TMI Blog2008 (3) TMI 358X X X X Extracts X X X X X X X X Extracts X X X X ..... ion has been rightly claimed on imported car without appreciating the fact that the taxi facilities were provided to their own hotel guests/clients and not to the tourists in general. 3. The learned CIT(A) also erred in directing the Assessing Officer to allow depreciation without appreciating the fact that the assessee was not running any independent business of tour and traveling." 2. In the assessment order, it is mentioned that the assessee has been conducting the business of running hotels inDelhiandAgra. The assessee claimed depreciation of Rs. 11,44,317 on German made car, Mercedez Benz Type S-320, Sedan Long. He referred to the provisions of section 32 of the Act, which permits deduction of depreciation on motor cars manufactured outsideIndiaif it is inter alia used in the business of running it on hire for tourists. He was of the view that the assessee was engaged in the business of running hotels and not running motor cars on hire for tourists. Therefore, he dismissed the claim of the assessee. 2.1 Before the ld. CIT (Appeals), it was represented that the motor cars were used for providing transport facilities to the guests and clients. A sum of Rs. 67,725 was charg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... @ 20% ----------------------------------------------------------- 4. As against the aforesaid, the learned counsel for the assessee pointed out that in the previous year relevant to assessment year 2001-02, the assessee imported one more car on the basis of import license dated25-4-2000, granted by the Foreign Trade office. The justification for the import was that old Honda and Mercedez Benz motor cars, used for foreign tourists, required replacement. It was certified by the assessee that the imported motorcar will be exclusively used for foreign tourists. For these purposes, he referred to pages 9, 13 and 18 of the paper book. 4.1 He relied on Board Circular No. 609 dated 27-9-1971, which inter alia provided that the depreciation may be allowed where transportation services are provided as a part of package tour for the tourists It was also his case that receipts were low as on booking of suits, free transport was provided to the tourists. This circular applies in the case of tour operators and travel agents Paragraphs 2.1 and 2.2 of the circular are reproduced below:- "2.1 The intention behind this provision is to discourage use of foreign cars for the purposes of busin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion was deductible. 5. We have considered the facts of the case and rival submissions. The facts advanced by the learned counsel are that for assessment year 2001-02, the motor cars were used for 'pick up and drop service' of the tourist where suite was booked and also provided on hire when demanded, for which hire charges of Rs. 67,215 were received on plying two motor cars. It was fairly conceded that no hire charge was received (the table shows receipt of Rs. 273) from plying two motor cars in assessment year 2003-04 as they were used only for pick up and drop service of the tourists, as the hotel business was very slack. As against this, the case of theLd. DR.was that the hire charges were too low to lead to an inference that the assessee plied two motor cars on hire. The assessee was carrying on the business of running hotels and there was no business of playing of motor cars on hire. On considering the facts of the case, we find that hire charges in one year were nominal at Rs. 67,215 and they were nil in the other year. There is no evidence on record to show that in the package for hiring hotel suite or room hire charges for motor cars were separately charged and shown. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the assessee under the first proviso to section 32(1) of Income-tax Act, 1961 (The Act) which provides that no deduction by way of depreciation shall be allowed in respect of any motor car manufactured outside India which has been acquired after 28-2-1975, unless it is used:- (i) in a business of running it on hire for tourists; or (ii) outsideIndiain his business or profession in another country. 9. To appreciate the controversy, it would be appropriate to refer to the irrelevant facts. The assessee has been in the business as a hotelier since long. The assessee imported one Mercedes Benz S-320 car fromGermanyduring the assessment year 2001-02 and used the same in its business. It claimed depreciation at the rate of 40 per cent on such car in the years under consideration. The claim was disallowed by the Assessing Officer on the grounds that (i) the car is foreign made car and (ii) the assessee is not in the business of running the car on hire for tourists. The provisions of the first proviso to section 32(1) of the Act was invoked in disallowing the claim of assessee. On appeal, the CIT(A) considering the facts that (i) assessee is running four star hotel at Delhi and Agr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the cars on hire but it was only an activity incidental to hotel activity. The Tribunal allowed the claim after reaching the finding that assessee was running them on hire. In coming to this conclusion, the Tribunal took into consideration the fact that cars were imported by the assessee with the prior approval of the Reserve Bank of India (RBI) under taxi quota with the condition that such cars would be used for running on hire as well as the Board Circular dated27-9-1971(already referred in the preceding para). The Tribunal also held that merely because the business of hiring was at restricted scale would not take out the case of assessee from the purview of the provisions of section 32(1) proviso. 13. On reference under section 256 of the Act, the Court posed the question as 'whether the assessee was using the cars owned by him in a business of running them on hire'? The hon'ble Court opined at pages 593-594 of the report.- "....It is not prohibited by law that a person cannot run and combine a number of businesses simultaneously. It is also a common feature that where certain business activities are incidental and supplementary to each other and it is sound to carryon s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts the view which the Tribunal has taken. Apart from that the Tribunal has also referred to the fact that the assessee is charging hire for providing the vehicle to its customers as independent business, which is corroborated by the fact that the vehicles were imported by the assessee with the approval of the Reserve Bank of India under the taxi quota only, giving out a clear intention that it is running them on hire. The assessee has also referred to the fact and which is not denied that the respondent assessee is charging hire from the customers to use the vehicles for transportation, primarily which is being used for the hotel and for reaching the airport on checking out for leaving the place. The statutory provision nowhere puts a restriction that if a business is running on a restricted scale, the benefit could not be available. Therefore, it cannot be said that there was no evidence on the basis of which the Tribunal could reach its conclusion that the assessee has acquired the vehicles in question for running a taxi on hire and that the assessee has used the vehicle in question for running them on hire for tourists." 