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TMI Blog2007 (8) TMI 401X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee is in the business of hiring of cranes and other equipments. During the course of assessment proceedings, it was observed by the Assessing Officer (AO) that two cranes having Model No. Cole 620M and Cole 825(1) were declared as purchased on 27-3-1991 from M/s. TIL Ltd., Calcutta. Since these two cranes were purchased at the fag end of the financial year, therefore, the Assessing Officer has raised certain enquiries in respect of allow ability of depreciation. We shall take up the facts of the case one by one in respect of both the cranes. 4. The facts in respect of crane having Model No. Cole 620M was that the assessee has placed the orders with M/s. TIL Ltd., Calcutta and the admitted position is that in August 1990, an advance of Rs. 6,50,000 was paid. The Assessing Officer has observed that the balance amount was stated to be paid at the time of delivery. It is also on record, as per Assessing Officer, that on 16-3-1991 M/s. TIL issued sale letters and on the basis of those sale letters, the assessee has also received the temporary registration from RTO Calcutta on 19-3-1991. Further explaining the fact to the Assessing Officer, it was stated that the appellant's siste ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 14-4-1991 and, thereafter, only the assessee was entitled for commercial use of the vehicle. According to Assessing Officer, the temporary registration was only for the purpose of transportation of the vehicle. As far as the explanation regarding the test of the crane was concerned, the Assessing Officer was of the view that the supplier has to test all the cranes, hence, do not support in any manner, the claim of depreciation. Finally, he has concluded that since the purchase of the said asset was without any authority and the vehicle was not capable to be used commercially and the vehicle did not reach the place where it was required, therefore, due to these reasons, it was not used at all for the business purposes within the financial year. 5. The facts in respect of crane having Model No. Cole 825(1) are as follows: The observation of Assessing Officer was that the said machinery was kept as standby crane from 22-3-1991 at the premises of M/s. Light Motive, Calcutta. It was found by the Assessing Officer that the contract with M/s. Light Motive was to provide the subject crane on hire at the rate of Rs. 2,50,000 per month consisting 26 working days. According to Assessing Offi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le or unused due to certain reasons, therefore, could not be said to be even the passive user of the asset. By citing section 32 of the Income-tax Act, he has confirmed the action of Assessing Officer. Since the disallowance was affirmed, hence the assessee is further in appeal now before us. 7. We have heard submissions of both the sides at length and also carefully examined the factual matrix of the case in the light of several case-laws cited and material placed before us. At the outset, it is necessary to place on record that the undisputed fact is that assessee is in the business of giving on hire cranes and other equipments. Thus, hiring business is not in dispute and accepted by both the sides. This fundamental fact is necessary to be recorded because the issue raised before us is directly dependent on the fact that whether a machinery can be said to be put to use by lessor company on acquisition for its business purpose of hiring though the lessee has not started using the asset during the financial year under consideration. This question can further be bifurcated into two limbs- (a) whether on purchase and on hiring of an asset, a machinery can be held to be put to use by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respondence sometimes in one name and sometimes in another name but in either case, it was related to the same crane and meant to be addressed to the assessee. Page 6 of the paper book specify the details of payment made to TIL Ltd. by the assessee-company, which were within the financial year. Ld. A.R. has stressed that as far as the ownership of the crane is concerned; the same was not objected or doubted by the revenue authorities. He has also drawn our attention to Consignment Note on page 27 of the paper book dated 27-3-1991 of Assam Road Carriers through which the said crane was transported from Calcutta to Kariakal, T.N. The arguments of ld. AR was that the assessee being in the business of hiring of crane, is entitled for claim of depreciation in the year in which the crane was undoubtedly purchased by the assessee and put to use for the purpose of hiring. He has also vehemently argued that it is immaterial as far as the hiring company is concerned for the purpose of depreciation in its hand, whether the vehicle hired out was used by the hirer or the lessee for their respective business purpose. In support the following case-laws were cited:- "1. CIT v. Geo Tech Construct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... estions framed supra, we are of the considered view that the assessee has a strong case in view of the reasons assigned here-in-below. Basic condition of claim of depreciation is ownership over an asset. This is undisputedly fulfilled by the assessee due to the reason that the letter of sales as well as payments all are within the financial year. The next condition is the delivery of an asset within the financial year and that too is not in dispute and duly established by placing relevant material on record. Necessary facts in this regard have already been discussed in detail in above paragraphs. As far as the objection