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Issues involved: Interpretation of higher rate of depreciation for vehicles leased out for hire under u/s 111(2)(ii) of Appendix I to the Income-tax Rules.
Summary: The High Court of Madras addressed the issue of whether the owner of a lorry, when leasing it to another for an agreed rental, can claim the higher rate of depreciation provided in Appendix I, entry 111(2)(ii), under the sub-heading "Machinery and plant." The court emphasized that vehicles used for personal purposes are entitled to normal depreciation rates, while vehicles leased out for a price can claim higher depreciation due to the faster rate of value depreciation from rougher use. The distinction is based on the temporary right to use the vehicle by the lessee, leading to faster depreciation. The court clarified that the terminology used for payment, whether rent or hire charges, does not affect the substance of the transaction, which is the consideration for the right to use the vehicle. The term "hire" signifies that the vehicle is not used by the owner for personal purposes but is given to another for a limited period for consideration. The court upheld the Tribunal's decision that the owner, by leasing out motor lorries and receiving lease rentals, was using the vehicles in the business of running them on hire, entitling them to the higher rate of depreciation. The question regarding the entitlement to higher depreciation for trucks under entry 111(2)(ii) of Appendix I was answered in favor of the assessee, against the Revenue.
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