Commissioner of Income Tax vs Air Travel Enterprises India Ltd.

The respondent is the assessee. The assessee is a private limited company carrying on business in travel agencies and as operator of tourist vehicles. The assessment year concerned is 1992-93.

The substantial questions of law on which the appeal by the Revenue is admitted read as follows :

"1. Whether, on the facts and in the circumstances of the case and also in the light of the admission of the assessee that the vehicle was run only on April 1, 1992, the assessee is entitled to depreciation for the assessment year 1992-93 ?

Whether, on the facts and in the circumstances of the case and in view of the fact that registration for operating as a contract carriage was obtained on May 5, 1992, is not depreciation admissible only from the assessment year 1993-94 ?"

The facts on record are that the assessee purchased a vehicle and took delivery of the same on March 30, 1992. There was a temporary registration obtained in respect of the vehicle as KL-7/2169/92-E valid up to April 24, 1992. This enabled the assessee to take the vehicle from Ernakulam to Thiruvananthapuram. The assessee also applied for registration as a non-transport vehicle on March 30, 1992, and the registration was granted on April 3, 1992. In the said certificate it was clarified that "this certificate is valid from March 30, 1992, to March 29, 2007". According to the assessee, it had operated the said vehicle from April 1, 1992, for taking a tourist party with 13 persons for which the arrangement had been made before that date. However, it is stated that the vehicle was registered as a contract carriage only on May 5, 1992.

On the basis of the above materials, in the assessment for the year 1992-93, the assessee claimed depreciation of Rs. 1,50,560 on the said vehicle. The Assessing Officer disallowed the claim for depreciation on the ground that the assessee has not used or kept the vehicle ready for use on or before March 31, 1992. The first appellate authority, viz., the Commissioner of Income Tax (Appeals), Thiruvananthapuram, dismissed the appeal filed by the assessee by confirming the disallowance. The Income Tax Appellate Tribunal in further appeal, however, allowed the claim of the assessee. The Department is aggrieved by the order of the Tribunal. Hence, this appeal.

We have heard learned standing counsel appearing for the appellant and learned counsel appearing for the respondent. Section 32 of the Income Tax Act provides for depreciation in respect of buildings, machinery, plant or furniture owned by the assessee and used for the purposes of the business or profession subject to the provisions of Section 34. It is not necessary to refer to the provisions of Section 34, for, the only ground on which the Assessing Officer has disallowed depreciation is that the assessee had not used or kept ready for use the vehicle at any time prior to March 31, 1992.

So the only question for consideration is as to whether the assessee had used the vehicle or kept ready for use the vehicle on any day during the previous year relevant to the assessment year 1992-93. Admittedly, the assessee took delivery of the vehicle on March 30, 1992, and the vehicle was taken from Ernakulam to Thiruvananthapuram on the basis of a temporary permit valid up to April 24, 1992. The assessee got registration as a non-transport vehicle on April 3, 1992, with retrospective effect from March 30, 1992. The assessee had applied for and obtained a contract carriage licence only on May 5, 1992. The assessee has a case that the vehicle was run on April 1, 1992, for taking a tourist party. As the Assessing Officer himself had noted the expression "used for the purpose of the business" occurring in Section 32 will take in vehicle kept ready for use. So the question is whether it can be said that the vehicle was kept ready for use on March 30, 1992, or March 31, 1992, when the regular contract carriage licence was issued only on May 5, 1992. The question on which notice is issued proceeds on the basis that the vehicle was actually used on April 1, 1992. The question is whether the assessee can use the vehicle for carrying tourists on April 1, 1992, when admittedly the contract carriage licence for the vehicle was issued only on May 5, 1992. On the other hand, if the vehicle can be operated on the basis of a regular licence for operating as a non-transport vehicle issued by the registering authority on April 3, 1992, with retrospective effect from March 30, 1992, then it can be said that the vehicle was kept ready for use from April 30, 1992. However, the question is whether on the basis of the certificate of registration so granted, the vehicle can be operated as a contract carriage. In other words, can it be said that the vehicle was kept ready for use as a contract carriage without registering the vehicle as a contract carriage, which was obtained only on May 5, 1992, as noted by the first appellate authority.

Going by the provisions of the Motor Vehicles Act, 1988, Sections 2 (7) and (35), 66, 72, 73 and 74 we are of the view that in order to say that the vehicle was kept ready for use for carrying persons for hire the vehicle must be registered as a contract carriage and it is only on obtaining the contract carriage permit that it can be said that the vehicle was kept ready for use. Since the contract carriage permit was obtained for the vehicle only on May 5, 1992, it cannot be said legally that the vehicle was kept ready for use on or before March 31, 1992. We accordingly answer the two questions against the assessee and in favour of the Revenue. In the above circumstances, we are of the view that the Tribunal has committed a serious error in holding that the assessee had kept the vehicle ready for use during the previous year relevant to the assessment year 1992-93. We accordingly set aside the order of the Tribunal on the issue of depreciation on a DCM Toyota Carrier taken delivery from Popular Vehicle Services Ltd., Kochi, on March 30, 1992.

I. T. A. is disposed of as above.