Facts of the Case

The Revenue filed an appeal under Section 260A of the Income-tax Act, 1961 challenging the order dated 10 September 2002 passed by the Income Tax Appellate Tribunal (ITAT), New Delhi, in relation to Assessment Years 1994-95 and 1995-96.

The controversy related to the rate of depreciation allowable on commercial vehicles owned by the assessee and leased out for use in the business of running such vehicles on hire. The assessee claimed depreciation at the higher rate of 40%, whereas the Revenue disputed such claim.

Issues Involved

  1. Whether an assessee engaged in the business of leasing commercial vehicles is entitled to claim depreciation at the higher rate of 40% on such vehicles.
  2. Whether vehicles leased out for use in the business of running them on hire fall within the category eligible for enhanced depreciation under the Income-tax Rules, 1962.

Petitioner’s Arguments (Revenue)

  • The Revenue challenged the order of the ITAT allowing the assessee the benefit of higher depreciation.
  • It contended that the issue required examination by the High Court as a substantial question of law under Section 260A of the Income-tax Act.
  • According to the Revenue, the assessee was not entitled to depreciation at the enhanced rate claimed on the leased commercial vehicles.

Respondent’s Arguments (Assessee)

  • The assessee maintained that it was engaged in leasing commercial vehicles which were used in the business of running them on hire.
  • Therefore, the vehicles qualified for the higher depreciation rate prescribed under the Income-tax Rules.
  • Reliance was placed upon the legal position that vehicles used for running on hire are eligible for enhanced depreciation.

Court Order / Findings

The Delhi High Court noted that the issue had already been settled by an earlier decision of the Court in Commissioner of Income Tax v. Bansal Credits Ltd. (2003) 259 ITR 69.

In that decision, the Court had held that a vehicle leased out for use in the business of running it on hire would be entitled to depreciation at the rate of 40% as prescribed under Item III(2)(ii) of Part A of Appendix I to the Income-tax Rules, 1962.

Following the earlier binding precedent, the Court held that no substantial question of law survived for consideration in the present appeal.

Accordingly, the appeal filed by the Revenue was declined and dismissed.

Important Clarification

  • Commercial vehicles leased out for the purpose of being run on hire qualify for enhanced depreciation.
  • Mere leasing of vehicles does not disentitle an assessee from claiming higher depreciation where the vehicles are used in the business of running them on hire.
  • The Delhi High Court reaffirmed the principle laid down in CIT v. Bansal Credits Ltd. (259 ITR 69).
  • Where a settled legal position already exists, no substantial question of law arises under Section 260A of the Income-tax Act.

Sections Involved

  • Section 32, Income-tax Act, 1961 – Depreciation
  • Section 260A, Income-tax Act, 1961 – Appeal to High Court
  • Item III(2)(ii) of Part A of Appendix I, Income-tax Rules, 1962 – Higher depreciation on motor vehicles used in the business of running them on hire.

Link to Download the Order -https://delhihighcourt.nic.in/app/case_number_pdf/2003:DHC:20105-DB/DKJ15072003ITA1992003_161824.pdf

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