14. Similar view has been taken by the hon'ble Kerala Hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... endorsement on the licence shows that car was imported inIndiaon29-8-2000. These evidences clearly show that assessee had imported the car in assessment year 2001-02 for exclusive use of tourists. The only question is whether such car was used for transporting the tourist on hire. The case of the assessee has been that due to drop in business, no separate charge was made from tourists but offered the car for use by tourists from and to airport as part of package. The Board has already clarified that the claim of the assessee cannot be rejected merely on the ground that the car is used as part of package. There is no evidence that the car was used for some other purposes. When the car was imported on the conditions that it would be used only for the purpose of transporting the tourists, it can well be presumed that the car was used for such purpose. If such car was used as part of the package then naturally no separate charge would appear in the books of account. But it does not mean that the car was not used for earning the foreign tourists. Accordingly, it is held that the car was used in business of running the same on hire and consequently, the assessee is entitled to depreciati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion on the imported car was claimed in appeal. The ld. CIT(A) allowed the claim of the assessee with the following observations:- "4. Looking to the facts of the case that the appellant is running four star hotel in Delhi and Agra and they had imported the Mercedes Benz car for the purpose of providing transport facilities to guests and clients. It is also stated that they charged their guests for providing these facilities and they have shown a sum of Rs. 67,725 as income from running of the car. Since the car has been used for purpose of taxi for hotel guests, it comes within the proviso of section 32 and depreciation is allowable on it. This fact is correct as the car is used as a taxi for the purpose of giving taxi facilities to hotel guests and hotel being a part of the hospitality industry where all types of tourists and travel services have been provided to the guests. Depreciation has been rightly claimed on imported car by the appellant as they are running it for taxi business purpose for which they are showing business income. This point is decided in the favour of the appellant. The Assessing Officer is directed to allow depreciation." 4. The revenue being aggrieved ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as an hotelier. It used foreign made car for transportation of tourists and claimed depreciation on such cars. The Tribunal had found that car was imported by the assessee with prior approval of Reserve Bank ofIndiaand under taxi quota for running on hire. It was held by the Tribunal in that case that merely because business of hiring was at a restricted scale could not deprive the assessee of claim for depreciation under proviso to section 32(1). On further reference to the Hon'ble High Court, the legal position was explained as under:- ".....It is not prohibited by law that a person cannot run and combine a number of businesses simultaneously. It is also a common feature that where certain business activities are incidental and supplementary to each other and it is sound to carryon such business also for increasing their profitability, a person can combine such business activities simultaneously notwithstanding that some of such business may only be running primarily was the intention to increase overall profit or reaching the profit in such business activities instead of passing on to others, who may carryon such business independently. Therefore, for the present purposes, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng them on hire. The assessee has also referred to the fact and which is not denied that the respondent assessee is charging hire from the customers to use the vehicles for transportation, primarily which is being used for the hotel and for reaching the airport on checking out for leaving the place. The statutory provision nowhere puts a restriction that if a business is running on a restricted scale, the benefit could not be available. Therefore, it cannot be said that there was no evidence on the basis of which the Tribunal could reach its conclusion that the assessee has acquired the vehicles in question for running a taxi on hire and that the assessee has sued the vehicle in question for running them on hire for tourists." 7. Ld. Judicial Member further found that Hon'ble Kerala High Court in the case of Dr. K.R. Jayachandran, has taken a similar view. Accordingly, the ld. Judicial Member concluded that if a foreign made car is used by an assessee either exclusively in the business of running on hire or being incidental to main business such as tour operator, travel agent or a hotelier, depreciation would be allowed. 8. The ld. Judicial Member upheld the order of ld. CIT(A) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e and consequently, the assessee is entitled to depreciation. The order of the CIT(A) is, therefore, upheld." 9. On account of difference between the learned Members, the matter has been placed before me under section 255(4) of the Income-tax Act. 10. I have heard both the parties.Ld. DRdrew my attention once again to the receipts shown by the assessee in different years from hiring of car which are also noted by ld. A.M. in the impugned order. He argued that from above details of receipt, it cannot be inferred that assessee had carried the business of hiring of car to fall within exception provided in the provision to section 32(1) of the Income-tax Act.Ld. DRfurther argued that there was no separate log book relating to movement of imported cars and no evidence to show that imported cars were separately given on hire. Cars might have been used as part of the business of the hotel. In that case, no depreciation was permissible.Ld. DRplaced reliance on the order of A.M. who, according to him, has rightly recorded that the assessee on facts failed to prove that it carried business of running of car on hire for tourists. In the light of above factual finding, the assessee was not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... im on hire from such tour operator or travel agent. Therefore, depreciation on foreign motor cars, owned by him and used for providing transportation services to tourists, whether in a package tour or otherwise, should be allowed." 12. Shri Marwah further relied on decision of Kerala High Court in the case of Dr. K.R. Jayachandran. It was a case of a Nursing Home where the imported vehicle was used as incidental to the Nursing Home business. Hiring of imported vehicle was not a separate business. Even in that case, their Lordships held that assessee was entitled to depreciation. Shri Marwah also relied upon decision of Appellate Tribunal in the case of CIT v. Machino Techno [2001] 250 ITR 12(AT) wherein principles laid down by Kerala High Court were applied by the Tribunal. Shri Marwah further argued that rule of consistency was applicable in this case. The revenue authorities were not entitled to take a view different from one taken by them in the past on identical facts. Shri Marwah further argued that in the assessment year 2006-07, revenue earning from hiring of car was more than Rs. 2 lakh on account of improvement in the business. Therefore, on facts and the circumstances, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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