Case Law Details

Case Name : Commissioner of Income Tax Vs Rakesh Jain, (Punjab and Hariyana High Court at Chandigarh)
Appeal Number : ITA No. 380 of 2011
Date of Judgement/Order : 21/02/2012
Related Assessment Year :
Courts : All High Courts (3671) Punjab and Haryana HC (200)

Tippers, vibrator & vibrator soil compactor are ‘commercial vehicle’ eligible for 40% depreciation 

Perusal of Section 32 of the Act would show that it deals with the depreciation of building, machinery, plant or furniture being tangible assets. It also deals with the expression  ‘commercial vehicle’ in unnumbered proviso 3, which is acquired by the assessee on or after the 1st day of October, 1998 but before the 1st day of April 1999. According to explanation, the commercial vehicle is to include heavy goods vehicle, heavy passenger motor vehicle, light motor vehicle, medium goods vehicle but is not to include maxi-cab, motor-cab, tractor and road-roller.

Therefore, the question which falls for consideration is whether Tippers, Vibrator and Vibrator Soil Compactor would be covered by the expression ‘commercial vehicle’ or such vehicles have to be regarded as plant and machinery to attract less percentage of depreciation. The reasoning adopted by the Tribunal would not suffer from any legal infirmity because the Tippers are registered under the Motor Vehicles Act, 1988 (for brevity ‘the 1988 Act’) as road transport vehicle as would be vibrator and vibrator soil compactor. Insofar as Tippers are concerned, a Division Bench of the Karntaka High Court in the case of Commissioner of Income Tax v. Mahalinga Setty & Co. (1992) 195 ITR 526 (KAR) has opined against the revenue by giving the benefit of investment allowance to the assessee . If that be so then Vibrator and the Vibrator Soil Compactor would follow the suit because the reasoning adopted is that the vehicles are registered under the 1998 Act and it is essential machinery to carry on the construction work.

PUNJAB AND HARYANA HIGH COURT AT CHANDIGARH

1. ITA No. 380 of 2011 Date of Decision: February 21, 2012

Commissioner of Income Tax Versus Rakesh Jain,

2. ITA No. 381 of 2011

The Commissioner of Income Versus Rakesh Jain,

 ORDER

M.M. KUMAR, J.

1. This order shall dispose of ITA Nos. 380 and 381 of 2011 filed by the revenue under Section 260A of the Income Tax Act, 1961 (for brevity ‘the Act’), challenging order dated 30.06.2011 passed by the Income Tax Appellate Tribunal Chandigarh Bench ‘B’, Chandigarh (for brevity ‘the Tribunal’) in respect of the assessment years 2006-07 and 2007-08. The revenue has raised the issue that the depreciation at the rate of  40% on Tippers, Vibrator and Vibrator Soil Compactor is impermissible and the Tribunal has erroneously treated those vehicles as commercial vehicles. According to revenue, these vehicles are qualified for depreciation at the rate of 15% and must be treated as original plant and machinery.

2. Facts are being taken as disclosed in the assessment order. The assessee-respondent filed return declaring an income of ` 6,42,330 on 31.10.2007. The return was processed under Section 143(1) of the Act and subsequently, it was selected for scrutiny. Accordingly, statutory notices along with detailed questionnaire was issued to the assessee-respondent. In response to the aforesaid notices, the assessee through its authorized Chartered Accountant attended the proceedings and filed reply to the questionnaire and along with other information.

3. The assessee-respondent derives income from civil construction and contract work and these items are considered as part of machinery on which depreciation is allowable at the rate of 15% only. Accordingly, the Assessing Officer allowed the depreciation at the rate of 15% under Section 42(1)(ii) Explanation II unnumbered proviso 3. The view of the Assessing Officer is discernible from a perusal of paras 4.2 and 5 which are as under:

“4.2. As regards assessee’s argument that the Vibrator/ Soil Compactor is not a roller, same is not acceptable. As per the brochure of the company “Dynapac” filed during the course of proceedings, the Vibrator/ Soil Compactor has been categorized   under the ‘Road Roller’ equipment and the named as Vibratory Rollers. The soil compactor is also heavy machinery utilized only for road construction and by no stretch of imagination it can be termed as heavy commercial vehicles. Likewise the tipper is heavy machinery which is specifically designed and utilized in road construction. Even the assessee has admitted in its submissions that Tipper is like a vibrator. Simply because it has been registered with the RTO will not make it heavy goods vehicle entitled for depreciation at higher rate of 30%.

5. In view of the facts stated in foregoing paras, it is held that the assessee has claimed excessive depreciation on all the road equipment mentioned above. Accordingly, the excessive depreciation claimed to the tune of ` 6,56,606/- is disallowed accordingly, added to the taxable income of the assessee. The assessee would be treated to have filed inaccurate particulars of income in respect of this addition, for which penalty proceedings under Section 271(1)(c) of the Income Tax Act, 1961 have been initiated separately.”

