Facts of the Case

The Revenue preferred an appeal under Section 260A of the Income-tax Act, 1961 against the order of the Income Tax Appellate Tribunal relating to Assessment Year 1994-95.

The dispute concerned the entitlement of the assessee, M/s Sindu Trade Link Ltd., to claim a higher rate of depreciation on tippers, loaders and trucks that had been leased to third parties. The assessee itself was not directly engaged in operating the vehicles on hire. However, the leased vehicles were allegedly used by the lessees in the business of transportation and hiring.

The Revenue contended that since the assessee merely leased out the vehicles and did not itself operate them in the business of running them on hire, the higher depreciation rate available under the Income-tax Rules could not be granted.

 

Issues Involved

  1. Whether an assessee leasing tippers, loaders and trucks to third parties is entitled to claim a higher rate of depreciation under Section 32 of the Income-tax Act read with Rule 5 and Appendix I of the Income-tax Rules, 1962.
  2. Whether higher depreciation is available when the vehicles are not directly used by the assessee in the business of running them on hire but are used by the lessee for such business.
  3. Whether any substantial question of law arose from the order of the Income Tax Appellate Tribunal.

 

Appellant's (Revenue's) Arguments

The Revenue argued that:

  • The vehicles had been leased out to third parties and were not operated by the assessee itself.
  • The higher depreciation rate under Entry III(2)(ii) of Appendix I is available only when the assessee uses the vehicles in the business of running them on hire.
  • Since the assessee merely leased the vehicles and was not directly engaged in the transportation business, the benefit of enhanced depreciation was not available.
  • The findings of the Commissioner of Income Tax (Appeals) and the Tribunal could create an impression that even vehicles given on hire-purchase arrangements would automatically qualify for higher depreciation.

 

Respondent's (Assessee's) Arguments

Although no appearance was recorded on behalf of the assessee before the High Court, the position accepted by the Commissioner of Income Tax (Appeals) and the Tribunal was that:

  • The leased vehicles were actually being used by the lessees in the business of transportation and hiring.
  • The benefit of higher depreciation does not depend solely on direct operation by the owner.
  • Where leased vehicles are genuinely employed in the business of running them on hire, the higher depreciation prescribed under the Rules remains available.

 

Court Order / Findings

The Delhi High Court referred to its earlier judgment delivered on 13 November 2002 in ITA No. 16/2002 and connected matters.

The Court reiterated that:

  • Higher depreciation under Entry III(2)(ii) of Appendix I can be claimed even where the vehicles are leased out by the assessee.
  • Direct use of the vehicles by the assessee is not an indispensable condition.
  • The essential requirement is that the vehicles must actually be used in the business of running them on hire by the lessee.
  • The assessee must establish, through evidence, that the leased vehicles were in fact being used for hire purposes.

The Court further held that the Revenue's apprehension regarding extension of the benefit to all hire-purchase arrangements was unfounded because the assessment order clearly showed that the claim had been examined on the basis of actual usage of the vehicles.

 

Important Clarification

The judgment clarifies that:

  • Ownership coupled with leasing does not automatically disqualify an assessee from claiming higher depreciation.
  • The determining factor is the actual use of the vehicles in the business of running them on hire.
  • The assessee must demonstrate that the lessee utilized the vehicles for hire purposes.
  • Mere leasing without proof of commercial use in a hiring business would not entitle the assessee to enhanced depreciation.

Sections Involved

  • Section 32, Income-tax Act, 1961 – Depreciation
  • Section 260A, Income-tax Act, 1961 – Appeal to High Court
  • Rule 5 of the Income-tax Rules, 1962
  • Appendix I, Entry III(2)(ii) of the Income-tax Rules, 1962

Link to Download the Order

https://delhihighcourt.nic.in/app/case_number_pdf/2002:DHC:8543-DB/DKJ14112002ITA2872002_120146.pdf

 

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