TaxTMI 
TaxTMI 
2007 (8) TMI 401
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.... 3. Briefly stated the facts of the case are that the assessee is in the business of hiring of cranes and other equipments. During the course of assessment proceedings, it was observed by the Assessing Officer (AO) that two cranes having Model No. Cole 620M and Cole 825(1) were declared as purchased on 27-3-1991 from M/s. TIL Ltd., Calcutta. Since these two cranes were purchased at the fag end of the financial year, therefore, the Assessing Officer has raised certain enquiries in respect of allow ability of depreciation. We shall take up the facts of the case one by one in respect of both the cranes. 4. The facts in respect of crane having Model No. Cole 620M was that the assessee has placed the orders with M/s. TIL Ltd., Calcutta and the admitted position is that in August 1990, an advance of Rs. 6,50,000 was paid. The Assessing Officer has observed that the balance amount was stated to be paid at the time of delivery. It is also on record, as per Assessing Officer, that on 16-3-1991 M/s. TIL issued sale letters and on the basis of those sale letters, the assessee has also received the temporary registration from RTO Calcutta on 19-3-1991. Further explaining the fact to the Ass....
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....e permanent registration of the said vehicle was granted on 14-4-1991 and, thereafter, only the assessee was entitled for commercial use of the vehicle. According to Assessing Officer, the temporary registration was only for the purpose of transportation of the vehicle. As far as the explanation regarding the test of the crane was concerned, the Assessing Officer was of the view that the supplier has to test all the cranes, hence, do not support in any manner, the claim of depreciation. Finally, he has concluded that since the purchase of the said asset was without any authority and the vehicle was not capable to be used commercially and the vehicle did not reach the place where it was required, therefore, due to these reasons, it was not used at all for the business purposes within the financial year. 5. The facts in respect of crane having Model No. Cole 825(1) are as follows: The observation of Assessing Officer was that the said machinery was kept as standby crane from 22-3-1991 at the premises of M/s. Light Motive, Calcutta. It was found by the Assessing Officer that the contract with M/s. Light Motive was to provide the subject crane on hire at the rate of Rs. 2,50,000 per....
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....the machinery was being not used by the assessee but remained idle or unused due to certain reasons, therefore, could not be said to be even the passive user of the asset. By citing section 32 of the Income-tax Act, he has confirmed the action of Assessing Officer. Since the disallowance was affirmed, hence the assessee is further in appeal now before us. 7. We have heard submissions of both the sides at length and also carefully examined the factual matrix of the case in the light of several case-laws cited and material placed before us. At the outset, it is necessary to place on record that the undisputed fact is that assessee is in the business of giving on hire cranes and other equipments. Thus, hiring business is not in dispute and accepted by both the sides. This fundamental fact is necessary to be recorded because the issue raised before us is directly dependent on the fact that whether a machinery can be said to be put to use by lessor company on acquisition for its business purpose of hiring though the lessee has not started using the asset during the financial year under consideration. This question can further be bifurcated into two limbs- (a) whether on purchase and ....
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....remises, therefore, the manufacturer of the crane has made the correspondence sometimes in one name and sometimes in another name but in either case, it was related to the same crane and meant to be addressed to the assessee. Page 6 of the paper book specify the details of payment made to TIL Ltd. by the assessee-company, which were within the financial year. Ld. A.R. has stressed that as far as the ownership of the crane is concerned; the same was not objected or doubted by the revenue authorities. He has also drawn our attention to Consignment Note on page 27 of the paper book dated 27-3-1991 of Assam Road Carriers through which the said crane was transported from Calcutta to Kariakal, T.N. The arguments of ld. AR was that the assessee being in the business of hiring of crane, is entitled for claim of depreciation in the year in which the crane was undoubtedly purchased by the assessee and put to use for the purpose of hiring. He has also vehemently argued that it is immaterial as far as the hiring company is concerned for the purpose of depreciation in its hand, whether the vehicle hired out was used by the hirer or the lessee for their respective business purpose. In support th....
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....iation. 8.1 Within this narrow compass of facts and legal position and in view of the questions framed supra, we are of the considered view that the assessee has a strong case in view of the reasons assigned here-in-below. Basic condition of claim of depreciation is ownership over an asset. This is undisputedly fulfilled by the assessee due to the reason that the letter of sales as well as payments all are within the financial year. The next condition is the delivery of an asset within the financial year and that too is not in dispute and duly established by placing relevant material on record. Necessary facts in this regard have already been discussed in detail in above paragraphs. As far as the objection of the revenue in respect of letter of the intent is concerned, on examination of the material placed on record and several correspondence made by the assessee and its sister concern with ONGC, we are of the view that certain technical formalities have been completed, otherwise the ONGC has placed its order way back in October 1990 with the specification of the crane as required at Kariakal, T.N. site. Whether on this technical ground that the letter of intent was replaced in ....
