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income-tax Officer Vs. Kohinoor Flour Mills Ltd. - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Ahmedabad
Decided On
Judge
Reported in(1991)37ITD259(Ahd.)
Appellantincome-tax Officer
RespondentKohinoor Flour Mills Ltd.
Excerpt:
.....and plant (not being ship)class of asset depreciation admissibled(9) the difference between the rate of depreciation admissible to, almost, the same class of assets lies not only in the use they are put to but also in the type of business they are used in. motor buses and motor lorries being used in a business other than the business of running them on hire would be allowed depreciation at the rate of 30%, duration and intensity of their use notwithstanding. in such business those vehicles could be put to use for all the 24 hours during all the 365 days or only for a day or two. the duration and intensity of their use in business other than the buiness of running them on hire would not affect, favourably or adversely, their entitlement to depreciation at the rate of 30 per cent under.....
Judgment:
1. The common dispute raised through these appeals by revenue is whether the assessee is entitled to depreciation at the rate of 30 per cent or at the rate of 40 per cent on the trucks owned by it. This dispute arises under the following circumstances.

2. The assessee is a Private Limited Company in which public are not substantially interested. It runs a flour mill for manufacture of maida, atta, suji, etc.

3. During the period relevant to assessment year 1983-84, the assessee company had purchased two trucks for Rs. 4,09,818. The trucks were used by the assessee for the purposes of its own business as well as for running them on hire. At the assessment proceedings for the years under consideration the assessee claimed depreciation at the rate of 40 per cent of the cost/written down value of the trucks. The ITO did not accept such claim on the ground that the trucks were not solely used for the purpose of hire and allowed depreciation at the rate of 30 per cent. However, in appeals the learned CIT(A) accepted assessee's claim for higher depreciation mainly on the ground that the trucks were registered with the Regional Transport Authorities as Public Carriers and were being mainly used for transportation of the sold goods on behalf of the customers and whenever any truck was free that was used for transporting the goods of the assessee. He accordingly directed the ITO to allow depreciation at the rate of 40 per cent on the cost/written down value of the trucks.

4. Mr. A.P. Rajani, the learned D.R. has submitted that the claim of the assessee company which was admittedly engaged in a business other than that of running the trucks on hire clearly fell under item (9) of clause D of Part III of Appendix I to the Income-tax Rules, 1961 (the Rules).

5. Supporting the orders under appeal, Mr. V.R. Shah, C. A. submitted that during the years under consideration the assessee had earned substantial income from running its trucks on hire and, therefore, its case squarely fell under item E(1A) of Clause D of Part III to Appendix I. This contention has been supported with submissions made to that effect in its letters to ITO dated 11-6-1985 and 12-6-1985, certificate issued by the Regional Transport Authority, Baroda certifying registration of assessee's trucks as Public Carriers, P&L A/cs for all the three years showing 'Truck Freight Receipts'. Based as all these arguments were on an assessee's reasonings in the case of Manjeet Stone Co. v. ITO [1985] 21 TTJ (Jp.) 266, Mr. Shah heavily relied upon that decision of the Tribunal. We, however, find much force in Mr. Rajani's contentions.

6. In the Table of Depreciation' given under Part III of Appendix I to the Rules the relevant two entries, D(9) and E(1A), provide as under :APPENDIX-I - PART III - MACHINERY AND PLANT (Not being Ship)Class of asset Depreciation admissibleD(9) The difference between the rate of depreciation admissible to, almost, the same class of assets lies not only in the use they are put to but also in the type of business they are used in. Motor buses and motor lorries being used in a business other than the business of running them on hire would be allowed depreciation at the rate of 30%, duration and intensity of their use notwithstanding. In such business those vehicles could be put to use for all the 24 hours during all the 365 days or only for a day or two. The duration and intensity of their use in business other than the buiness of running them on hire would not affect, favourably or adversely, their entitlement to depreciation at the rate of 30 per cent under Entry D(9).

7. Under Entry E(M), motor buses, motor lorries and motor taxis are admissible to depreciation at higher rate of 40 per cent due to their use in a particular type of business. They can be entitled to that higher rate of depreciation only if they are used in the business of running them on hire. It is thus the distinction in the type of business they are used in, which makes all the difference in their entitlement to different rates of depreciation. Under this Entry too the duration and intensity of their use is immaterial in view of the mandate contained in Rule 5 of the Rules.

8. The differential treatment given by the Legislature to the same class of assets in the matter of their entitlement to depreciation may be appreciated from another angle. The motor buses and motor lorries entitled to higher rate of depreciation at the rate of 40 per cent under Entry E(1A) have been mentioned with another kind of asset called 'motor taxis'. It is settled principle of construction of statutes that meaning to a word should be assigned in the context of the meanings of the words that word keeps company with. It is a matter of common knowledge that 'motor taxis' are used in the business of running them on hire only. That is the common sense meaning assigned to the word 'taxi' in day to day human behaviour. Motor buses and motor lorries in Entry E(1A) have been used in the company of the term 'motor taxis'. In that context there seems to be no good reason for assigning them a meaning different from that assignable to the term 'motor taxis'. This view seems to be supported with CBDT approach also to the subject on hand.

