Facts of the Case

The appellant, M/S Sapna Tours Travels & Leasing, claimed higher depreciation under Section 32 of the Income-tax Act, 1961, on imported vehicles. The Assessing Authority disallowed this claim, which was subsequently confirmed by the Commissioner of Income Tax (Appeals). Upon further appeal, the Income Tax Appellate Tribunal (Tribunal) examined the lease agreements and materials on record. The Tribunal found that the vehicles were actually given to corporate companies and that the assessee failed to establish that these cars were utilized by the Indian companies specifically for foreign tourists during the currency of the agreement.

Issues Involved

·         Whether the appellant is entitled to the special benefit of depreciation under Section 32 of the Income-tax Act on imported vehicles when the vehicles are leased to corporate companies rather than directly hired to tourists.

·         Whether the mere production of certificates indicating vehicle use for foreign tourists by third-party corporate lessees satisfies the strict statutory conditions of the tourism promotion scheme under Section 32.

Petitioner’s Arguments

The appellant (Petitioner) contended that the imported vehicles were ultimately intended for and used in the tourism sector, presenting certain certificates to indicate that the vehicles were used for foreign tourists. They argued that the commercial arrangement of routing the vehicles through corporate entities should not strip them of the depreciation benefits meant to incentivize and promote tourism under Section 32.

Respondent’s Arguments

The Revenue (Respondent) argued that the specialized depreciation scheme was strictly confined to imported vehicles utilized on a hire basis directly for tourists to promote tourism. The Respondent maintained that the assessee failed to discharge its primary burden of proof, as the factual evidence demonstrated the vehicles were handed over to corporate companies, lacking a direct nexus to the mandated tourist activity by the assessee itself.

Court Order / Findings

The High Court of Delhi, bench comprising Hon'ble The Chief Justice and Hon'ble Mr. Justice Badar Durrez Ahmed, dismissed the appeal. The Court upheld the findings of fact arrived at by the Tribunal, noting that the legislative scheme was incorporated strictly to confine depreciation benefits to imported vehicles used actively on a hire basis for tourists. The Court emphasized that it is the assessee who must give their vehicle to the tourists on a hire basis to earn the benefits under Section 32. Because the factual appreciation proved the vehicles were not used by the assessee for the specific purpose for which the benefit was claimed, no substantial question of law arose for admission.

Important Clarification

The judgment clarifies that tax incentives under Section 32 aimed at tourism promotion cannot be claimed as a matter of course through indirect commercial leasing. The burden of proof lies squarely on the assessee to establish that the imported vehicles were strictly deployed on a hire basis to tourists. Entrusting vehicles to Indian corporations without robust, direct evidence of continuous foreign tourist usage invalidates the claim for higher depreciation.


Section Involved

·         Section 32 of the Income-tax Act, 1961 (Depreciation provisions regarding assets/imported vehicles used for the tourism business).


 

Link to download the order –https://delhihighcourt.nic.in/app/case_number_pdf/2004:DHC:11072-DB/BCP14012004ITA4942003_140625.pdf

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