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TMI Blog2013 (1) TMI 344X X X X Extracts X X X X X X X X Extracts X X X X ..... , on which depreciation was claimed, are stated to have been purchased by the assessee against direct payment to the manufacturers. The assessee, as a part of its business, leased out these vehicles to its customers and thereafter, had no physical affiliation with the vehicles. In fact, lessees were registered as the owners of the vehicles, in the certificate of registration issued under the Motor Vehicles Act, 1988 (hereinafter referred to as "the MV Act"). 3. In its return of income for the relevant assessment years, the assessee claimed, among other heads, depreciation in relation to certain assets, (additions made to the trucks) which, as explained above, had been financed by the assessee but registered in the name of third parties. The assessee also claimed depreciation at a higher rate on the ground that the vehicles were used in the business of running on hire. 4. The Assessing Officer disallowed claims, both of depreciation and higher rate, on the ground that the assessee's use of these vehicles was only by way of leasing out to others and not as actual user of the vehicles in the business of running them on hire. It had merely financed the purchase of these assets and wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m on hire also. The appellant has only a leasing business and it does not run a business of hiring trucks to the public. According to the department the distinction is very clear and there is no case for the appellant to claim the enhanced depreciation on the business of hiring the trucks." 6. Relying on the decision of this Court in Commissioner of Income Tax, Karnataka, Bangalore Vs. Shaan Finance (P) Ltd., Bangalore [(1998) 3 SCC 605], the Tribunal held that the assessee, having used the trucks for the purpose of business, was entitled to a higher rate of depreciation at 50% on the trucks leased out by it. 7. Being aggrieved, the revenue preferred an appeal to the High Court under Section 260A of the Act. The High Court framed the following substantial questions of law for its adjudication:- "Whether the Appellant (assessee) is the owner of the vehicles which are leased out by it to its customers and Whether the Appellant (assessee) is entitled to the higher rate of depreciation on the said vehicles, on the ground that they were hired out to the Appellant's customers." 8. Answering both the questions in favour of the revenue, the High Court held that in view of the fact t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... et that is set aside to facilitate its replacement when the asset becomes dysfunctional. In P.K. Badiani Vs. Commissioner of Income Tax, Bombay[(1976) 4 SCC 562], this Court has observed that allowance for depreciation is to replace the value of an asset to the extent it has depreciated during the period of accounting relevant to the assessment year and as the value has, to that extent, been lost, the corresponding allowance for depreciation takes place. 11. Black's Law Dictionary (5th Edn.) defines 'depreciation' to mean, inter alia: "A fall in value; reduction of worth. The deterioration or the loss or lessening in value, arising from age, use, and improvements, due to better methods. A decline in value of property caused by wear or obsolescence and is usually measured by a set formula which reflects these elements over a given period of useful life of property.... Consistent gradual process of estimating and allocating cost of capital investments over estimated useful life of asset in order to match cost against earnings..." The 6th Edition defines it, inter alia, in the following ways: "In accounting, spreading out the cost of a capital asset over its estimated useful lif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Shaan Finance (P) Ltd. (supra), this Court while interpreting the words "used for the purposes of business" in case of analogous provisions of Section 32A(2) and Section 33 of the Act, dealing with Investment Allowance and Development Rebate respectively, held thus: - "9. Sub-section (2) of Section 32-A, however, requires to be examined to see whether there is any provision in that sub-section which requires that the assessee should not merely use the machinery for the purposes of his business, but should himself use the machinery for the purpose of manufacture or for whatever other purpose the machinery is designed. Sub-section (2) covers all items in respect of which investment allowance can be granted. These items are, ship, aircraft or machinery or plant of certain kinds specified in that sub-section. In respect of a new ship or a new aircraft, Section 32-A(2)(a) expressly prescribes that the new ship or the new aircraft should be acquired by an assessee which is itself engaged in the business of operation of ships or aircraft. Under sub-section (2)(b), however, any such express requirement that the assessee must himself use the plant or machinery is absent. Section 32-A(2)(b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee for the relevant accounting years. The assessee claimed development rebate in respect of the cold-storage plant. The High Court said that it was accepted by the department that in letting out the plant and machinery, the assessee was still doing business and the hire charges which it had received, had been assessed as business income of the assessee. Hence the assessee had complied with all the conditions for the grant of development rebate including the condition that the assessee had used the machinery for the purposes of its business. The High Court said that it must, therefore, necessarily be assumed that the conditions laid down in Section 33(1)(a) that the machinery or plant is wholly used for the purposes of the business carried on by the assessee, is duly satisfied and the assessee is entitled to development rebate. In appeal before this Court, a Bench of three Judges of this Court upheld the decision of the Kerala High Court in the above case in CIT v. Castle Rock Fisheries (1997) 10 SCC 77. This Court also held that since the department has proceeded on the explicit basis that despite the fact that the plant had been temporarily let out by the assessee to