M/S Anamay Construction Co. vs. Union Of India

1 I.T.A.No.2/2013 HIGH COURT OF MADHYA PRADESH, BENCH AT GWALIOR I.T.A. No.2/2013 M/s Anamay Construction Co. Vs. Union of India and Others CORAM: Hon.Justice Sheel Nagu & Hon.Justice Rohit Arya ---------------------------------------------------------------------------------

Shri Vishal Tripathi, Advocate for the appellant. Shri D.P.S.Bhadoria, Advocate for the respondents. --------------------------------------------------------------------------------- J U D G M E N T /09/2015 Per Justice Rohit Arya This appeal, by the assessee, under Section 260A of the Income Tax Act, 1961 (for short “the Act”), is admitted on the following substantial question of law:- “Whether on facts and in the circumstances of the case, the assessee is entitled for special rate of 30% depreciation on the Trucks purchased by him during the previous year, relevant to assessment year 2008-2009, under sub-item 3(ii) of Item III of Appendix I of the Income Tax Rules, 1962, as the special rate of 30% depreciation is allowable in the case of motor vehicles used in the business of running them on hire or where such motor vehicles are used in the assessee's business of transportation of goods on hire ?” 2. With the consent of the parties, heard finally. 2 I.T.A.No.2/2013 3. The assessee is engaged in civil construction business. In the Return of income filed for the assessment year 2008-2009, assessee claimed depreciation of Rs.18,78,623/- at the rate of 30% on the Trucks purchased during the previous year relevant to the assessment year 2008-2009. The Assessing Officer while framing regular assessment under Section 143(3) of the Act, considered the aforesaid claim and disallowed the same on the premise that 30% depreciation would have been allowable on his motor vehicles had the assessee been engaged in running of his Trucks on hire. As the assessee was engaged in the business of civil construction, only 15% depreciation i.e. Rs.9,39,312/- was allowable and not 30% i.e. Rs.18,78,623/-. Hence, the balance was added to the income of the assessee as excess claim of depreciation. 4. On appeal, the CIT (Appeals) allowed the claim of depreciation at the rate of 30% for the reason that the appellant was required to transport the earth from one place to another for filling. Since the earth so transported did not belong to the appellant and as such the appellant's business receipts to a large extent could be held to be price or the charges received for transporting the goods from one place to another, referring to CBDT's Circular No.652 dated 14/6/1993, higher rate of depreciation was found admissible on motor vehicles used. In support thereof, the CIT (A) also referred to the judgment of High Court of Kerala in the case of CIT, Cochin Vs. Gaylord Constructions (2010) 190 Taxman 406 (Ker), as well as, CIT Vs. Gujrat Tube Well Co. (2006) 206 CTR (Guj) 14, to justify its order of allowing depreciation at the higher rate of 30%. Accordingly, disallowance of depreciation at Rs.9,39,312/- was deleted. 5. On appeal before the ITAT by the Revenue, the Tribunal set aside the order of CIT (A) and restored the order of 3 I.T.A.No.2/2013 Assessing Officer, following the judgment of jurisdictional High Court in the case of CIT Vs. Anupchand & Co. 239 ITR 466 (M.P.) and relying upon the order of ITAT in ITA Nos.42 & 58/ Agr/2012. The relevant extract of the order of M.P. High Court in Anupchand's case (Supra) is reproduced as under:- “The assessee was a registered firm deriving income from contract work. The assessee claimed depreciation allowance at the rate of 40 per cent on trucks used for its business purpose. The Income Tax Officer allowed only 30 per cent allowance on the ground that the vehicles were used for the assessee's own business of transporting goods. On a reference : Held, that the benefit of 40 per cent depreciation allowance was admissible only for vehicles used for business of hire in view of the provisions of Entry No. III(ii)E(1-A) of Part I of Appendix I to the Income Tax Rules, 1962, and since the assessee used the vehicles for its own business of transporting its goods only 30 per cent depreciation was allowable.” 