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.... from both the sides and on careful examination, we have noticed that the Hon'ble Kerala High Court in the case of Geo Tech Construction Corpn., has held that the words "used for the purpose of the business" were capable of a larger and narrower interpretation. If the expression "used" was construed strictly it could be taken as connoting or requiring the active employment or the actual working of the machinery, plant or building in the business. On the other hand, the wider meaning would include not only cases where the machinery, plant were actively employed but also cases where there was what may be described as passive user of the same in the business. An asset could be said to be used, when it was kept ready for use. Since the Tribunal had recorded the finding that there was positive material to show the existence of the asset at the work site, and about the passive user it could not be termed to be one without any basis or illegal. Accordingly, the claim for depreciation was allowable. In an another case, Hon'ble Bombay High Court viz. Mirza Ataullaha Baig's case, has opined that "the law is well-settled that in a case of sale in which the price is to be paid b....
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....as explained that in respect of crawler crane, the depreciation at the rate of 33.33 per cent was claimed, however, in respect of mobile crane or truck mounted crane, depreciation at the rate of 50 per cent was claimed. The first appellate authority has not accepted the claim of the assessee and held that the said crane would be eligible for normal depreciation at the rate of 33.33 per cent. 12. The case laws cited from the side of the assessee are as follows:- 1. Gujco Carriers v. CIT [2002] 256 ITR 50 (Guj.) 2. Sanco Trans Ltd. v. Asstt. CIT [1997] 61 ITD 317 (Mad.) 3. CIT v. Bansal Credits Ltd. [2003] 259 ITR 69 (Delhi) 4. CIT v. Madan & Co. [2002] 254 ITR 445 (Mad.). In view of above citations, the issue is now very well-settled because several Courts have held that the Mobile cranes are entitled for higher rate of depreciation. The Hon'ble Gujarat High Court in the case of Gujco Carriers has held that the mobile crane of the assessee which admittedly was registered as a heavy motor vehicle, as is the case of the assessee, would clearly fall within the expression "Motor lorries in entry IIIE (1A) of the Table in Appendix I under rul....
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....nquiries were conducted which reveal, as per Assessing Officer, that the cranes were purchased by the assessee on 11-1-1993 and shifted to Madras on 21-1-1993. Here it is relevant to mention that the previous year ended on 31-3-1993. It was also observed that the cranes were landed at Madras on 26-2-1993 which were cleared from Customs on 12-3-1993. Due to this reason, the Assessing Officer was of the view that the cranes were not put to use during the year under consideration. On the other hand, the contention of the assessee was that the business of the assessee-company was to operate cranes on hire though, these two cranes were ready for use for the business of the assessee. When the issue was carried before the first appellate authority, the ld. CIT(A) has simply mentioned that in the past, for the assessment year 1991-92, on almost identical facts and circumstances, his predecessor had disallowed the claim of depreciation. In a brief finding, the ld. CIT(A) has followed the past history and confirmed the action of the Assessing Officer. 17. We have already discussed this issue at length and following certain precedents have held that since the cranes were purchased during t....
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....r lorries as specified in clause III(2)(ii) of Appendix I." The Assessing Officer has allowed depreciation on truck mounted cranes at the rate of 25 per cent being the rate applicable to plant and machinery instead of 40 per cent being the rate applicable to trucks and motor lorries used in the business of hiring. The first appellate authority has simply followed the assessee's own appeal decided by his predecessor for the assessment year 1991-92 and confirmed the action of the Assessing Officer. Now as per above, we have already decided that appeal relying upon certain precedents and directed to allow the higher rate of depreciation. Since a view has already been taken in above paras, hence following the same for this year as well, the ground raised by the assessee is hereby allowed. 19. In the results, the appeals are allowed. ORDER Per K.G. Bansal, Accountant Member.- The facts of the case in Appeal No. 687/PN/94, for assessment year 1991-92, regarding a crane, having Model No. Cole 620M, for assessment year 1991-92 have been fairly stated by my learned Brother in paragraph 4 of his order. These relevant facts may be briefly recapitulated here. The assessee ha....
