Commissioner of Income Tax vs South India Viscose Ltd.

N. Kannadasan J.

The above appeal was admitted, whereby the following substantial questions of law were formulated.

(1) Whether, on the facts and circumstances of the case, the Tribunal was right in law in holding that the assessee is entitled to higher rate of

depreciation on leased out trucks ?

(2) Whether, on the facts and circumstances of the case, the Tribunal was right in law in holding that the rate of depreciation applicable to motor

vehicles which are given on hire would also be applicable to vehicles which are leased out ?

The respondent herein, while filing its return of income for the assessment year 1991-92, has claimed higher rate of depreciation on leased out

trucks, which is not disputed. The assessing officer, while completing the assessment u/s 143(3) of the Income Tax Act, 1961, has disallowed the

said claim. As against the said order, the respondent/assessee h is filed an appeal before the CIT(A), who has allowed the claim of the

respondent/assessee. As against the said order, the revenue has preferred an appeal before the Income Tax Appellate Tribunal, and the Tribunal

has dismissed the revenue''s appeal by order dated 28-1-2003.

The revenue has filed the present appeal as against the order of the Tribunal dated 28-1-2003. This court, while admitting the above appeal, has

framed substantial questions of law, as stated supra.

We have heard Mr. K. Subramaniam, learned counsel for the appellant and Mr. P. P. S. Janarthana Raja, learned counsel for the respondent.

It is not controverted by learned counsel for the parties that in identical facts and circumstances, a Division Bench of this court in its decision

Commissioner of Income Tax Vs. Madan and Co., , has held as follows (page 445) :

Owners of vehicles who used it for their own purposes are allowed to claim depreciation at the normal rates. Owners of vehicles mentioned in the

entry when they allow it to be used for a price are allowed to obtain a higher rate of depreciation. The distinction is based upon the fact that a

person who obtains the temporary right to use of the vehicle on payment of a charge price is likely to, by the nature of his user, such user being for

the purpose of the hirer and not the owner, depreciate the value of the vehicle faster.

All such vehicles, which are so used, are likely to undergo a little more rough use than vehicles owned by and used for the personal purposes of the

owner. It is in recognition of that fact of the depreciation occurring at a faster rate for such vehicles that the law provides for the higher rate of

depreciation.

The fact that the assessee here chose to lease out the vehicle does not on that score disentitle the assessee to claim the benefit of the higher

depreciation. The lease of the vehicle enables the lessee to have possession of the vehicle, and have the right to use the vehicle as the lessee

wishes, subject to the terms of any contract between the parties. The lessee during the period of user is also likely to have to maintain the vehicle

subject to the terms of the contract between the parties. For having the benefit of the user of the vehicle, the lessee is required to pay a price which

is the lease amount, whether called rent or hire charges. The terminology used for describing the payment makes no difference in substance. What

is paid is an amount in consideration of the right obtained from the owner to have the use of the vehicle for the benefit of the lessee for the stated

period, and, or the stated purpose, whether or not by employing his own drivers, and whether or not also undertaking to maintain the vehicle

during the period of the lease or hire.

The word ''hire'' used in this entry is only meant to denote that the use of the vehicle is not by the owner himself for his own purposes, but it is given

to another for use for a limited period of that other for a consideration. For the purpose of this entry there is no qualitative difference between lease

of the vehicle for a specified period for consideration and letting the vehicle on hire for short duration on payment of hire charges.

In the light of the decision cited supra, we are of the view that the respondent/assessee is entitled to the higher rate of depreciation. Therefore,

the questions of law referred to above, are answered in favour of the assessee, and against the revenue. Accordingly, the appeal is dismissed.