The order of the Bench was delivered by
CHANDRA POOJARI (Accountant Member).-This appeal filed by the assessee is directed against the order of the Commissioner of Income-tax (Appeals), Kozhikode, dated January 13, 2014, for the assessment year 2007-08.
The only one issue for our consideration is with regard to the rate of depreciation on lorries used by the assessee.
The brief facts of the case are that the assessee has claimed depreciation on lorries at 30 per cent. and the lorries were used for letting out on hire to clay contractors for transportation of clay. However, the Assessing Officer observed that the assessee is not in the business of giving lorries on hire and further, it was observed by the Assessing Officer that it is only an arrangement the assessee has made with these contractors to supply clay to the assessee. Therefore, the Assessing Officer disallowed the higher rate of depreciation at 30 per cent. which is applicable to lorries plying on hire and limited the depreciation at 15 per cent. as applicable to lorries not used in the business of hiring. On appeal, the Commissioner of Income-tax (Appeals) confirmed the order of the Assessing Officer. Aggrieved, the assessee has filed this appeal before us.
We have heard both parties and perused the material available on record. The learned authorised representative placed reliance on the following judgments :
1. CIT v. Dr. K. R. Jayachandran [1995] 212 ITR 637 (Ker).
2. CIT v. Madan and Co. [2002] 254 ITR 445 (Mad).
3. Deputy CIT v. B. P. Agarwalla and Sons Ltd. [2004] 266 ITR (AT) 77 (Cal).
He further submitted that the assessee has been duly authorised by its object clause in memorandum of association to carry on with the business of giving vehicles on hire. The learned authorised representative also submitted that the assessee has declared income from hire charges in its profit and loss account and the assessee was also granted high depreciation in the earlier assessment year. Only in this assessment year; the Assessing Officer has not granted higher rate of depreciation at 30 per cent. on trucks.
6 According to the learned authorised representative, as seen from the profit and loss account filed by the assessee placed at paper book pages 14 to 28, the assessee has declared the lorry hire charges recovered as income of the assessee which has been treated as business income of the assessee. The plying of trucks on hire for bringing clay to the assessee through contractors, though it is used by itself, is constituted as the assessee's business and it may be incidental to the assessee's business. When the hire charges are assessed as business income, there .is no reason to disallow higher rate of depreciation claimed by the assessee on lorry hire charges.
7 On the other hand, the learned Departmental representative submitted that the assessee is not in the business of plying lorries on hire. It is only an arrangement between the assessee and the contractors for supply of clay to use the assessee's lorries to bring clay from the fields. A portion of the agreed cost is earmarked towards lorry hire charges/excavator loader charges of the lorries supplied by the assessee. That being so, higher rate of depreciation at 30 per cent. cannot be allowed.
8 We have heard both parties and perused the record. In this case; we have come across a co-ordinate Bench decision in the case of Mathew Abraham v. Asst. CIT in I. T. A. No. 92/Coch/2013 vide order dated August 16, 2013, wherein it was held that the assessee being not engaged in the business of running the vehicles on hire, the assessee is not entitled for a higher rate of depreciation on the vehicles used in his own business. The relevant portion of the observation is extracted below for the sake of convenience:
"7. We have heard the rival contentions and carefully perused the record. We notice that the learned Commissioner of Income-tax (Appeals) has examined the work orders issued by the railways and came to the conclusion that the assessee is not engaged in the business of running of vehicles on hire and hence, not entitled for a higher rate of depreciation. For the sake of convenience, we extract below the relevant observations made by the learned Commissioner of Income-tax (Appeals):
'7. I have carefully, gone through the assessment order, the grounds of appeal and submissions filed by the appellant and also the case law relied upon by the authorised representative for seeking relief on the issue. After a careful consideration of the same, my views on the matter with reasons thereof are as given in subsequent paragraphs.
8. During the course of appellate proceedings, the assessee has filed copies of a few work orders issued by the railways where the nature of work has been mentioned as
"collection and supply of approved quality machine crushed track ballast as per latest revised specification from outside the railway limit and stacking for measurements at ballast depot in Wadakancheri station yard with all lead and lifts, loading and unloading, conveyance from the place of availability, crossing the track where ever required etc. complete using contractor's labour, vehicle and consumables. (payment by stack measurements without any deduction for voids)".
9. The work order shows that the appellant has to supply material and stock it at railway site. The assessee has also stated that he is in the business of supplying metal to the railways and public. It is not the case of the assessee that the material owned by railways was transported from its quarry to the railway ballast. The delivery of goods takes place at the ballast site of railways, therefore as per the Sale of Goods Act also the sale takes place only when the material is handed over to the railways. In fact it is a case of transportation of the material owned by the appellant and not the material owned by someone else. The vehicles are used as per the requirement ascertained by the appellant himself. The control over the vehicles remains with the appellant. Under these circumstances, it cannot be said that the vehicles were given on hire to railways or public. The reliance placed by the appellant on the observations of the hon'ble Supreme Court that the true test is "the user of the same in the business of the assessee of transportation" is misplaced. What the hon’ble Supreme Court has said is that the vehicles should be used in the business of transportation of the assessee, I.e., the business of the assessee should be transportation. Since in this case the assessee is not in the business of transportation and transportation of metal is just incidental to the business of sale of metal to railways/public, the reliance placed by the appellant is not correct. During the appellate proceedings as noted vide order sheet entry dated November 26, 2012, counsel of the appellant stated that no vehicle was given on hire to any party. In view of the above, it is held that the assessee is not in the business of running of vehicles on hire.'
