IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE C.N.RAMACHANDRAN NAIR & THE HONOURABLE MR. JUSTICE P.S.GOPINATHAN WEDNESDAY, THE 17TH MARCH 2010 / 26TH PHALGUNA 1931 ITA.No. 488 of 2009() --------------------- ITA.430/COCH/2004 of I.T.A.TRIBUNAL,COCHIN BENCH .................... APPELLANT/APPELLANT: ----------------------------- THE COMMISSIONER OF INCOME TAX, COCHIN. BY ADV. SRI.P.K.R.MENON,SR.COUNSEL, GOI(TAXES) SRI.JOSE JOSEPH, SC, FOR INCOME TAX RESPONDENT/RESPONDENT:: --------------- FED BANK FINANCIAL SERVICES LTD., FEDERAL TOWERS, ALUVA. ADV. SRI.TERRY V.JAMES FOR R1 SRI.B.J.JOHN PRAKASH FOR R1 ADV. SRI.JOSEPH MARKOSE, SR. THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 17/03/2010, ALONG WITH ITA NO.1078 OF 2009, THE COURT ON 17/03/2010 DELIVERED THE FOLLOWING: C.R. C.N.RAMACHANDRAN NAIR & P.S.GOPINATHAN, JJ. .................................................................... I.T. Appeal Nos.488 & 1078 of 2009 .................................................................... Dated this the 17th day of March, 2010. JUDGMENT Ramachandran Nair, J. The question raised in the connected department appeals is whether respondent-Bank is entitled to higher rate of depreciation at 40% in respect of motor bus purchased and leased out by it to the Madhya Pradesh Road Transport Corporation. We have heard Senior Standing Counsel appearing for the appellant and Senior counsel Sri.Joseph Markose appearing for the respondent-assessee. 2. Admittedly the normal rate of depreciation for motor bus is 25%. However, Item III(2)(ii) of Appendix I of the Income Tax Rules applicable during the relevant time provides for depreciation at 40% in respect of "motor buses, motor lorries and motor taxies used in a business of running them on hire". The assessee claimed depreciation under the above entry stating that leasing out of the vehicles to the Madhya Pradesh Road Transport Corporation entitles it for ITA 488&1078/09 2 depreciation at 40%. The Assessing Officer, however, held that the assessee is not engaged in hiring of vehicles and it has only leased out vehicles to the Madhya Pradesh Road Transport Corporation and so much so, it is entitled to the normal depreciation. However, the first appellate authority as well as the Tribunal following decision of the Delhi High Court in COMMISSIONER OF INCOME-TAX VS. BANSAL CREDITS LTD. (reported in (2003) 259 ITR 69) allowed the claim holding that end use of the vehicle when considered, entitles the assessee for higher rate of depreciation, no matter assessee was not engaged in hiring of vehicles by itself as a business. Before us, counsel for the assessee relied on the very same decision based on which Tribunal decided the case and he further contended that SLP filed against the judgment of the Delhi High Court was dismissed by the Supreme Court. 3. Standing Counsel for the appellant raised two contentions before us. In the first place, he contended that assessee being a banking company has only leased out buses to the Road Transport Corporation of another State and so much so, it is not engaged in hiring out of ITA 488&1078/09 3 vehicles entitling it for higher rate of depreciation. The second contention raised by him is that even if the end use is relevant for the purpose of depreciation, still the assessee is not entitled to higher rate of depreciation because the route operation of the bus by the Road Transport Corporation cannot be said to be hiring out of vehicle as a business. In our view, higher rate of depreciation is provided only in respect of items of machinery, plant etc. which really deteriorates very fast on account of extensive use. A vehicle on hire is extensively used and so much so, it's value erodes faster than a vehicle privately owned and used by somebody. Keeping this in mind, we feel a vehicle engaged in route operation suffers same erosion in value as a contract carriage let on hire. So much so, in our view, the motor buses engaged in route operation fall under description of vehicles hired out for use. Therefore, the route operation of the buses leased out by the respondent to the Madhya Pradesh Road Transport Corporation should be treated as use of the vehicle on hire entitling the vehicle for higher rate of depreciation at 40%. 4. So far as the other issue raised by the department is concerned ITA 488&1078/09 4 i.e. entitlement of the leasing company for depreciation, we notice that as a lessee the Madhya Pradesh Road Transport Corporation is not entitled to depreciation because only the owner of the vehicle i.e. the respondent, is entitled to depreciation and there is no dispute raised by the department that respondent is not entitled to depreciation at all. So much so, what is to be considered is only the rate of depreciation which respondent is entitled as owner of the vehicle which has leased it out to the Madhya Pradesh Road Transport Corporation. The depreciation Schedule only provides for rate of depreciation and does not state in whose hands the rate of depreciation provided is to be allowed. It naturally follows that whoever is entitled to depreciation as owner of the vehicle, will be entitled to the appropriate rate of depreciation depending upon the nature of use of the vehicle. Since admittedly the respondent is entitled to depreciation and since the use of the vehicle by the lessee is for route operation entitling the vehicle for higher rate of depreciation, we feel the Tribunal rightly allowed the assessee's case following the decision of the Delhi High Court. Even though the decision of the Delhi High Court abovereferred does not ITA 488&1078/09 5 pertain to buses put on route operation, we feel the said decision on the entitlement of the lesser for depreciation at applicable rate applies in this case also. We, therefore, uphold the orders of the Tribunal and dismiss the departmental appeals. C.N.RAMACHANDRAN NAIR Judge P.S.GOPINATHAN Judge pms