of the revenue in respect of letter of the intent is concerned, on examination of the material placed on record and several correspondence made by the assessee and its sister concern with ONGC, we are of the view that certain technical formalities have been completed, otherwise the ONGC has placed its order way back in October 1990 with the specification of the crane as required at Kariakal, T.N. site. Whether on this technical ground that the letter of intent was replaced in the name of assessee instead of its sister concern, is it justifiable to ignore all other m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gh Court in the case of Geo Tech Construction Corpn., has held that the words "used for the purpose of the business" were capable of a larger and narrower interpretation. If the expression "used" was construed strictly it could be taken as connoting or requiring the active employment or the actual working of the machinery, plant or building in the business. On the other hand, the wider meaning would include not only cases where the machinery, plant were actively employed but also cases where there was what may be described as passive user of the same in the business. An asset could be said to be used, when it was kept ready for use. Since the Tribunal had recorded the finding that there was positive material to show the existence of the asset at the work site, and about the passive user it could not be termed to be one without any basis or illegal. Accordingly, the claim for depreciation was allowable. In an another case, Hon'ble Bombay High Court viz. Mirza Ataullaha Baig's case, has opined that "the law is well-settled that in a case of sale in which the price is to be paid by instalments, the property passes as soon as sale is made, even though the price has not been fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in respect of mobile crane or truck mounted crane, depreciation at the rate of 50 per cent was claimed. The first appellate authority has not accepted the claim of the assessee and held that the said crane would be eligible for normal depreciation at the rate of 33.33 per cent. 12. The case laws cited from the side of the assessee are as follows:- 1. Gujco Carriers v. CIT [2002] 256 ITR 50 (Guj.) 2. Sanco Trans Ltd. v. Asstt. CIT [1997] 61 ITD 317 (Mad.) 3. CIT v. Bansal Credits Ltd. [2003] 259 ITR 69 (Delhi) 4. CIT v. Madan & Co. [2002] 254 ITR 445 (Mad.). In view of above citations, the issue is now very well-settled because several Courts have held that the Mobile cranes are entitled for higher rate of depreciation. The Hon'ble Gujarat High Court in the case of Gujco Carriers has held that the mobile crane of the assessee which admittedly was registered as a heavy motor vehicle, as is the case of the assessee, would clearly fall within the expression "Motor lorries in entry IIIE (1A) of the Table in Appendix I under rule 5 of Income-tax Rules, 1962. The Court has also mentioned that the crane was used by that assessee in its business of running the crane on hire, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vant to mention that the previous year ended on 31-3-1993. It was also observed that the cranes were landed at Madras on 26-2-1993 which were cleared from Customs on 12-3-1993. Due to this reason, the Assessing Officer was of the view that the cranes were not put to use during the year under consideration. On the other hand, the contention of the assessee was that the business of the assessee-company was to operate cranes on hire though, these two cranes were ready for use for the business of the assessee. When the issue was carried before the first appellate authority, the ld. CIT(A) has simply mentioned that in the past, for the assessment year 1991-92, on almost identical facts and circumstances, his predecessor had disallowed the claim of depreciation. In a brief finding, the ld. CIT(A) has followed the past history and confirmed the action of the Assessing Officer. 17. We have already discussed this issue at length and following certain precedents have held that since the cranes were purchased during the year and ready for the use of hiring or used by the hirer, hence assessee is entitled for the claim of depreciation. Before we conclude, it is also worth mentioning that in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... chinery instead of 40 per cent being the rate applicable to trucks and motor lorries used in the business of hiring. The first appellate authority has simply followed the assessee's own appeal decided by his predecessor for the assessment year 1991-92 and confirmed the action of the Assessing Officer. Now as per above, we have already decided that appeal relying upon certain precedents and directed to allow the higher rate of depreciation. Since a view has already been taken in above paras, hence following the same for this year as well, the ground raised by the assessee is hereby allowed. 19. In the results, the appeals are allowed. ORDER Per K.G. Bansal, Accountant Member.