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Mere Tax deduction under any Head cannot be determinative of true character of payee’s income- HC

Case Name : Kottinatu Transporters Vs CIT, Kottayam (Kerala High Court)

Appeal Number : Writ Petition No.- 15013 of 2012

Date of Judgement/Order : 25/06/2015

Related Assessment Year :

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Brief of the case:

In case of Kottinatu Transporters vs. CIT, The Hon’ble Kerala HC by disposing off write petition held that the tax deduction under a heading by payer, it cannot be determinative of character of income of payee. It was held by honorable High Court that letting out lorries can not be treated as contractual business merely because TDS was deducted u/s 194C instead of u/s 194I
Thus, in the present case though the tax was deducted u/s 194C, but the payment was in nature of hire charges because the assessee was infact carrying on the business of letting lorries on hire. The Honorable High Court has allowed contention of assessee allowing him to claim the deduction of depreciation @30 % against the 15% allowed by AO as the nature of the business in original was of letting out the lorries even though the TDS has been deducted by considering the nature of income as contractual income

Facts of the case:

The petitioner (assessee) is engaged in the business of letting out lorries owned by him on hire in the name of Kottinattu Transports. The petitioner has claimed depreciation @ 30% under the category ‘motor vehicles, lorries……..’ used in the business of running them on hire’.
AO however, rejected the claim of assessee and allowed depreciation @ 15% because as per him the assessee has let out lorries under a contract, thus, the consideration received by him was not hire charges but it was only a contract receipt for letting out lorries on hire.
Therefore, the assessee cannot be said to using the lorries in the business of running them on hire and for that reason depreciation allowable only @ 15%.
The revision application filed by assessee was rejected by Commissioner of Income Tax , having no remedy the assessee filed a writ petition before Kerala HC.

Contention of Assessee:

The lorries were used in the business of running them on hire, therefore , depreciation @ 30% is allowable. The payments made by payer as contractual charges are hire charges only.
Further, the fact that hire charges were paid per tonne basis instead of per kilometer basis (common practice) cannot not change the nature of payment.

Contention of Revenue:

The TDS certificate as well as the agreement between the assessee and KSE Ltd. indicate that the payment was made by payer for supply of trucks as per the agreement by assessee . Thus the payment cannot be considered as hire charges but merely a contractual payment.
The payment received by petitioner was not hire charges but it was only a contract receipt for letting out lorries on hire and therefore depreciation allowance at the rate of 30% is not admissible.

Held by Hon’ble High Court:

The point of dispute in the present case is that whether or not the assessee is entitled to 30% depreciation on lorries let out by him under a contract.
The AO has allowed 15% depreciation by relying on the TDS certificates wherein the tax was deducted under contract payments.
Merely because the tax has been deducted under sec 194C by the payer it does not mean that the payment was not made towards hire charges.
Further, the contention of revenue that the payment was made per metric tonne instead of prevailing practice of per kilometer is of no merit in changing the nature of payment because it is nowhere mentioned that hire charges should be recovered per kilometer basis only.
Based on above observations, the court held that the lorries were infact used in the business of running them on hire, thus, depreciation @ 30% is allowable.

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