Rate of depreciation in case of vehicles given on lease

The assessee-company was a leasing company which was engaged in leasing of plant and machinery, motor-cars, etc. to its clients. The assessee had claimed depreciation on motor vehicles at the rate of 50%. The AO, while framing assessment under section 143(3), held that as the vehicles were not run on hire by the assessee, depreciation on the written down value was allowable at 33% and not 50% as claimed. Being aggrieved, the assessee preferred appeals before the CIT(A) but did not succeed. The assessee carried the matters in second appeals before the Tribunal, but failed. The Tribunal, after considering the rival submissions and going through the provisions of Entry No. III(2)(ii) and Entry No. III(2)(i) of Appendix-I of the Rules, was of the view that if the assessee is doing the business of plying motor buses, motor lorries, motor taxies, then it is entitled to 50% depreciation. In other words, if the said vehicles are used in a business of running them on hire, then those motor vehicles are covered under Entry No. III(2)(ii) of Appendix-I and are entitled to depreciation at the rate of 50%. According to the Tribunal, the paramount consideration is that the assessee must be doing the business of running the vehicles on hire. To put it differently, if the owner is doing business of giving his motor-cars on hire as taxis then he is entitled to depreciation at the rate of 50% and qua the motor cars other than those used in the business of running them on hire the assessee is entitled to depreciation at the rate of 33.33%. The Tribunal was further of the view that a motor car running on hire cannot be equated with a motor car running on lease and accordingly did not find any infirmity in the order passed by the CIT(A). Held: All the authorities below have recorded that the assessee company is a leasing company which is engaged in leasing of plant and machinery, motor cars, etc. to its client. It is neither the case of the assessee nor is there anything on record to indicate that the assessee uses the vehicles in question in its business of transportation or that the assessee is engaged in the business of hire. In the circumstances, the basic requirement for being entitled to depreciation at the higher rate of 50 per cent under Entry No. III(2)(ii) of Appendix-I to the Rules is not satisfied by the appellant. In other words, appellant does not pass the test for the applicability of Entry No. III(2)(ii) of Appendix-I appended to the Rules, viz., the user of the vehicles in the business of the assessee of transportation or the business of hire. The Tribunal was, therefore, justified in holding that the appellant is entitled to depreciation at the rate of 33.33 per cent and not at the rate of 50 per cent as claimed by it.-Vide Bhagwati Appliance (Now Dairyden Ltd.) v. ITO (2011) 39 (I) ITCL 199 (Guj-HC)

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