- The facts of the case in Appeal No. 687/PN/94, for assessment year 1991-92, regarding a crane, having Model No. Cole 620M, for assessment year 1991-92 have been fairly stated by my learned Brother in paragraph 4 of his order. These relevant facts may be briefly recapitulated here. The assessee had obtained temporary registration for this crane on 19-3-1991 on the basis of sale letter dated 16-3-1991. The crane was actually purchased on 27-3-1991 after tests as per specification of ONGC had been conduct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had also relied on the decision of Bombay High Court, Nagpur Bench, in the case of Dineshkumar Gulabchand Agrawal. The Hon'ble Court had to decide the matter whether user of asset also includes in its ambit an asset which is ready for use but not actually, used. The Hon'ble Court considered its own earlier decision in the case, of Whittle Anderson Ltd v. CIT [1971] 79 ITR 613 (Bom.). In that judgment, the Court was concerned with the interpretation of the expression "use" or "used", whereas in the case of Dineshkumar Gulabchand Agrawal, the Court was concerned with the interpretation of the word "used". The Hon'ble Court pointed out that the expression "used" means actually used for the purpose of business and not "ready for use". Being the decision of jurisdictional High Court, this decision is of binding nature. The facts of the instant case are that privity of contract between the assessee and ONGC took place only on 17-4-1991, when ONGC started paying hire charges to the assessee. After that date, we are not concerned whether ONGC actually used the crane in its business, because, insofar as the assessee is concerned, the assessee used the crane in its business from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... we differ in opinion on the certain points, therefore, refer the following points to the Hon'ble President, ITAT, for necessary orders:- "(1) Whether under the facts and circumstances of the case, there was an existence of contract of hire between the parties in the previous years relevant to the assessment years 1991-92 and 1993-94. (2) Whether under the facts and circumstances of the case, for the purposes of depreciation, the hiring of machinery was with effect from the date of transportation of machinery started or from the date when the hire charges had actually been paid. (3) Whether under the facts and circumstances of the case, the actual use of machinery in the hands of the assessee started when the machinery was dispatched to its destination or when the machinery is put to use by the hirer. (4) Whether the machinery is said to be put to use in case of assessee in the business of hiring when the machinery was ready for hiring purpose and not the day the machinery was used by the hirer." 2. The matter is, therefore, referred to the Hon'ble President for reference to a Third Member. THIRD MEMBER ORDER Per Vimal Gandhi, President As a Third Member.- On acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee obtained temporary registration of crane from RTO, Calcutta on 19-3-1991. It was further explained that assessee's sister concern M/s. Sanghvi Non-ferrous Metal Industries Pvt. Ltd. had obtained a Letter of Intent for deployment of Cole 620M crane with ONGC at Kariakal, Tamil Nadu on 4-10-1990. The said sister concern was not in a position to fulfil the commitment and, therefore, a joint request was made by the assessee and sister concern to ONGC to transfer the Intent in the name of the assessee. It was further claimed by the assessee that performance specifications of the crane were tested and examined by M/s. TIL Ltd., as per requirement of ONGC between 19-3-1991 to 22-3-1991. The assessee has also made arrangement to transport the said crane to Kariakal (Tamil Nadu) by delivering the crane to Assam Roadways on 27-3-1991. In the above circumstances, it was claimed that crane was put to use for business purposes in the relevant period and thus conditions of section 32 were satisfied. 5. The Assessing Officer held that original contract of deployment of crane for ONGC was not with the assessee but with its sister concern. The letter of Intent was not transferred in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lied upon the statement of Director of company Shri A.D. Sanghvi, recorded under section 131 of the Income-tax Act. Some of the questions and answers thereto are reproduced in the assessment order. The Assessing Officer held that crane was lying idle and was not used for any business during the relevant accounting period. He further pointed out that crane was not charted for any commercial purposes. The crane was delivered to the assessee only on 27-3-1991 and had temporary registration with registration authority, South 24 Pargana, Calcutta on 19-3-1991. The temporary registration only entitles the assessee to remove or transport crane but did not authorize its use for commercial purposes. As the crane was not used in the financial year, the Assessing Officer disallowed the claim of depreciation relying upon case laws cited in the assessment order. 7. The assessee impugned above disallowance of depreciation in appeal before the learned CIT (Appeals). The learned CIT (Appeals), on the basis of analysis of facts and circumstances on record, also came to the conclusion that two cranes were not proved to be used by the assessee in the relevant period. The learned CIT (Appeals) held t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emises and both the parties had exchanged correspondence relating to the same crane. The Judicial Member also noted that assessee made payments towards sale price of the crane to TIL Ltd. within the financial year. He, therefore, concluded that there was no doubt or dispute relating to ownership of the claim. It was further proved that crane was dispatched from Calcutta to Kariakal, Tamil Nadu on 27-3-1991 through Assam Road Carriers. The learned Judicial Member also noted following decisions, cited on behalf of the assessee: 1. Geo Tech Construction Corpn.'s case 2. Mirza Ataullaha Baig's case 3. Dilip Singh Sardarsingh Bagga's case. 8.1 The learned Judicial Member also noted the arguments of Departmental Representative that on temporary registration, the crane could not be used for commercial purposes. Permanent and final registration was granted to crane only in the month of April, 1991. Thus with temporary registration, the crane could not be used for commercial purposes or for business purposes and, therefore, assessee was not entitled to depreciation. The letter of Intent was also transferred in the name of the assessee only in the month of April 1991. Ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and supplying crane. The learned Judicial Member ultimately concluded as under: "Considering number of evidences in respect of the Crane, Model No. Cole 620-M, it is evident that the crane was purchased and put to use for the purpose of business of hiring by the assessee during the accounting year under consideration." He accordingly directed that depreciation on crane Model No. Cole 620-M be allowed. 9. As far as crane Model No. Cole 825 is concerned, the learned Judicial Member observed, "there is no dispute as far as the purchase and delivery of the said machine is concerned. The only dispute is that the said crane was kept as a standby crane." In this regard, the learned Judicial Member observed as under: "However, in this regard, there are several evidences placed on record, establishing the fact that the hirer of the crane has demanded for a standby crane and since the assessee has to satisfy a reasonable demand of his client, therefore, in the interest of business relations, provided one standby crane. The crane was hired by M/s. Light Motive, who was under a production of the film 'City of Joy'." 9.1 The learned Judicial Member further considered decision of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 93 where it landed on 26-2-1993. These cranes were cleared by Customs Authorities on 12-3-1993. In the light of above facts, the Assessing Officer had concluded that cranes were not used for purposes of business during the year under consideration. 10.1 The assessee on the other hand had contended that as assessee was in the business of hiring of cranes, these could be treated as used when they were kept ready for use for business. 10.2 On appeal, learned CIT (Appeals) upheld denial of claim of depreciation, following order for assessment year 1991-92 where on almost identical facts and circumstances, his predecessor has disallowed claim of depreciation. In the light of above, the learned CIT (Appeals) passed a very brief order confirming the action of the Assessing Officer. 10.3 The learned Judicial Member, in the proposed order, allowed claim of depreciation in assessment year 1993-94, in the light of discussion of this issue in assessment year 1991-92. The basis of allowing the claim was the finding that since the cranes were purchased during the year and ready for use for hiring or used for hirer, hence assessee was entitled to the claim of depreciation. Before concluding, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome. The learned Accountant Member was of the view that decision in the case of Dineshkumar Gulabchand Agrawal was applicable in this case. In the said case, the Court was concerned with interpretation of expression "used". The Hon'ble Court pointed out that expression "used" means "actually used" for the purposes of business and not "ready for use". The learned Accountant Member was of the opinion that above decision of jurisdictional High Court was binding on the Tribunal. He further found that privity of contract between assessee and ONGC took place on 17-4-1991 when ONGC started paying hire charges to the assessee. The said date being after the close of the previous year, the assessee was not entitled to deduction of depreciation, for the assessment year 1991-92. The assessee could not claim depreciation merely by showing that machinery was dispatched to ONGC on 27-3-1991 through M/s. Assam Roadways. Apart from above observations, the learned Accountant Member was in agreement with other findings of the learned Judicial Member. 12. In regard to appeal No. 73/PN/97, for assessment year 1993-94, the learned Accountant Member found that cranes landed in Madras on 26-2-1993 an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee filed with ONGC for not opening tender submitted by the assessee for use of cranes in March 1993. ONGC had accepted assessee's objections and cranes were actually used in April 1993. Shri Inamdar relied upon proposed order of learned Judicial Member. 14. Shri Sharma, learned CIT(DR) supported the proposed order of the Accountant Member. He submitted that assessee did not prove any agreement to hire cranes in both the assessment years. Therefore, even if it is accepted that giving of crane on hire would tantamount to user of the crane for purposes of business, the said condition was also not satisfied. Shri Sharma maintained that in the light of decision of jurisdictional High Court in the case of Dineshkumar Gulabchand Agrawal, the assessee was to prove actual user of the crane which admittedly was not there in both the assessment years. He accordingly supported the order proposed by learned Accountant Member. 