TaxTMI 
TaxTMI 
2008 (3) TMI 358
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.... 2. The ld. CIT (Appeals) further erred in holding that depreciation has been rightly claimed on imported car without appreciating the fact that the taxi facilities were provided to their own hotel guests/clients and not to the tourists in general. 3. The learned CIT(A) also erred in directing the Assessing Officer to allow depreciation without appreciating the fact that the assessee was not running any independent business of tour and traveling." 2. In the assessment order, it is mentioned that the assessee has been conducting the business of running hotels inDelhiandAgra. The assessee claimed depreciation of Rs. 11,44,317 on German made car, Mercedez Benz Type S-320, Sedan Long. He referred to the provisions of section 32 of the Act, which permits deduction of depreciation on motor cars manufactured outsideIndiaif it is inter alia used in the business of running it on hire for tourists. He was of the view that the assessee was engaged in the business of running hotels and not running motor cars on hire for tourists. Therefore, he dismissed the claim of the assessee. 2.1 Before the ld. CIT (Appeals), it was represented that the motor cars were used for providing transp....
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.... 2,96,537 ----------------------------------------------------------- 5. 1999-2000 49,250.00 1,77,922 ----------------------------------------------------------- 6. 2000-01 37,000.00 1,06,753 ----------------------------------------------------------- 7. 2001-02 67,215.00 11,44,317 @ 20% ----------------------------------------------------------- 8. 2002-03 29,280.00 8,85,454 @ 20% ----------------------------------------------------------- 9. 2003-04 273.00 7,31,733 @ 20% ----------------------------------------------------------- 4. As against the aforesaid, the learned counsel for the asses....
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....it may be incidental to the running of the hospital. In view thereof, it was held that the assessee was entitled to deduction of depreciation at higher rate of 40 per cent. He also relied on the decision of Hon'ble Rajasthan High Court in the case of CIT v. Lake Palace Hotels & Motels (P.) Ltd. [2006] 286 ITR 589. TheHon'ble Courtpointed out that the question whether a motor car has been used in the business of plying on hire is a question of fact. There was no bar on the assessee to combine a number of businesses. The condition precedent to grant of depreciation is that the motor car was used for plying on hire for the tourists. The Board Circular clarifies that when it is used by a travel agent etc. in the package tour, the aforesaid condition is satisfied. There was no reason to deny benefit to a hotelier when the motor car is used to transport tourists for separate and independent charges. The Tribunal had given a finding that this was an independent business as the motor car was provided on demand for hire charges. Thus, it was held that the depreciation was deductible. 5. We have considered the facts of the case and rival submissions. The facts advanced by the learned coun....
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....beneficial circular, applicable to tour operators, and travel agents, to hotel business, where there are no or nominal hire charges, will amount to usurping the powers of the Board, granted to it under section 119 of the Act. The Tribunal has to decide the controversy on merits, of course, by taking Board circular, as it exists, into account. If we do that, it is found that the motor cars were used in the business of hotel and not in the business of running them on hire for tourists. Therefore, we are of the view that the learned CIT (Appeals) erred in allowing the deduction of depreciation to the assessee. 6. In the result, both the appeals of the revenue are allowed. Per K.C. Singhal, Judicial Member.- 7. After going through the order proposed by my Ld. Brother and having discussed the matter, I have not been able to persuade myself to agree with the conclusion arrived at by him. Therefore, a separate order is being passed by me. 8. The question for consideration of the Bench is whether the assessee is entitled to depreciation on car imported by the assessee under the first proviso to section 32(1) of Income-tax Act, 1961 (The Act) which provides that no deduction by ....
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....be allowed in the case of tour operators or travel agents who use such cars for providing transportation services to tourists. It has been further clarified that legal position would not change if the transportation services are provided as part of the package tour for tourists since a tourist who opts for a package tour agrees to pay for a number of services including the use of the car. Thus it can be seen that car has been taken on hire from such tour operator. In view of such Board circular, it has to be held that depreciation would be allowed even where hiring of car is incidental to main business carried on by the assessee. 12. The view expressed in the preceding para is also fortified by the judgment, of hon'ble Rajasthan High Court in the case of Lake Palace Hotels & Motels (P.) Ltd. In that case, the assessee was engaged in the business as a hotelier. It used foreign made cars also for transportation of tourists and therefore, claimed depreciation on such cars. The claim was disallowed on the ground that assessee was not engaged in the business of running the cars on hire but it was only an activity incidental to hotel activity. The Tribunal allowed the claim after reac....
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....onditions of the proviso to sub-clause (1)(b) of section 32 of the Income-tax Act, 1961. If a total package of boarding or lodging and transportation by one person can result in bifurcation of service by providing for transport on hire to its customers to hold it as a vehicle used for carrying on business of running it on hire, there is no reason to deny the same interpretation and the result in the case of a hotel having the package of boarding and lodging and providing transport service as a separate and independent condition as a part of a package to be offered which includes boarding, lodging and fare for hiring cars on separate and independent charges when such demand is made. It is not essential for them to have the transport as part of one consideration, whether used or not. Obviously, charging hire is a result of an independent contract." Applying the aforesaid legal position, the hon'ble Court upheld the order of the Tribunal by observing as under:- "In that view of the matter, firstly we are of the opinion that the circular dated29-7-1991, fully supports the view which the Tribunal has taken. Apart from that the Tribunal has also referred to the fact that the assess....