8. Admitted facts are that the assessee is engaged in the business of selling of metals and the assessee has used his own vehicles for transporting the metals mainly to railway yard. According to the assessee, the transportation charges are paid separately by the railways and hence the vehicles should be considered as run on hire.
9. The assessee has placed reliance in the case of CIT v. Stanes Tyre and Rubber Products Ltd. [2000] 242 ITR 619 (Mad). We have gone through the said decision and notice that the facts prevailing in that case was not found discussed by the· hon'ble Madras High Court. The hon'ble Madras High Court appear to have mainly decided that the vans and three wheelers used as goods vehicles are entitled to higher depreciation if they are used for hire or reward. Hence, in our view, the assessee cannot derive support from the said decision. In the case of CIT v. Gupta Global Exim P. Ltd. [2008] 305 ITR 132 (SC), the hon'ble Supreme Court in clear terms has observed as under (page 135 of 305 ITR):
'Under item 2(ii) of heading III, the higher rate of depreciation is admissible qn motor trucks used in a business of running them on hire. Therefore, the user of the same in the business of the assessee of transportation is the test ...
In our view, the entire approach of the Commissioner of Income tax (Appeals) was erroneous when he has stated that the transportation income of Rs. 12,50,639 by way of running the subject vehicles on hire is an integral part of the appellant's business and its inclusion in the head "Business income" is not disputed by the Assessing Officer. In our view, mere inclusion of Rs. 12,50,639 in the total business income is not the determinative factor for deciding whether trucks were used by the assessee during the relevant year in a business of running them on hire. In our view, the Commissioner of Income tax (Appeals) had erred in relying upon the accrual of income as a determinative factor for coming to the conclusion that the trucks were used in a business of running them on hire.'
Since the assessee is collecting transport charges from the railways, it is contended that the assessee is in the business of transportation of goods. However, the hon'ble Supreme Court 'in the abovecited case, has clearly expressed the view that the mere receipt of transport charges is not a determinative factor. Thus the real test is whether the a9Sessee has used the vehicles in the business of running them on hire.
10. In the instant case, the assessee's business is supplying metals obtained from the quarry owned by him. According to the contract entered with railways, the assessee is required to supply the metals at the place specified in the contract. Thus, as observed by the learned Commissioner of Income-tax (Appeals), it is the responsibility of the assessee to transport the metals to the place specified by the railways. Since the assessee was required to transport the metals to different places, it was advantageous for both assessee as well as for the railways to fix a price for the 'metals' and to fix transport charges separately. Hence, the transportation of metals in the vehicles owned by the assessee is part of the business carried on by the assessee, viz., operating a quarry and supplying crushed metals. Hence, we agree with the view expressed by the learned Commissioner of Income-tax (Appeals) that the transportation is incidental to the business of sale of metal to railways/public. Accordingly, we concur with the view of the learned Commissioner of Income-tax (Appeals) that the assessee was not engaged in the business of running the vehicles on hire.
11. We notice that a similar view has been expressed by the hon'ble Madhya Pradesh High Court in the case of Kailash Chand Bagaria v. CIT [2001] 249 ITR 720 (MP). In the said case, the assessee therein was engaged in the business of manufacture and trading in limestone. He also used trucks for transporting limestone and claimed a higher rate of depreciation. The hon'ble High Court held that the dominant purpose for which the assessee used the trucks has been found to be for his own business and hence the assessee is not entitled to higher rate of depreciation. A similar view was expressed by the hon'ble Karnataka High Court in the case of Veeneer Mills v. CIT [1993] 201 TIR 764 (Kam). We also notice that the Central Board of Direct Taxes has issued Circular No. 652, dated June 14, 1993 ([1993] 202 TIR (St.) 55) wherein the Central Board of Direct Taxes has also expressed a similar view. For the sake of convenience, we extract below Grcular No. 652 referred to above :
'Circular No. 652, dated 14th June, 1993
To,
All Chief Commissioners of Income-tax/
All Directors-General of Income-tax
Sir,
Subject: Section 32 of the Income-tax Act, 1961-Rate of depreciation on motor lorries used in the business of transportation of goods–Regarding.
Under sub-item 2(ii) of Item No. III of Appendix I to the Income-tax Rules, 1962, higher rate of depreciation is admissible on motor buses, motor lorries and motor taxis used in a business of running them on hire. A question has been raised as to whether; for deriving the benefit of higher depreciation, motor lorries must be hired out to some other person or whether the user of the same in the assessee's business of transportation of goods on hire would suffice.
2. In Board's Circular No. 609, crated 29th July 19911, it was clarified that where a tour operator or travel agent uses motor buses or motor taxies 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, will not apply if the motor buses, motor lorries, etc. are used in some other non-hiring business of the assessee.
3. This may be brought to the notice of all the officers in your charge.'
12. We have already noticed that the assessee is not engaged in the business of running the vehicles on hire. The facts prevailing in the decision rendered by the hon'ble Madhya Pradesh High Court in the case of Kailash Chand Bagaria v. CIT [2001] 249 ITR 720 (MP) is identical to the facts prevailing in the instant case. Hence, we do not find any infirmity in the decision rendered. by the learned Commissioner of Income-tax (Appeals) in holding that the assessee is not entitled for a higher rate of depreciation on the vehicles used in his own business. Accordingly, we confirm his order.
13. In the result, the appeal filed by the assessee is dismissed."
9 In view of the above, the co-ordinate Bench decision, we are inclined to dismiss the appeal filed by the assessee.
10 In the result, the appeal filed by the assessee is dismissed.
11 Pronounced accordingly on July 4, 2014