4. It is, thus, obvious that excessive depreciation claimed by assessee-respondent was added to his income.

5. Feeling aggrieved, the assessee-respondent filed appeal under Section 143(3) of the Act and the CIT(A) has accepted the functional tests as the basis for grant of 30% depreciation and also on the ground that higher depreciation is on account of rigorous and hard use of commercial vehicles in comparison to the stationed and permanently installed machinery. In support of the aforesaid rationale, it has also been held that the vehicles have been registered with the DOT, which is an authority responsible for registration of commercial vehicle. These vehicles are moving vehicles, which are used to move earth and have to be treated at par with the commercial vehicles such as Trucks. It was further held that these vehicles are special purpose vehicles and would not change the characteristics of the assets. Tippers are trucks with the hydraulic attachment for the unloading of earth. Likewise, the vibrators have the additional functions but basic character of the vehicles necessarily remained  the same. Therefore, they cannot be treated as plant and machinery.

6. The Tribunal accepted the aforesaid view of the CIT(A) and the view of the Tribunal is discernible from paras 7, 8 and 9, which reads as under:

“7. We have heard both the parties and carefully considered their submissions including the authorities referred to by them. The order of the Ld. CIT(A) with regard to depreciation is in two parts. In first part he directed the AO to allow depreciation @ 40% as against 15% allowed by the Ld. CIT(A) on the three aforesaid three items. In the second part of his order, he has held that the assessee is eligible to additional depreciation.  We shall now deal with both the aspects as they have been specifically challenged by the Department.

8. Apropos the dispute as to whether the assessee is entitled to depreciation at the rate of 40% on Tippers, Vibrator and Vibrator Soil Compactor, the issue is whether they are in the nature of commercial vehicles. The assessee is entitled to claim depreciation at the rate of 40% on commercial vehicles. The word “commercial vehicles” includes within its ambit all the vehicles which fall in the category of commercial vehicles. The Ld. CIT(A) has given detailed justification for treating the Tipper, Vibrator and Vibrator Soil Compactor a commercial vehicles. We are in agreement with his reasoning and decision in the matter. Similar view has been taken by other Benches of this Tribunal and also by the High Courts to which reference has already been made by the Ld. Counsel for the assessee. In view of the matter, we hold that the Ld. CIT(A) has rightly directed the AO to allow depreciation @ 40% on Tippers, Vibrator and Vibrator Soil Compactor.

9. Apropos the issue as to whether the assessee is eligible to additional depreciation on the aforesaid items, the Ld. Counsel for the   assessee fairly conceded that the assessee had never pressed any claim towards additional depreciation either before the AO or before the Ld. CIT(A) and therefore, the observations of the Ld. CIT(A) that the assessee is entitled to additional depreciation need to be vacated. We therefore vacate the observations made by the Ld. CIT(A) that the assessee is entitled to additional depreciation on the aforesaid items.”

7. We have heard Mr. Rajesh Katoch, learned counsel for the revenue at a considerable length. According to Mr. Katoch, the definition of commercial vehicle will not include Tipper, Vibrator and Vibrator Soil Compactor. In that regard, our attention has been invited to Explanation of unnumbered proviso 3 of Section 32(1)(ii) of the Act.

8. Mr. Katoch, learned counsel has submitted that the expression ‘commercial vehicle’ is a wider expression and it would not include the tippers, Vibrator and Vibrator Soil Compactor. Therefore, he has requested for interpretation, which would include these vehicles in the plant and machinery assessable to tax at the rate of 40%.

9. In order to appreciate submission made by learned counsel, it would be appropriate to first notice the provisions of Section 32(1)(ii) of the Act, which reads as under:

“32.(1) [ In respect of depreciation of (i) buildings, machinery, plant or furniture, being tangible assets.” 

(ii) xx xx xx

(ii) [in the case of any block of assets, such percentage on the written down value thereof as may be prescribed

[Provided that no deduction shall be allowed under this clause in respect of—

(a) any motor car manufactured outside India, where such motor car is acquired by the assessee after the 28th day of February, 1975 [but before the 1st day of April, 2001], unless it is used—

(i) in a business of running it on hire for tourists ; or

(ii) outside India in his business or profession in another country ; and

(b) any machinery or plant if the actual cost thereof is allowed as a deduction in one or more years under an agreement entered into by the Central Government under section 42 :]

[Provided further that where an asset referred to in clause (i) or clause (ii) 1 [or clause (iia), as the case may be, is acquired by the assessee during the previous year and is put to use for the purposes of business or profession for a period of less than one hundred and eighty days in that previous year, the deduction under this sub-section in respect of such asset shall be restricted to fifty per cent of the amount calculated at the percentage prescribed for  an asset under clause (i) or clause (ii) 1[or clause (iia)], as the case may be

[Provided also that where an asset being commercial vehicle is acquired by the assessee on or after the 1st day of October, 1998 but before the 1st day of April, 1999 and is put to use before the 1st day of April, 1999 for the purposes of business or profession, the deduction in respect of such asset shall be allowed on such percentage on the written down value thereof as may be prescribed.

