Facts of the Case

The Revenue filed an appeal under Section 260A of the Income-tax Act, 1961 challenging the order dated 6 September 2002 passed by the Income Tax Appellate Tribunal relating to Assessment Year 1995-96.

The dispute concerned the rate of depreciation allowable on vehicles owned by the assessee and leased out to third parties. The Tribunal had allowed depreciation at the higher rate applicable to vehicles used in the business of running them on hire. The Revenue challenged this finding before the High Court.

Issues Involved

  1. Whether an assessee who leases out vehicles to a third party for running them on hire is entitled to claim depreciation at the higher prescribed rate?
  2. Whether mere leasing of vehicles is sufficient to grant higher depreciation, or whether actual use of the vehicles in the business of hire is required?

Petitioner’s Arguments (Revenue)

The Revenue contended that before granting depreciation at the higher rate, it was necessary to examine whether the leased vehicles were actually being used in the business of running them on hire.

It was argued that the Tribunal had granted higher depreciation merely because the vehicles had been leased out by the assessee, without examining the actual nature of their use by the lessee.

The Revenue relied upon observations made by the Court in the earlier decision of CIT v. Bansal Credits Ltd. (2003) 259 ITR 69, wherein it was observed that eligibility for higher depreciation depends upon actual use of the vehicles in the hiring business.

Respondent’s Arguments (Assessee)

The assessee relied upon the Tribunal's findings and the legal position laid down in CIT v. Bansal Credits Ltd. (2003) 259 ITR 69, which recognized entitlement to higher depreciation where vehicles are leased out for the purpose of running them on hire.

It was maintained that the Revenue had never raised any contention before the Assessing Officer or the Tribunal that the vehicles were not being used by the lessee for hire purposes.

Court Order / Findings

The Delhi High Court observed that the issue had already been considered in CIT v. Bansal Credits Ltd. (2003) 259 ITR 69, where it was held that vehicles leased out for running on hire qualify for higher depreciation.

The Court noted that although the Revenue sought to argue that actual use of the vehicles for hire should have been examined, such a plea had never been raised before the Tribunal.

The Court further observed that it was not even the case of the Assessing Officer that the vehicles were not used by the lessee for hire purposes.

Since the issue stood covered by the earlier decision and no factual dispute had been raised at the appropriate stage, the Court declined to entertain the Revenue’s appeal.

Accordingly, the appeal was dismissed.

Important Clarification

  • Vehicles leased out by an assessee for running on hire can qualify for higher depreciation.
  • A challenge based on alleged non-use of vehicles in the hiring business cannot ordinarily be raised for the first time before the High Court if it was not pleaded before the lower authorities.
  • The decision reiterates the principle laid down in CIT v. Bansal Credits Ltd. (2003) 259 ITR 69.
  • Questions involving factual verification must generally be raised before the Assessing Officer or the Tribunal and cannot be introduced at the appellate stage under Section 260A.

Sections Involved

  • Section 32 of the Income-tax Act, 1961 – Depreciation Allowance

·         Section 260A of the Income-tax Act, 1961 – Appeal to High Court

Link to download the order -

https://delhihighcourt.nic.in/app/case_number_pdf/2003:DHC:20098-DB/DKJ02052003ITA1502003_161522.pdf

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