CIT vs Birla Global Asset Finance Co. Ltd.

This is an appeal u/s 260A of the IT Act, 1961, against the order of the Tribunal dated 2-7-2009 in ITA No. 724/Mum/2008 in respect of assessment year 2003-04. The appellant seeks to raise the following questions of law:

(A) Whether on the facts and in the circumstances of the case and in law the Hon''ble Tribunal was right in holding that motor cars are commercial vehicles and the assessee is entitled to depreciation at the rate of 50 per cent as provided in sub-clause (vi) of clause (3) of Item III of Part A of Appendix I of the Table of rates of depreciation relevant to assessment year 2003-04?

(B) Whether on the facts and in the circumstances of the case and in law, the Tribunal was justified in granting depreciation at the rare of 50 per cent on motor cars ignoring the provisions of clause (2) of Item III of Part A of Old Appendix I of the Table of rates of depreciation relevant to the assessment year 2003-04 which specifically provide for depreciation at the rate of 20 per cent on motor cars not used in the business of running them on hire?

The respondent-assessee filed its return of income declaring a total loss of Rs. 3,60,29,219. The respondent carries on business of asset based finance/investment and trade finance. The AO made the assessment order u/s 143(3). The assessee claimed depreciation of Rs. 42,35,755 at the rate of 50 per cent on motor cars of the total value of Rs. 84,71,510 claiming them to be new motor vehicles. The AO held that the respondent was entitled to depreciation at only 20 per cent. The respondent contended that the vehicles were light motor vehicles eligible for depreciation at 50 per cent, but the AO held that the respondent had failed to substantiate as to how the same could be termed commercial vehicles. He observed that to avail of the depreciation at 50 per cent, the vehicles must be used for commercial purposes and merely because the respondent used the vehicles in its business, the vehicles could not be categorized as commercial vehicles. This was on the basis that to be categorized as commercial vehicles, the same must earn revenue by being used in the business of hiring.

The CIT(A) held in the respondents favour, inter alia, on the basis of the previous decision of the CIT(A) as well as the Tribunal. The Tribunal upheld the decision in this regard. The Tribunal held that the vehicles were used by the respondent in its business, that the vehicles were commercial vehicles and that the respondent was entitled to depreciation at 50 per cent in respect thereof.

5(A) Section 32(1)(i) of the IT Act, 1961, reads as under:

Depreciation.-(1) In respect of depreciation of-

(i) buildings, machinery, plant or furniture, being tangible assets;

(ii) know-how, patents, copyrights, trade marks, licences, franchises or any other business or commercial rights of similar nature, being intangible assets acquired on or after the 1-4-1998, owned, wholly or partly, by the assessee and used for the purposes of the business or profession, the following deductions shall be allowed-

(i) in the case of assets of an undertaking engaged in generation or generation and distribution of power, such percentage on the actual cost thereof to the assessee as may be prescribed;

(ii) in the case of any block of assets, such percentage on the written down value thereof as may be prescribed:

The said vehicles fall within the term "plant" in section 32(1)(i). In the present case, section 32(1)(ii) appearing in the second instance applies.

(Emphasis, italicised in Print supplied)

(B)(i) It is agreed that the vehicles in the present case are light motor vehicles. Rule 5(1) of the IT Rules, 1962 reads as under:

Depreciation.-(1) Subject to the provisions of sub-rule (2), the allowance under clause (ii) of sub-section (1) of section 32 in respect of depreciation of any block of assets shall be calculated at the percentages specified in the second column of the Table in Appendix I to these rules on the written down value of such block of assets as are used for the purposes of the business or profession of the assessee at any time during the previous year.

(Emphasis, italicised in print, supplied)

(ii) Appendix-I, Part A (Tangible assets), III. Machinery and plant (3)(vi) reads as under:

III. Machinery and plant

(3)(i) to (v).............

(vi) New commercial vehicle which is acquired on or after the 1st day of April, 2001 but before the 1st day of April, 2002 and is put to use before the 1st day of April, 2002 for the purposes of business or profession (See Note 6 below the Table)

(iii) Note 6 referred to above, in turn, reads as under:

Commercial vehicle means................light motor vehicle..................The expressions...............light motor vehicle..................shall have the meanings respectively as assigned to them in section 2 of the Motor Vehicles Act 1988 (59 of 1988).

It is admitted that the vehicles in respect whereof depreciation has been claimed by the respondent at 50 per cent per annum are light motor vehicles and that the above provisions of the Act and the Rules apply in the present case. Note 6 appears to be a part of the Table. In the circumstances, the issues raised in para 4 of the appeal do not raise a substantial question of law. The appeal is, therefore, dismissed.