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....uch contract of hire has not come into existence in the relevant previous year, the assessee will not be entitled to deduct depreciation or claim investment allowance while computing the income. The learned DR had also relied on the decision of Bombay High Court, Nagpur Bench, in the case of Dineshkumar Gulabchand Agrawal. The Hon'ble Court had to decide the matter whether user of asset also includes in its ambit an asset which is ready for use but not actually, used. The Hon'ble Court considered its own earlier decision in the case, of Whittle Anderson Ltd v. CIT [1971] 79 ITR 613 (Bom.). In that judgment, the Court was concerned with the interpretation of the expression "use" or "used", whereas in the case of Dineshkumar Gulabchand Agrawal, the Court was concerned with the interpretation of the word "used". The Hon'ble Court pointed out that the expression "used" means actually used for the purpose of business and not "ready for use". Being the decision of jurisdictional High Court, this decision is of binding nature. The facts of the instant case are that privity of contract between the assessee and ONGC took place only on 17-4-1991, when ONGC started paying hire cha....
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....dings given by him. In result, ground Nos. 1 and 2 of the appeal are dismissed. REFERENCE UNDER SECTION 255(4) OF THE INCOME-TAX ACT, 1961 By virtue of the provisions contained in section 255(4) of Income-tax Act, we differ in opinion on the certain points, therefore, refer the following points to the Hon'ble President, ITAT, for necessary orders:- "(1) Whether under the facts and circumstances of the case, there was an existence of contract of hire between the parties in the previous years relevant to the assessment years 1991-92 and 1993-94. (2) Whether under the facts and circumstances of the case, for the purposes of depreciation, the hiring of machinery was with effect from the date of transportation of machinery started or from the date when the hire charges had actually been paid. (3) Whether under the facts and circumstances of the case, the actual use of machinery in the hands of the assessee started when the machinery was dispatched to its destination or when the machinery is put to use by the hirer. (4) Whether the machinery is said to be put to use in case of assessee in the business of hiring when the machinery was ready fo....
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....atisfied. 4. The assessee brought the following facts on record. In respect of crane Model No. Cole 620M, it was claimed that order for purchase of this crane was placed in August, 1990 and advance of Rs. 6,50,000 was paid. The seller M/s. TIL Ltd. issued sale letter on 16-3-1991 and assessee obtained temporary registration of crane from RTO, Calcutta on 19-3-1991. It was further explained that assessee's sister concern M/s. Sanghvi Non-ferrous Metal Industries Pvt. Ltd. had obtained a Letter of Intent for deployment of Cole 620M crane with ONGC at Kariakal, Tamil Nadu on 4-10-1990. The said sister concern was not in a position to fulfil the commitment and, therefore, a joint request was made by the assessee and sister concern to ONGC to transfer the Intent in the name of the assessee. It was further claimed by the assessee that performance specifications of the crane were tested and examined by M/s. TIL Ltd., as per requirement of ONGC between 19-3-1991 to 22-3-1991. The assessee has also made arrangement to transport the said crane to Kariakal (Tamil Nadu) by delivering the crane to Assam Roadways on 27-3-1991. In the above circumstances, it was claimed that crane was p....
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....ged. According to the Assessing Officer, the assessee had no obligation to keep a standby crane which had costed the assessee Rs. 43 lakhs. On the basis of his enquiry, the Assessing Officer found that there was no break-down of crane No. 830 during the relevant period. In this connection, he relied upon the statement of Director of company Shri A.D. Sanghvi, recorded under section 131 of the Income-tax Act. Some of the questions and answers thereto are reproduced in the assessment order. The Assessing Officer held that crane was lying idle and was not used for any business during the relevant accounting period. He further pointed out that crane was not charted for any commercial purposes. The crane was delivered to the assessee only on 27-3-1991 and had temporary registration with registration authority, South 24 Pargana, Calcutta on 19-3-1991. The temporary registration only entitles the assessee to remove or transport crane but did not authorize its use for commercial purposes. As the crane was not used in the financial year, the Assessing Officer disallowed the claim of depreciation relying upon case laws cited in the assessment order. 7. The assessee impugned above disallow....
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....lfil the requirement, an order was placed with M/s. TIL Ltd. who had confirmed to supply crane of above specification by December, 1990. The learned Judicial Member also noted that there was correspondence between assessee and its sister concern to establish that both were operative from the same premises and both the parties had exchanged correspondence relating to the same crane. The Judicial Member also noted that assessee made payments towards sale price of the crane to TIL Ltd. within the financial year. He, therefore, concluded that there was no doubt or dispute relating to ownership of the claim. It was further proved that crane was dispatched from Calcutta to Kariakal, Tamil Nadu on 27-3-1991 through Assam Road Carriers. The learned Judicial Member also noted following decisions, cited on behalf of the assessee: 1. Geo Tech Construction Corpn.'s case 2. Mirza Ataullaha Baig's case 3. Dilip Singh Sardarsingh Bagga's case. 8.1 The learned Judicial Member also noted the arguments of Departmental Representative that on temporary registration, the crane could not be used for commercial purposes. Permanent and final registration was grant....