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....lowed by the tax authority as is apparent from the order of Assessing Officer under section 143(3) for assessment year 199596 read with the statement of accounts filed by the assessee in the paper book at pages 3 to 8. In earlier years, the assessee had imported Honda car on 15-2-1988, Mercedes car on 30-3-1989 and another Mercedes car on 31-5-1994, which were being used for transporting foreign tourists as is apparent from the application dated 25-2-2000 made to Government of India, Department of Tourism, for permission to import another Mercedes car as earlier cars had become old and need replacement. The perusal of the application also shows that car was required to be used exclusively by foreign tourists. Same justification was given by the assessee in the application made to RBI dated9-2-2000, copy of which is placed at pages 12-17 of the paper book. The copy of the import licence appearing at page 9 of the paper book shows that licence was granted subject to the condition that car would be used for hotel business and would not be sold or disposed of otherwise. The endorsement on the licence shows that car was imported inIndiaon29-8-2000. These evidences clearly show that asse....
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....d depreciation on imported car which was disallowed with the following observations:- "The assessee is not in a business of running cars on hire for tourists. As this car is manufactured outsideIndia, in view of clear provision of section 32 of the Income-tax Act, 1961, the depreciation claimed on this Mercedes car is not allowable. Therefore, depreciation of Rs. 11,44,317 claimed on imported car is disallowed and added back to the income of the assessee." 3. The assessee impugned above disallowance in appeal before the CIT(A) and contended that Mercedes Benz car, on which depreciation was not allowed, was imported by the assessee for use in the business of running car on hire for tourists. The hotel business was carried fromDelhi. It started atAgraalso in the assessment year under consideration. It was submitted that the imported car was purchased for purpose of providing transport facilities to its guests/clients for which separate account was maintained from year to year. The assessee drew attention to receipts shown in the past from car hire. Accordingly, depreciation on the imported car was claimed in appeal. The ld. CIT(A) allowed the claim of the assessee with the foll....
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....er did not agree with the above proposed order of the learned Accountant Member. He noted requirement of first proviso to section 32(1) of the Income-tax Act, and also the facts found by ld. CIT(A) in the impugned order. Ld. Judicial Member first discussed the legal position in the light of Circular No. 609 dated27-9-1971and decision of Hon'ble Rajasthan High. Court in the case of Lake Palace Hotels & Motels (P.) Ltd. On the basis of Circular referred to above, he concluded that depreciation on importing cars would be permissible if cars are used for providing transportation services to tourists. This legal position would not change if transportation services are provided as part of package tour for tourists since the tourist who opts for package tour agrees to pay for a number of services including the use of car. This, according to the learned Judicial Member, is clarified in the Circular of the CBDT. 6. Ld. Judicial Member also discussed judgment in the case of Lake Palace Hotels & Motels (P.) Ltd. He noted the facts of that case where the assessee was engaged in business as an hotelier. It used foreign made car for transportation of tourists and claimed depreciation on such ....
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....result in the case of a hotel having the package of boarding and lodging and providing transport service as a separate and independent condition as a part of a package to be offered which includes boarding, lodging and fare for hiring cars on separate and independent charges when such demand is made. It is not essential for them to have the transport as part of one consideration, whether used or not. Obviously, charging hire is a result of an independent contract." Applying the aforesaid legal position, theHon'ble Courtupheld the order of the Tribunal by observing as under:- "In that view of the matter, firstly we are of the opinion that the circular dated29-7-1991, fully supports the view which the Tribunal has taken. Apart from that the Tribunal has also referred to the fact that the assessee is charging hire for providing the vehicle to its customers as independent business, which is corroborated by the fact that the vehicles were imported by the assessee with the approval of the Reserve Bank of India under the taxi quota only, giving out a clear intention that it is running them on hire. The assessee has also referred to the fact and which is not denied that the responden....
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....was imported inIndiaon29-8-2000. These evidences clearly show that assessee had imported the car in assessment year 2001-02 for exclusive use of tourists. The only question is whether such car was used for transporting the tourist on hire. The case of the assessee has been that due to drop in business, no separate charge was made from tourists but offered the car for use by tourists from and to airport as part of package. The Board has already clarified that the claim of the assessee cannot be rejected merely on the ground that the car is used as part of package. There is no evidence that the car was used for some other purposes. When the car was imported on the conditions that it would be used only for the purpose of transporting the tourists, it can well be presumed that the car was used for such purpose. If such car was used as part of the package then naturally no separate charge would appear in the books of account. But it does not mean that the car was not used for carrying the foreign tourists. Accordingly, it is held that the car was used in business of running the same on hire and consequently, the assessee is entitled to depreciation. The order of the CIT(A) is, therefore....
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....of use by tourists. Shri Marwah also drew my mention to copies of application and license granted by competent authorities available at pages 9 to 19 of the paper book. No dispute was raised on the above facts stated by the assessee. In fact, these were specifically admitted all along in the past and depreciation claimed was allowed. The matter, according to Shri Marwah, was also covered in favour of the assessee as per Circular No. 609 dated29-7-1991of CBDT where in para 2.2 reads as under:- "Where tour operators or travel agents use certain foreign motor cars, owned by them, for providing transportation services to tourists, depreciation should be allowed on these cars. The position will not change even where such transportation services are provided as part of a package tour for tourists, which may include a number of other services like boarding lodging, service of guides, etc. A tourist, who opts for a package tour, agrees to pay for a number of services including use of car provided to him by the tour operator or travel agent. Thus, it can be said that the car has been taken by him on hire from such tour operator or travel agent. Therefore, depreciation on foreign motor ca....