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Issues involved: Interpretation of higher rate of depreciation for motor buses leased out, entitlement of leasing company for depreciation.
Interpretation of higher rate of depreciation for motor buses leased out: The question raised was whether the respondent-Bank is entitled to a higher rate of depreciation at 40% for a motor bus leased out to the Madhya Pradesh Road Transport Corporation. The Income Tax Rules provided for 40% depreciation for vehicles used in the business of running them on hire. The Assessing Officer initially denied the higher rate, but the Tribunal allowed it based on the end use of the vehicle, even though the assessee was not directly in the business of hiring vehicles. The High Court upheld the Tribunal's decision, stating that vehicles engaged in route operation fall under the description of vehicles hired out for use, entitling them to the higher rate of depreciation at 40%. Entitlement of leasing company for depreciation: Regarding the entitlement of the leasing company for depreciation, it was clarified that as the lessee, the Madhya Pradesh Road Transport Corporation was not entitled to depreciation. Only the owner of the vehicle, in this case, the respondent, was entitled to depreciation. Since the respondent was entitled to depreciation and the use of the vehicle by the lessee was for route operation, the higher rate of depreciation was justified. The High Court upheld the Tribunal's decision, emphasizing that the rate of depreciation provided in the schedule applies to the owner of the vehicle, and in this case, the respondent was entitled to the appropriate rate of depreciation due to the nature of use of the vehicle. The departmental appeals were dismissed, affirming the Tribunal's decision.
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