and buses than cars. This analysis underscored the importance of the specific business context in determining depreciation rates.The tribunal examined the distinction between earning income from giving a vehicle on hire and earning income from the business of running it on hire. It emphasized that systematic and organized use of vehicles for hire constituted running them on hire as per the relevant entry. The tribunal clarified that incidental use for transportation of goods did not qualify as running vehicles on hire, as evidenced by the assessee's primary business activity of manufacturing and selling flour products.In conclusion, the tribunal held that the trucks were not used in the business of running them on hire during the relevant year. Therefore, the higher depreciation rate of 40% under Entry E(1A) was deemed inapplicable, and the correct 30% depreciation rate under Entry D(9) was upheld. Consequently, the orders allowing 40% depreciation were deemed unsustainable, and the appeals were allowed in favor of the revenue.