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....the assessee was replaced in the subsequent financial year, but the assessee has acted in a bona fide manner and accomplished all the conditions to fulfil the obligation of its sister concern of supply of the crane within the time to ONGC. He further treated as "reasonable" the explanation offered by sister concern for not purchasing and supplying crane. The learned Judicial Member ultimately concluded as under: "Considering number of evidences in respect of the Crane, Model No. Cole 620-M, it is evident that the crane was purchased and put to use for the purpose of business of hiring by the assessee during the accounting year under consideration." He accordingly directed that depreciation on crane Model No. Cole 620-M be allowed. 9. As far as crane Model No. Cole 825 is concerned, the learned Judicial Member observed, "there is no dispute as far as the purchase and delivery of the said machine is concerned. The only dispute is that the said crane was kept as a standby crane." In this regard, the learned Judicial Member observed as under: "However, in this regard, there are several evidences placed on record, establishing the fact that the hirer of the crane....
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.... cranes. The Assessing Officer had found that appellant had imported two Kato cranes during the year under consideration with its contract with ONGC and claimed depreciation at the rate of 12.5 per cent of cost of the cranes. Enquiries conducted by the Assessing Officer revealed that cranes were purchased by the assessee on 11-1-1993 and shifted to Chennai on 21-1-1993 where it landed on 26-2-1993. These cranes were cleared by Customs Authorities on 12-3-1993. In the light of above facts, the Assessing Officer had concluded that cranes were not used for purposes of business during the year under consideration. 10.1 The assessee on the other hand had contended that as assessee was in the business of hiring of cranes, these could be treated as used when they were kept ready for use for business. 10.2 On appeal, learned CIT (Appeals) upheld denial of claim of depreciation, following order for assessment year 1991-92 where on almost identical facts and circumstances, his predecessor has disallowed claim of depreciation. In the light of above, the learned CIT (Appeals) passed a very brief order confirming the action of the Assessing Officer. 10.3 The learned Judicial Member, in....
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....h for grant of investment allowance or depreciation, it has to be proved that contract of hire has come into existence leading to income by way of hire charges to the assessee. However, such contract of hire has not come into existence in the relevant previous year. The assessee will not be entitled to deduct depreciation or claim investment allowance while computing the income. The learned Accountant Member was of the view that decision in the case of Dineshkumar Gulabchand Agrawal was applicable in this case. In the said case, the Court was concerned with interpretation of expression "used". The Hon'ble Court pointed out that expression "used" means "actually used" for the purposes of business and not "ready for use". The learned Accountant Member was of the opinion that above decision of jurisdictional High Court was binding on the Tribunal. He further found that privity of contract between assessee and ONGC took place on 17-4-1991 when ONGC started paying hire charges to the assessee. The said date being after the close of the previous year, the assessee was not entitled to deduction of depreciation, for the assessment year 1991-92. The assessee could not claim depreciation....
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.... the use of M/s. Light Motive making picture "City of Joy". The statement of Director clearly showed that crane was kept ready for use and, therefore, conditions of section 32 were fully satisfied. In respect of two cranes imported by the assessee in the year 1993, Shri Inamdar drew my attention to the objections filed by the assessee with ONGC. He read out objections of the assessee filed with ONGC for not opening tender submitted by the assessee for use of cranes in March 1993. ONGC had accepted assessee's objections and cranes were actually used in April 1993. Shri Inamdar relied upon proposed order of learned Judicial Member. 14. Shri Sharma, learned CIT(DR) supported the proposed order of the Accountant Member. He submitted that assessee did not prove any agreement to hire cranes in both the assessment years. Therefore, even if it is accepted that giving of crane on hire would tantamount to user of the crane for purposes of business, the said condition was also not satisfied. Shri Sharma maintained that in the light of decision of jurisdictional High Court in the case of Dineshkumar Gulabchand Agrawal, the assessee was to prove actual user of the crane which admittedly ....
