Ita/488/2009 Of The Commissioner Of Income Tax v. Fed Bank Financial Services Ltd

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE C.N.RAMACHANDRAN NAIR & THE HONOURABLE MR. JUSTICE P.S.GOPINATHAN WEDNESDAY, THE 17TH MARCH 2010 / 26TH PHALGUNA 1931 ITA.No. 488 of 2009() --------------------- ITA.430/COCH/2004 of I.T.A.TRIBUNAL,COCHIN BENCH .................... APPELLANT/APPELLANT: ----------------------------- THE COMMISSIONER OF INCOME TAX, COCHIN. BY ADV. SRI.P.K.R.MENON,SR.COUNSEL, GOI(TAXES) SRI.JOSE JOSEPH, SC, FOR INCOME TAX RESPONDENT/RESPONDENT:: --------------- FED BANK FINANCIAL SERVICES LTD., FEDERAL TOWERS, ALUVA. ADV. SRI.TERRY V.JAMES FOR R1 SRI.B.J.JOHN PRAKASH FOR R1 ADV. SRI.JOSEPH MARKOSE, SR. THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 17/03/2010, ALONG WITH ITA NO.1078 OF 2009, THE COURT ON 17/03/2010 DELIVERED THE FOLLOWING: C.N.RAMACHANDRAN NAIR &P.S.GOPINATHAN, JJ. ....................................................................I.T. Appeal Nos.488 & 1078 of 2009 ....................................................................Dated this the 17th day of March, 2010. C.R. JUDGMENT Ramachandran Nair, J. The question raised in the connected department appeals iswhether respondent-Bank is entitled to higher rate of depreciation at40% in respect of motor bus purchased and leased out by it to theMadhya Pradesh Road Transport Corporation. We have heard SeniorStanding Counsel appearing for the appellant and Senior counselSri.Joseph Markose appearing for the respondent-assessee. 2. Admittedly the normal rate of depreciation for motor bus is25%. However, Item III(2)(ii) of Appendix I of the Income Tax Rulesapplicable during the relevant time provides for depreciation at 40% inrespect of "motor buses, motor lorries and motor taxies used in abusiness of running them on hire". The assessee claimed depreciationunder the above entry stating that leasing out of the vehicles to theMadhya Pradesh Road Transport Corporation entitles it for ITA 488&1078/09 depreciation at 40%. The Assessing Officer, however, held that theassessee is not engaged in hiring of vehicles and it has only leased outvehicles to the Madhya Pradesh Road Transport Corporation and somuch so, it is entitled to the normal depreciation. However, the firstappellate authority as well as the Tribunal following decision of theDelhi High Court in COMMISSIONER OF INCOME-TAX VS.BANSAL CREDITS LTD. (reported in (2003) 259 ITR 69) allowedthe claim holding that end use of the vehicle when considered, entitlesthe assessee for higher rate of depreciation, no matter assessee was notengaged in hiring of vehicles by itself as a business. Before us,counsel for the assessee relied on the very same decision based onwhich Tribunal decided the case and he further contended that SLPfiled against the judgment of the Delhi High Court was dismissed bythe Supreme Court. 3. Standing Counsel for the appellant raised two contentionsbefore us. In the first place, he contended that assessee being a bankingcompany has only leased out buses to the Road Transport Corporationof another State and so much so, it is not engaged in hiring out of ITA 488&1078/09 3. Standing Counsel for the appellant raised two contentionsbefore us. In the first place, he contended that assessee being a bankingcompany has only leased out buses to the Road Transport Corporationof another State and so much so, it is not engaged in hiring out of ITA 488&1078/09 vehicles entitling it for higher rate of depreciation. The secondcontention raised by him is that even if the end use is relevant for thepurpose of depreciation, still the assessee is not entitled to higher rateof depreciation because the route operation of the bus by the RoadTransport Corporation cannot be said to be hiring out of vehicle as abusiness. In our view, higher rate of depreciation is provided only inrespect of items of machinery, plant etc. which really deteriorates veryfast on account of extensive use. A vehicle on hire is extensivelyused and so much so, it's value erodes faster than a vehicle privatelyowned and used by somebody. Keeping this in mind, we feel a vehicleengaged in route operation suffers same erosion in value as a contractcarriage let on hire. So much so, in our view, the motor buses engagedin route operation fall under description of vehicles hired out for use.Therefore, the route operation of the buses leased out by the respondentto the Madhya Pradesh Road Transport Corporation should be treatedas use of the vehicle on hire entitling the vehicle for higher rate ofdepreciation at 40%. 4. So far as the other issue raised by the department is concerned i.e. entitlement of the leasing company for depreciation, we notice thatas a lessee the Madhya Pradesh Road Transport Corporation is notentitled to depreciation because only the owner of the vehicle i.e. therespondent, is entitled to depreciation and there is no dispute raised bythe department that respondent is not entitled to depreciation at all.So much so, what is to be considered is only the rate of depreciationwhich respondent is entitled as owner of the vehicle which has leased itout to the Madhya Pradesh Road Transport Corporation. Thedepreciation Schedule only provides for rate of depreciation and doesnot state in whose hands the rate of depreciation provided is to beallowed. It naturally follows that whoever is entitled to depreciation asowner of the vehicle, will be entitled to the appropriate rate ofdepreciation depending upon the nature of use of the vehicle. Sinceadmittedly the respondent is entitled to depreciation and since the useof the vehicle by the lessee is for route operation entitling the vehiclefor higher rate of depreciation, we feel the Tribunal rightly allowed theassessee's case following the decision of the Delhi High Court. Eventhough the decision of the Delhi High Court abovereferred does not pertain to buses put on route operation, we feel the said decision on theentitlement of the lesser for depreciation at applicable rate applies inthis case also. We, therefore, uphold the orders of the Tribunal anddismiss the departmental appeals. C.N.RAMACHANDRAN NAIRJudge pms P.S.GOPINATHANJudge