Explanation.—For the purposes of this proviso,—

(a) the expression “commercial vehicle” means “heavy goods vehicle”, “heavy passenger motor vehicle”, “light motor vehicle”, “medium goods vehicle” and “medium passenger motor vehicle” but does not include “maxi- cab”, “motor-cab”, “tractor” and “road-roller”;

(b) the expressions “heavy goods vehicle” 3, “heavy passenger motor vehicle” 3 , “light motor vehicle” 3 ,“medium goods vehicle” 3, “medium passenger motor vehicle” 3, “maxi-cab” 3, “motor-cab” 3, “tractor” 3 and “road roller” shall have the meanings respectively as assigned to them in section 2 of the Motor Vehicles Act 1988 (59 of 1988)”

10. A perusal of Section 32 of the Act would show that it deals with the depreciation of building, machinery, plant or furniture being tangible assets. It also deals with the expression  ‘commercial vehicle’ in unnumbered proviso 3, which is acquired by the assessee on or after the 1st day of October, 1998 but before the 1st day of April 1999. According to explanation, the commercial vehicle is to include heavy goods vehicle, heavy passenger motor vehicle, light motor vehicle, medium goods vehicle but is not to include maxi-cab, motor-cab, tractor and road-roller. Therefore, the question which falls for consideration is whether Tippers, Vibrator and Vibrator Soil Compactor would be covered by the expression ‘commercial vehicle’ or such vehicles have to be regarded as plant and machinery to attract less percentage of depreciation. The reasoning adopted by the Tribunal would not suffer from any legal infirmity because the Tippers are registered under the Motor Vehicles Act, 1988 (for brevity ‘the 1988 Act’) as road transport vehicle as would be vibrator and vibrator soil compactor. Insofar as Tippers are concerned, a Division Bench of the Karntaka High Court in the case of Commissioner of Income Tax v. Mahalinga Setty & Co. (1992) 195 ITR 526 (KAR) has opined against the revenue by giving the benefit of investment allowance to the assessee . If that be so then Vibrator and the Vibrator Soil Compactor would follow the suit because the reasoning adopted is that the vehicles are registered under the 1998 Act and it is essential machinery to carry on the construction work. The view of the Karnataka High Court is discernible from following para of the judgment which reads as under:

“3. The second questions pertains to the dumpers and tippers belonging to the assessee.   The assessee used them to lift earth which was necessary to perform the assessee’s part of the work. The contention of the Revenue is that these dumpers and tippers are not used in the manufacture of any article and, therefore, the provisions of Section 32A are not at all attracted. Under Section 32A, investment allowance is granted, inter alia, in respect of machinery or plant specified in sub-Section (2) which is owned by the assessee and is wholly used for the purpose of business carried on by the assessee. The second proviso to Section 32A (1) states that no deduction shall be allowed in respect of certain machinery or plant installed in the office premises or in respect of road transport vehicles, etc. Sub-Section (2) of Section 32A was strongly relied upon by learned counsel for the Revenue to contend that the machinery which is eligible for the investment allowance is machinery which produces an article. In other word, the machinery should be directly employed to produce an end product. It was contended that the machinery used just to lift earth and transport the same would not be the machinery contemplated by sub-Section (2) which creates the eligibility for investment allowance. Learned counsel referred to sub-Clause (iii) of clause (b) of sub Section (2)   of Section 32A as it then stood. This clause actually states that the machinery installed in any industrial undertaking for the purposes of the business of construction, manufacture or production of any article or thing, not being an article or thing specified in the list in the Eleventh Schedule, is eligible for the allowance. The subject-matter, certainly, is not enumerated in the Eleventh Schedule and there is no dispute about it. Therefore, the question is whether the dumpers and tippers used for the purpose of business of construction results in the production of an article or thing as contended by learned counsel for the Revenue. The word “thing” had a wide connotation as pointed out by the Madras High Court in I. Devarajan v. Tamilnadu Farmers Service Co-operative Federation (1979) 13 CTR (Mad) 280 : (1981) 131 ITR 506 (Mad.). At page 525, the Bench has observed thus:

“The word ‘thing’ is shown in Earl Jowitt’s Dictionary Vol. 2, as meaning ‘the subject of dominion or property as distinguished from persons’. ‘They are of three kinds; things real or immovable, comprehending lands, tenements, and hereditaments; things personal or movable, comprehending goods and chattels; and things mixed partaking of the characteristics of the two   former, as a titled deed, a term for years. The civil law divided things into corporeal and incorporeal.’ See Earl Jowitt’s Dictionary of English Law, Vol. 2, p. 1746. Thus incorporeal items like debts would be things. Therefore, the word ‘things’ appears to comprehend incorporeal assets also.”

11. In view of the above, we are not inclined to admit the appeals of the revenue. Accordingly, the appeals fail and the same are hereby dismissed.

12. A photocopy of this order be placed on the file of connected case.

February 21, 2012

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Tags : high court judgments (3977) section 32 (124)

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