15. I have given careful thought to the rival submissions of the parties. There is no dispute first condition for getting depreciation, i.e., ownership of the asset has been fully established in this case. The controversy relates to the second condition, i.e., the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by section 10(2)(vi) could be given in respect of such machinery. No doubt, that was said in connection with clause (vi) of section 10(2), but the Supreme Court has pointed out that all these clauses are in pari materia and the expression used in either of them would apply to the other: see the Liquidators of Pursa Ltd. v. CIT [1954] 25 ITR 265; [1954] SCR 767 (SC). In Viswanath Bhaskar Sathe's case, the facts were similar to the present case. The assessee owned a ginning factory and was a member of a pool with the owners of other ginning factories. During the assessment year in question in that case the assessee's factory had not been actually employed in the work of ginning in accordance with the pooling agreement, though he had received a share of the profits. That was because the assessee was under the agreement bound at his own expense to keep his gins and other working plant and machinery in good repair and condition and working order even when his factory was not working, so that it may be ready for actual use at any moment. It was held that, under these circumstances, the assessee was entitled to the allowance under section 10(2)(vi)." Their Lordships further m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tered in the name of the assessee, the assessee cannot be regarded as the owner of the buses. On the contrary, the essential pre-requisite for registration under section 22(1) of the Motor Vehicles Act is ownership of a motor vehicle. Unless a person is the owner of a motor vehicle he is not entitled to get it registered in his name under section 22(1) of the Motor Vehicles Act. The Tribunal in this case has come to the conclusion on a review of the facts and also of the agreement that the assessee was the owner of the five new buses and as such was entitled to claim depreciation allowance on these buses. The Tribunal has not committed any error of law in coming to this conclusion. The requirement of section 32 of the Income-tax Act is that the vehicles must be "owned by the assessee". This section does not require that the assessee must be a registered owner of the vehicles in order to claim depreciation allowance in respect of them. We are of the view that, in the facts of this case, the new buses were owned by the assessee within the meaning of section 32 of the Income-tax Act and the assessee was entitled to claim depreciation allowance on these vehicles." 15.5 In the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee for its business purposes. Alternatively the assessee was entitled for depreciation on these two oil tankers as they were purchased during the relevant accounting year for business purposes and were ready to use, road tax was deposited and the oil tankers were got registered with the registering authority on the last date of the accounting year. Failure of the assessee to produce the hire contract with the parties is in respect of the two oil tankers is of little significance in view of exposition of law that the word "used" under section 32 of the Act has to be given wider meaning and it will include assets ready for use." 15.6 The Punjab and Haryana High Court in CIT v. Pepsu Road Transport Corpn. [2002] 253 ITR 303 has held that the assessee who was the transporter had to keep spare engines in the store, was entitled to depreciation on the spare engines in the store, as the engines were meant to be used in the case of need. There is a normal depreciation of value even when machines or equipment is merely kept in the store. Looking to the nature of business of that assessee, who was a transporter it was held that keeping spare engines in store to meet emergent situations ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the assessee and it is required to be construed liberally and in a manner which is favourable to the assessee. I find force in assessee's submission that decision of Hon'ble Bombay High Court in the case of Dineshkumar Gulabchand Agrawal has to be read in the light of other decisions of Bombay High Court and of the Supreme Court and when so read, it does not lay any different law. Expression "used" is to be construed in the context of facts and circumstances of the case and would include not only active use of the asset but also passive use of asset for purposes of business. This is what has been consistently held by the Supreme Court and the Bombay High Court in the decisions cited supra. Permanent registration under the Motor Vehicles Act is not sine qua non for claim of depreciation. Temporary registration for a limited period pending permanent registration is good enough to claim depreciation on asset owned by the assessee and used in business, as noted in the decisions of different High Courts. No decision taking a contrary view was cited before me. Hiring of asset is one way of establishing user of the asset in business. But "user" or "used" can be proved independen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iscussed above, I am of view that assessee was entitled to use the crane in the manner it liked and this would be "user" of crane for purposes of business. The assessee is entitled to depreciation on the above crane, in the assessment year 1991-92. 17.1 Besides above, it may be mentioned that teamed Accountant Member has not controverted any of the facts found or recorded by learned Judicial Member in respect of this crane. For the above reason also, depreciation on this crane is allowed. 18. As far as claim of depreciation on two cranes imported by the assessee in the period relevant to assessment year 1993-94 is concerned, the assessee has placed on record that it had placed tenders with ONGC authorities, Chennai in March 1993 for hiring of these Kato cranes to above corporation. However, ONGC wrongfully did not open tender of the assessee and accordingly assessee raised objections with the authorities. Copies of above objections are placed in the paper book. The assessee has further pointed out that objections of the assessee were accepted and these cranes were hired and duly used by ONGC at Chennai from April 1993 onwards. 18.1 On consideration of above facts, I am of view t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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