2022 (3) TMI 782 - HC - Income Tax

Higher depreciation on vehicles given on lease - @40% instead of the normal rate of 25% - No evidence was produced to show that the vehicles were being run on hire - HELD THAT - First substantial question of law relating to depreciation on leased vehicle is covered in favour of the assessee and against the Revenue in the light of the decision of the Hon'ble Supreme Court in the case of ICDS v. CIT 2013 (1) TMI 344 - SUPREME COURT wherein, it was held that where leasing of machinery is a mode of carrying on business by the assessee, the assessee would be entitled to claim depreciation and when the actual use of the vehicle is in hire business, it is entitled for depreciation at a higher rate - Decided in favour of Assessee Broken period interest - Whether to be treated as revenue expenditure? - HELD THAT - The finding of fact is to the effect that securities are held as stock-in-trade and that the income from sale therefrom is offered to tax as revenue. In the light of the admitted facts as seen from the order of the authorities, the expenditure incurred by the assessee towards broken period is liable to be allowed as revenue expenditure. There is no infirmity in this.- Decided in favour of Assessee Depreciation in the value of securities - HELD THAT - Issue covered in favour of the assessee and against the Revenue, as per the judgment in respect of the assessee's own case relating to the assessment years 1985-86 and 1986-87 2006 (2) TMI 99 - MADRAS HIGH COURT wherein, it was concluded that the assessee Bank having all along treated the Government securities as its stock-in-trade and the Revenue having accepted this position in the earlier years, fall in market value of the securities was allowable as deduction - Decided in favour of Assessee. Interest under section 234D - HELD THAT - Since the regular assessment has been completed only on 30.03.2004 and the amended provision of law i.e., section 234D came into operation on and from 01.06.2003, which is well prior to the completion of the regular assessment, certainly, the assessee is liable to pay interest on the excess refund amount received and enjoyed by him all these years as contemplated under section 234D of the Act. - Decided in favour of revenue.

Summary

Issues involved:
1. Depreciation on leased vehicles
2. Relief on broken period interest
3. Depreciation in the value of securities
4. Interest under section 234D

Depreciation on leased vehicles:
The first issue pertains to the entitlement of the assessee to claim higher depreciation on vehicles given on lease. The Court referred to the decision in ICDS v. CIT, where it was held that if leasing machinery is a mode of carrying on business, the assessee can claim depreciation. The Court noted that if the actual use of the vehicle is in the hire business, higher depreciation is permissible. The Court found in favor of the assessee on this issue.

Relief on broken period interest:
Regarding the broken period interest, the Court relied on a previous judgment in the assessee's own case where it was held that broken period interest is to be treated as revenue expenditure. The Court concluded that since the securities are held as stock-in-trade and income from their sale is taxed as revenue, the expenditure on broken period interest is allowable as revenue expenditure. The Court decided this issue in favor of the assessee.

Depreciation in the value of securities:
The Court addressed the issue of depreciation in the value of securities and referred to a previous judgment in the assessee's own case where it was established that the fall in the market value of securities was deductible as the assessee treated the securities as stock-in-trade. The Court cited a similar decision by the Karnataka High Court, which was pending before the Supreme Court. The Court ruled in favor of the assessee on this issue.

Interest under section 234D:
The final issue concerned interest under section 234D. The Court relied on the decision in CIT v. Fisher Sanmar Ltd and held that the assessee was liable to pay interest on the refunded amount as the regular assessment was completed after the amended provision of law came into operation. The Court decided this issue in favor of the Revenue.

In conclusion, the High Court of Madras ruled in favor of the assessee on the issues of depreciation on leased vehicles, relief on broken period interest, and depreciation in the value of securities. However, the Court decided in favor of the Revenue on the matter of interest under section 234D. The Court remanded the case to the assessing officer for further action on the sixth issue.