Depreciation — Higher depreciation could not be allowed on the motor trucks used in business of running them on hire, unless there is an evidence that the assessee was in the business of hiring out motor vehicles.

[CIT v. Gupta Global Exim P. Ltd., (2008)
305 ITR 132 (SC)]

The Assessing Officer (AO) took the view that the
assesseé was, during the relevant assessment year, in the business of timber
trading and it was only occasionally that the trucks owned by the assessee
were given out on hire to outside parties and, hence, the assessee was not in
the business running the trucks on hire and, therefore, the assessee was not
entitled to claim higher rate of depreciation at 40%. This finding of the
Assessing Officer was reversed by the Commissioner of Income-tax (Appeals). It
was held by the Commissioner of Income-tax (Appeals) that the transportation
income of 12,50,639 by way of running the subject vehicles on hire was an
integral part of the assessee’s business and that its inclusion under the head
‘Business income’ was not disputed even by the Assessing Officer. This finding
of the Commissioner of Income-tax (Appeals) was affirmed by the Tribunal. The
High Court had refused to interfere on the ground that the matter involved
essentially questions of fact. On an appeal to the Supreme Court, it held that
generally, the Supreme Court does not interfere with the concurrent finding of
facts recorded by the authorities below. However, in this case, the Supreme
Court was of the opinion that a neat substantial question of law arose for
determination which needed interpretation of the depreciation table given in
Appendix I to the Income-tax Rules, 1962.

The Supreme Court held that under item (2)(ii) of
heading III, higher rate of depreciation is admissible on 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.

According to the Supreme Court, in the present
case, none of the authorities below (except the Assessing Officer) had
examined the matter by applying the above test. The Assessing Officer had
given his finding that the assessee was not in the business of transportation
as he was only in the business of trading in timber logs. That, the burden was
on the assessee to establish that it is the owner of motor lorries and that it
used the said motor lorries/trucks in the business of running them on hire.

In the view of the Supreme Court, the entire
approach of the Commissioner of Income-tax (Appeals) was erroneous when he had
stated that the transportation income of Rs.12,50,639 by way of running the
subject vehicles on hire was an integral part of the appellant’s business and
its inclusion in the head ‘Business income’ is not disputed even by the AO.
According to the Supreme Court, 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. The Supreme Court therefore set aside the judgment of the High
Court and remitted the matter to the Commissioner of Income-tax (Appeals) for
de novo examination of the case in accordance with law.