Depreciation on vehicles used for hire turns on business use, not the identity of the hirer.

Motor vehicles deployed in the business of running them on hire qualify for the higher depreciation rate under Item III of Appendix I to the Income-tax Rules, 1962. The decisive test is the nature of the business use of the vehicles, not the identity of the hirer. Where buses, lorries or taxis are used on hire, depreciation is admissible at 40 per cent rather than 20 per cent, even if the vehicles ferry employees of a sister concern. The legal position therefore turns on use in hire business and not on whether the user is a related party or an outsider.

---

---

Issues: Whether motor vehicles used for ferrying employees of a sister concern were entitled to depreciation at the higher rate applicable to vehicles used in the business of running them on hire.

Analysis: Under Item III of Appendix I to the Income-tax Rules, 1962, motor cars not used in the business of running them on hire attract depreciation at 20 per cent, while motor buses, motor lorries and motor taxis used in the business of running them on hire attract depreciation at 40 per cent. The controlling consideration is the nature of the business in which the vehicles are deployed, namely whether they are used in the business of running them on hire. The identity of the hirer is immaterial, whether a sister concern, third party or stranger.

Conclusion: The assessee was entitled to depreciation at 40 per cent on the vehicles, and not at 20 per cent.

Final Conclusion: The higher depreciation rate applies where the vehicles are used in the business of running them on hire, irrespective of who hires them.

Ratio Decidendi: For depreciation classification, the decisive test is whether the vehicles are used in the business of running them on hire, not the identity of the person to whom they are hired.

---