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....in a wide sense so as to embrace passive as well as active user. They pointed out that when machinery is kept ready for use at any moment in a particular factory under an express agreement from which taxable profits are earned, the machinery can be said to be used for the purposes of the business which earned the profits, although it was not actually worked, and the depreciation allowance granted by section 10(2)(vi) could be given in respect of such machinery. No doubt, that was said in connection with clause (vi) of section 10(2), but the Supreme Court has pointed out that all these clauses are in pari materia and the expression used in either of them would apply to the other: see the Liquidators of Pursa Ltd. v. CIT [1954] 25 ITR 265; [1954] SCR 767 (SC). In Viswanath Bhaskar Sathe's case, the facts were similar to the present case. The assessee owned a ginning factory and was a member of a pool with the owners of other ginning factories. During the assessment year in question in that case the assessee's factory had not been actually employed in the work of ginning in accordance with the pooling agreement, though he had received a share of the profits. That was ....
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....eciation under the above circumstances observed as under: "That the assessee has purchased five new buses is not disputed. The only argument is that the vehicles were not registered in the name of the assessee under the Motor Vehicles Act. But that is one of the factors that has to be taken into consideration for deciding the question of ownership of the buses. It cannot be said as a matter of law that unless the buses are registered in the name of the assessee, the assessee cannot be regarded as the owner of the buses. On the contrary, the essential pre-requisite for registration under section 22(1) of the Motor Vehicles Act is ownership of a motor vehicle. Unless a person is the owner of a motor vehicle he is not entitled to get it registered in his name under section 22(1) of the Motor Vehicles Act. The Tribunal in this case has come to the conclusion on a review of the facts and also of the agreement that the assessee was the owner of the five new buses and as such was entitled to claim depreciation allowance on these buses. The Tribunal has not committed any error of law in coming to this conclusion. The requirement of section 32 of the Income-tax Act is that the vehi....
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....r the business purposes by the assessee who is a transporter during the accounting year. It is not the case of the Department that these oil tankers were not necessary for the business purposes of the assessee-appellant. These oil tankers were actually plied on the road on the last date of the accounting year and were challaned and also fined by the CMM, Kanpur. Therefore, the oil tankers were actually put to use in the relevant accounting year by the assessee for its business purposes. Alternatively the assessee was entitled for depreciation on these two oil tankers as they were purchased during the relevant accounting year for business purposes and were ready to use, road tax was deposited and the oil tankers were got registered with the registering authority on the last date of the accounting year. Failure of the assessee to produce the hire contract with the parties is in respect of the two oil tankers is of little significance in view of exposition of law that the word "used" under section 32 of the Act has to be given wider meaning and it will include assets ready for use." 15.6 The Punjab and Haryana High Court in CIT v. Pepsu Road Transport Corpn. [2002] 253 ITR 303 has ....
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....tion is an allowance for diminution in value due to wear and tear of a capital asset and that claim on account of depreciation legitimately belongs to one who has invested in the capital asset. 15.8 Reference to section 32(1) as existing in all material time reveals that building, machinery and other assets mentioned in sub-section (1) when owned by the assessee and "used for purposes of the business or profession" are entitled to depreciation. It has been noted that section 32 confers the benefit on the assessee and it is required to be construed liberally and in a manner which is favourable to the assessee. I find force in assessee's submission that decision of Hon'ble Bombay High Court in the case of Dineshkumar Gulabchand Agrawal has to be read in the light of other decisions of Bombay High Court and of the Supreme Court and when so read, it does not lay any different law. Expression "used" is to be construed in the context of facts and circumstances of the case and would include not only active use of the asset but also passive use of asset for purposes of business. This is what has been consistently held by the Supreme Court and the Bombay High Court in the decisio....
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....". The Assessing Officer, in order to verify the claim of the assessee summoned and recorded statement of Shri A.D. Sanghvi, the Director of the assessee-company. My attention was drawn to his statement. The statement fully supports the case of the assessee that the said crane was kept ready as a back-up crane, in case crane No. 830 already with above concern, breaks down and needed repair. This step was taken by the assessee for business purposes and cannot be questioned. In the light of legal position discussed above, I am of view that assessee was entitled to use the crane in the manner it liked and this would be "user" of crane for purposes of business. The assessee is entitled to depreciation on the above crane, in the assessment year 1991-92. 17.1 Besides above, it may be mentioned that teamed Accountant Member has not controverted any of the facts found or recorded by learned Judicial Member in respect of this crane. For the above reason also, depreciation on this crane is allowed. 18. As far as claim of depreciation on two cranes imported by the assessee in the period relevant to assessment year 1993-94 is concerned, the assessee has placed on record that it had pl....