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Income Tax Appellate Tribunal, BANGALORE BENCH B, BANGALORE
Before: SMT. P. MADHAVI DEVI
PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER :
In this appeal filed by the Revenue directed against an order dt.20.03.2014, of CIT (A), Mysore, it is aggrieved on the higher depreciation allowed to the assessee on vehicles.
Facts apropos are that assessee, a civil contractor, had filed his return of income for the impugned assessment year declaring income of Rs.22,25,630/-.
During the course of assessment proceedings, it was noted by the AO that ITA.641/Bang/2014 Page - 2 assessee had claimed depreciation at enhanced rate of 30% available for vehicles given on hire, on Tata Hitachi and tippers totalling to 8 numbers.
When it was pointed out to the assessee that no hire charge receipts were shown by it in the profit and loss account for claiming the enhanced rate of depreciation, reply of the assessee was that it had indeed credited a sum of Rs.68,000/- to the profit and loss account, captioned as ‘other income’. In support thereof assessee also produced a copy of the relevant ledger page.
However, AO was not impressed by the above reply given by the assessee. According to him in Appexdix I, under sub-item 3(ii) of item III of the Income-tax Rules, 1962, higher rate of depreciation was available for motor vehicles only when it was used in a business of running them on hire. As per the AO, the assessee had civil contract receipts of Rs.3.11 crores and these vehicles were used for his own business. Negligible amount of hire charges shown indicated that the vehicles were hired out only on very few occasions.
AO also noted that Tax Audit Report in form 3 CB declared the business of the assessee as civil contracting. Relying on the decision of Hon’ble Apex Court in the case of CIT v. Gupta Global Exim (P) Ltd (305 ITR 132), AO held that higher rate of depreciation was allowable only if the business of assessee was running buses, lorries & taxis on hire. He, therefore, held that assessee was not entitled for higher rate of depreciation. Resulting disallowance came to Rs.15,45,837/-.
ITA.641/Bang/2014 Page - 3
In its appeal before CIT (A), argument of the assessee was that it had received substantial hire charges amounting to Rs.3 lakhs in the succeeding year. According to the assessee, its contract work was mainly for railways, pointing the rail side embankment by protection works to prevent sliding, for which the trucks and tippers were not required. Assessee also submitted that separate hire charge account was maintained by it in its books of account and, therefore, the claim that the vehicles were given for hire stood substantiated.
CIT (A) was appreciative of these contentions. According to him, the quantum of receipt of hire charges was not a deciding factor. The fact whether the machines were used for running on hire would decide the eligibility for the enhanced depreciation. Since the assessee had proved that it had given such vehicles on hire, as per the CIT (A), it was entitled for higher depreciation.
Now before us, Ld. DR strongly assailing the order of the CIT (A) submitted that the Ld. AO had relied on the judgment of Hon’ble Apex Court in the case of Gupta Global Exim P. Ltd (supra), wherein it was clearly held that when business of the assessee was not hiring of vehicles, it would not be entitled for enhanced depreciation as laid down under sub-item 3(ii) of item III of Appexdix I, of the Income-tax Rules, 1962. Here the assessee was having only negligible hire income. Therefore, as per the Ld. DR, assessee was not in the business of hiring of vehicles. Thus according to him the finding of the CIT (A) was incorrect.
ITA.641/Bang/2014 Page - 4
Per contra, Ld. AR supporting the order of CIT (A), submitted that Hon’ble Apex Court in its judgment in Gupta Global Exim P. Ltd (supra) had specifically stated that the question whether an assessee was in the business of running motor lorries on hire was one of facts. Further according to him, Hon’ble Bombay High Court in a subsequent judgment, after considering the judgment of Hon’ble Apex Court in Gupta Global Exim P. Ltd (supra), in the case of CIT v. S. C. Thakur & Bros (322 ITR 463) had held that even a civil contractor could claim enhanced depreciation rates, if the vehicles were given out by it on hire and hire charges were received and accounted.
We have perused the orders and heard the rival contentions. AO himself has, at para 4 of the assessment order given the copy of ledger extract of the assessee for the relevant previous year with regard to receipt of the hire charges.
The said ledger extract is reproduced hereunder :
Machinery Hire Charges Rece Ledger account Date Particulars Vch Type Credit(Rs) 22.09.2008 Ch No. 84660 RS Shanbhag, Kumta Receipt 18,000 I received I
KA 30-3697, KA 30-3698, KA 30-4126 25.02.2009 Ch No. Ram Dev Engineering Receipt 50,000 Hire Charges received KA 47-2328, KA 47-2329, KA 30-7241, KA 47-7242, CNE-3805 \ Closing balance 68,000 ITA.641/Bang/2014 Page - 5
A cursory glance of the above ledger extract would clearly show that such hire charges were received for eight vehicles. Assessee had claimed enhanced rate of depreciation of 30% on eight number of vehicles. AO had himself noted that assessee had accounted hire charges received on these vehicles, though the amounts received were meagre. Be that as it may, there cannot be any doubt that assessee had indeed hired out the vehicles in the relevant previous year. No doubt main business of the assessee was of civil contract, but this would not disentitle the assessee from hiring its vehicles which were not used for its business and getting rentals therefrom. There is no such condition in Appendix I, Part-III(3)(ii), that the vehicles have to be given on hire continously all through the year for getting the enhanced rate of depreciation. Argument of the assessee that it had higher quantum of hire charge received in the subsequent year has not been disputed by the Revenue. Coming to the judgment of Hon’ble Apex Court in Gupta Global Exim P. Ltd (supra), the relevant observation as to how sub-item 2(ii) of item III of Appexdix I, of the Income-tax Rules, 1962 (at that point of time the entry appeared in 2(ii) and not 3(ii) ) has to be construed is given at para 7 of the judgment, which is reproduced hereunder :
“ 7. What is relevant for consideration under sub-item 2(ii) of Item III of Appendix I to the Income-tax Rules, 1962 is whether the assessee was in the business of hiring out his trucks ill addition to his business of trading in timber. The order of assessment clearly indicates that the assessee was only in the business of trading in timber. We do not have the returns filed by the assessee before us. We do not have the constitution of the assessee company before us. There is no evidence to indicate that, the assessee was in the business of hiring out motor lorries for running them to earn business income. Th e entire inference is drawn by CIT(A) only on the footing that the Assessing 0fficer had treated ITA.641/Bang/2014 Page - 6
Rs.12,59,639 as part of total business income which is not determinative of the above test, viz., whether the trucks were used in the transportation business as claimed by the assessee.” In the said case before the Hon’ble Apex Court, there was no evidence to indicate that assessee was in the business of hiring out motor lorries to earn business income. Here, on the other hand, assessee had demonstrated that it had separately accounted the hire charges received on hiring out the eight vehicles.
Hon’ble Bombay High Court in the case of S. C. Thakur & Bros (supra) after considering the judgment of Hon’ble Apex Court in the case of Gupta Global Exim P. Ltd (supra) had held that higher rate of depreciation was also admissible even in a case where a motor lorry was used by the assessee in his own business of transportation of goods on hire. In the said case also concerned assessee was a civil contractor and was not engaged in the business of hiring out assets like trucks and tippers.
Considering the totality of the situation, we are of the opinion that assessee’s claim for higher depreciation was eminently allowable. CIT (A) was justified in giving relief to the assessee. We do not find any reason to interfere.
In the result, appeal of the Revenue stands dismissed.
Order pronounced in the open court on 03rd day of July, 2015.