6. Being aggrieved thereby, the assessee is before us by filing the instant appeal under Section 260A of the Act. Appendix I, relevant for assessment year 2008-2009, inter alia, under sub-item 3(ii) of Item III, provides for higher (30%) rate of depreciation allowance as percentage of written down value of motor buses, motor lorries and motor taxis used in the business of running them on hire, allowable under Section 32 of the Act. The aforesaid clause has been clarified by Board's Circular No.609 dated 29/7/1991 (S.No.244) reproduced in Circular No. 652 dated 14/6/1993, that where a tour operator or travel agent uses motor buses or motor taxis owned by him in providing transportation services to tourists, higher rate of depreciation would be allowed on such vehicles. It is further clarified that higher depreciation will also be admissible on motor lorries used in the assessee's business of transportation of goods on hire. The higher rate of depreciation, however, would not apply if the motor buses, motor lorries, etc., are used in some other non-hiring business 4 I.T.A.No.2/2013 of the assessee. 7. The Hon'ble Supreme Court in the case of Commr. Of Income Tax, Gujrat Vs. Gupta Global Exim (P) Ltd. (Civil Appeal No.3342 of 2008) has well discussed the identical issue and laid down the test for applicability of higher rate of depreciation in the context of sub-item 3(ii) of item III of Apendix I appended to the Rules. It is held that as higher rate of depreciation is admissible on motor trucks used in a business of running them on hire, therefore, the use of the same in the business of the assessee of transportation is the test. 8. In the present case, admittedly, the assessee is in the business of civil construction. The assessee had engaged his own Trucks for transporting earth to facilitate laying of roads. Under such circumstances, the assessee cannot be said to be in the business of hiring out his Trucks for removal of earth to make him entitled for higher rate of depreciation, as removal and transportation of earth are only sub-processes of his main business of laying of roads. The order of CIT (A) entitling the assessee for higher rate of depreciation on the premise that his motor vehicles were used for removal of earth and since the earth did not belong to the assessee, therefore, the use of his motor vehicles was on hire, in the opinion of this Court, is not correct, either on facts or in law, besides not being in conformity with the test laid down by the Apex Court, as indicated above, and also, with the Board's Circular No.609/Circular No. 652 dt. 14/6/93 (Supra). 9. In the case of Gaylord Constructions (Supra) the question raised in appeal filed by the Revenue was “whether the Tribunal was justified in upholding the assessee's claim for depreciation of earth moving equipment, namely, JCB at the 5 I.T.A.No.2/2013 rate of 40%; the rate provided for 'Motor Buses, Motor Lorries, Motor Taxis', used in the business of running them on hire” and as such, the assessee was in the business of running the motor vehicles on hire, however, the question was “whether higher rate of depreciation was available for putting the JCB machine on hire” and the Court ruled that the expression “motor lorry”, covered by the entry in the Appendix-I of Income Tax Rules providing for higher rate of depreciation, has a wide meaning and will include the JCB machine, which is basically used for excavation of soil, it is a heavy vehicle also used for transportation of excavated soil, relying on the judgment of Hon'ble Supreme Court in the case of Bose Abraham v. State of Kerala and another, AIR 2001 SC 835. Hence, the aforesaid case is of no assistance to the facts in hand. In the case of CIT vs. Gujrat Tubewell (Supra) the Court had addressed on the issue “as to whether construction of dam, bridge, building, road will fall within the meaning of manufacture or production of an article or thing entitling depreciation under sub-clause (iii) of clause (b) of sub-section (2) of Section 32A” and answered the same in negative and in favour of Revenue relying on the judgment of the Hon'ble Supreme Court in the case of CIT v. N.C. Budharaja & Co. and Anr. (1993) 114 CTR (SC) 420 where the Supreme Court held that the aforesaid provision of the Income Tax Act does not comprehend within its ambit the construction of dam, bridge, building, road, canal and other similar construction. Hence, this case is also of no assistance to the facts in hand. 10. Accordingly, the substantial question of law framed is answered in the negative and in favour of the Revenue upholding the order passed by the ITAT. 6 I.T.A.No.2/2013 11. The appeal, accordingly, stands dismissed, without any order as to costs. (Sheel Nagu) (Rohit Arya) Judge Judge (and)