a si ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Black's Law Dictionary (6th Edn.) defines 'owner' as under: "Owner. The person in whom is vested the ownership, dominion, or title of property; proprietor. He who has dominion of a thing, real or personal, corporeal or incorporeal, which he has a right of enjoy and do with as he pleases, even to spoil or destroy it, as far as the law permits, unless he be prevented by some agreement or covenant which restrains his right. The term is, however, a nomen generalissimum, and its meaning is to be gathered from the connection in which it is used, and from the subject- matter to which it is applied. The primary meaning of the word as applied to land is one who owns the fee and who has the right to dispose of the property, but the terms also included one having a possessory right to land or the person occupying or cultivating it. The term "owner" is used to indicate a person in whom one or more interests are vested his own benefit. The person in whom the interests are vested has 'title' to the interests whether he holds them for his own benefit or the benefit of another. Thus the term "title" unlike "owner".." It defines the term 'ownership' as - "Collection of righ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y premises where the assets is believed to be kept and inspect and/or test the equipment and/or observe its use. 18. Default If the lessee shall make default in payment of moneys or rent payable under the provisions of this agreement, the Lessee shall pay to the Lessor on the sum or sums in arrears compensation at the rate of 3% per month until payment thereof, such compensation to run from the day to day without prejudice to the lessor's rights under any terms, conditions and agreements herein expressed or implied. All costs incurred by the Lessor in obtaining payment of such arrears or in endeavoring to trace the whereabouts of the equipments or in obtaining or endeavouring to obtain possession thereof whether by action, suit or otherwise, shall be recoverable from the lessee in addition to and without prejudice to the lessors right for breach of this lease. 19. Expiration of Lease: Upon the expiration of this Lease, the Lessee shall deliver to the Lessor the assets at such place as the Lessor may specify in good repair, condition and working order. As soon as the return of the asset the Lessor shall refund the amount of security deposit. If the lessee fails to deliver th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent. A bailment has been defined in S.148 of the Indian Contract Act, as "the delivery of goods by one person to another for some purpose, upon a contract that they shall, when the purpose is accomplished, be returned or otherwise disposed of according to the directions of the person delivering them. 22. From the above discussion, it is clear that the transactions occurring in the business of the assessee-appellant are leases under agreement, but not hire purchase transactions. In fact, they are transactions of 'hire'. Even viewed from the angle of the author of 'Lease Financing and Hire Purchase', the views of whom were discussed in pages 16 and 17 of this order, the transactions involved in the appellant business are nothing but lease transactions. 23. As far as the factual portion is concerned now we could come to a conclusion that leasing of vehicles is nothing but hiring of vehicles. These two aspects are one and the same. However, we shall discuss the case law cited by both the parties on the point." 24. The only hindrance to the claim of the assessee, which is also the lynchpin of the case of the Revenue, is Section 2(30) of the MV Act, which defines ownership as follow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid agreement. (5) Where the person whose name has been specified in the certificate of registration as the person with whom the registered owner has entered into the said agreement, satisfies the registering authority that he has taken possession of the vehicle from the registered owner owing to the default of the registered owner under the provisions of the said agreement and that the registered owner refuses to deliver the certificate of registration or has absconded, such authority may, after giving the registered owner an opportunity to make such representation as he may wish to make (by sending to him a notice by registered post acknowledgment due at his address entered in the certificate of registration) and notwithstanding that the certificate of registration is not produced before it, cancel the certificate and issue a fresh certificate of registration in the name of the person with whom the registered owner has entered into the said agreement: Provided that a fresh certificate of registration shall not be issued in respect of a motor vehicle, unless such person pays the prescribed fee: Provided further that a fresh certificate of registration issued in respect of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as it is of no consequence to our final opinion on the main issue. From a perusal of the lease agreement and other related factors, as discussed above, we are satisfied of the assessee's ownership of the trucks in question. 29. Therefore, in the facts of the present case, we hold that the lessor i.e. the assessee is the owner of the vehicles. As the owner, it used the assets in the course of its business, satisfying both requirements of Section 32 of the Act and hence, is entitled to claim depreciation in respect of additions made to the trucks, which were leased out. 30. With regard to the claim of the assessee for a higher rate of depreciation, the import of the same term "purposes of business", used in the second proviso to Section 32(1) of the Act gains significance. We are of the view that the interpretation of these words would not be any different from that which we ascribed to them earlier, under Section 32 (1) of the Act. Therefore, the assessee fulfills even the requirements for a claim of a higher rate of depreciation, and hence is entitled to the same. 31. In this regard, we endorse the following observations of the Tribunal, which clinch the issue in favour of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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