M/S PRASAD MULTI SERVICES PRIVATE LIMITED vs. THE DEPUTY COMMISSIONER OF INCOME TAX

Facts

The assessee, M/s. Prasad Multi Services Private Limited, is engaged in the business of hiring construction equipment, including various types of cranes. For Assessment Year 2011-12, the assessee claimed depreciation at 30% on these cranes. The Assessing Officer restricted the depreciation to 15%, viewing the hiring of construction equipment as an ancillary activity and suspecting the cranes might be used for the assessee's own construction business. The AO also noted the cranes were not registered with the RTO. The CIT(A) allowed 30% depreciation only on Hydra Cranes, considering them "Motor Cranes," but confirmed the disallowance for other cranes. The Income Tax Appellate Tribunal (ITAT) dismissed the assessee's appeal, distinguishing the case from precedents like Bothra Shipping Services and Gujco Carrier, and noting the lack of registration documents for most cranes.

Held

The High Court held that the Tribunal committed an error in dismissing the assessee's appeal. The Court found that there was substantial evidence on record indicating the assessee was involved in the business of hiring cranes. While the assessee might also use the cranes for its own construction business, this did not disentitle it from claiming higher depreciation if it was indeed in the business of hiring cranes. The Court distinguished the present case from Pradip N. Desai (HUF) by emphasizing the evidence of the assessee being in the business of hiring. The Court concluded that the Tribunal's decision was erroneous, and the substantial question of law was answered in favour of the assessee. The impugned order of the ITAT was quashed and set aside.

Key Issues

1. Whether, in the facts and circumstances of the case, the Income-tax Appellate Tribunal was right in confirming the order of the Respondent in limiting allowance of depreciation to 15% as against the claim at the rate of 30% on various types of cranes used in hiring business under Section 32 of the Income Tax Act, 1961? Assessee's Contention: The assessee argued that it is engaged in the business of hiring equipment, as evidenced by its profit and loss accounts. It contended that the cranes were used exclusively for hiring and that depreciation at 30% had been allowed in earlier years. The assessee relied on the ITAT decision in Bothra Shipping Services. Revenue's Contention: The revenue, through the Assessing Officer and supported by the CIT(A) and ITAT, contended that the hiring of construction equipment was an ancillary activity, and the cranes might have been used for the assessee's own construction business. They argued that most cranes were not registered with the RTO and did not fall within the category of Motor Bus, Motor Lorries, and Motor Taxis, or were distinguishable from precedents where higher depreciation was allowed.