9. The CBDT had an occasion to consider the rate at which depreciation should be allowed in respect of motor vans as no specific rate had been provided for them under Appendix I to the Rules. The CBDT considered the 'motor vans' as more akin to 'motor lorries' and 'motor buses' than to 'motor cars' and depreciation at 30 per cent was directed to be allowed on them [Circular No. 315, F.No. 202/ 89-79-IT(A-II), dated 24-9-1981]. It may be appreciated that a 'motor car' is akin to 'motor taxi' used in the language of Entry E(1A).

10. Earning income from giving a vehicle on hire is not the same thing as earning income from the business of running it on hire. Whereas in the former case it is the counsel or incidental use of the vehicle that brings hire income, in the latter case it is the use of the vehicle in a systematic or organised course of activity or conduct that brings income. The distinction is subtle but real. The term 'business' has not exhaustively been defined in the Act. It is by itself not a word of art and is capable of being construed both in a wider as well as in a narrower sense depending on the context in which itoccurs. In common parlance the word 'business' connotes some real, substantial and systematic or organised course of activity or conduct with a set purpose. It is an affair requiring attention and labour at the chief concern, i.e., mercantile pursuits, that which one does for livelihood, occupation or employment. Entry E(1A) visualises the use of motor buses and motor lorries in that kind of activity. It suggests that it should be real, substantial and systematic or organised course of activity or conduct with a set purpose, the motor buses or motor lorries are required to be used in. The stress on business in Entry E(1A) is further strengthened by the use of the word "running" in the context of the use of the vehicle. Merely giving the vehicle occasionally, or periodically on hire and earning income from such activity, which may be incidental to a business other than the business of running the vehicles on hire, would not entitle the vehicle for depreciation at 40% under item E(1A). The case would fall under item D(9) only. It is trite law that the provisions in a statute should be so construed as do not cause violence to each other. If two provisions may be construed in a way that both can operate, in their respective fields, harmoniously without causing damage or injury to the object and purpose of one another, then a construction which may render either of them nugatory or redundant should be avoided. If the expression "used in a business of running them on hire", occurring in the language of clauses D(9) & E(1A) is understood to include earning income from letting the vehicles, contemplated therein, on hire, in the course of a business of running the vehicles on hire, then such a construction is likely to render clause D(9) redundant, nugatory and ineffective. For, a person who is using his vehicles in a business other than the business of running them on hire (in which case depreciation at the rate of 30 per cent would be admissible) would be making himself entitled to claim depreciation at the rate of 40 per cent by simply putting those vehicles to use on hire, by others, as and when suits to his convenience. Such a use of the vehicle, if considered as equivalent to "use in business of running them on hire" would frustrate the object of Item at Cl. D(9) of the Appendix. Such, we think, could not be the intention of the Legislature.

11. In the instant case, the assessee-company is, admittedly, carrying on business of manufacturing and selling maida, atta and suji. For that purpose it runs a flour mill. Its turnover from that business activity exceeded crores of rupees. It was in connection with such business that it purchased the two trucks. The CIT (A) has found that the said vehicles were used for transportation of the goods on behalf of the customers. In free time the vehicles were used in transporting assessee's goods also. Now carrying assessee's end-products to the customers, may be as per contract with them was quite incidental to assessee's business. It does not amount to using the vehicles in the business of running them on hire. It is noteworthy that in the P & L A/cs only freight receipts were shown. If use of the vehicle in the business of running them on hire would have been an activity separate and distinct from the business activity being regularly carried on by the assessee, the figures of freight received must have been arrived at after deducting the expenses in earning income from that activity, which is being claimed as a business of running the vehicle on Sire.

The expenditure incurred in earning income from freight was charged on the account of business of manufacturing and selling atta, maida, suji, etc.

12. Grant of registration as Public Carriers to the truck of the assessee under the provisions of Motor Vehicles Act, 1939 did not put any restriction on the use of the vehicle for purposes otherwise than for hire. This had also been clearly mentioned in the certificate of registration itself at S. No. 7. This contention too is totally irrelevant to the issue.

13. Reliance on Jaipur Bench decision in the case of Manjeet Stone Co.

(supra) seems to have been placed under bona fide mistake of factual position. That decision, in which arguments similar to those advanced before us were advanced on behalf of the assessee did not get the approval of Rajasthan High Court in reference [91 ITR 239 (Sic)] and, therefore, that makes no precedent for us for maintaining consistency in the views of the Tribunal on the same point.

14. In the case before the Rajasthan High Court the assessee, in the course of carrying on his business in quarry and selling stones charged transportation charges from his customers and on that ground claimed exemption at 40 per cent on his trucks. The High Court held that the main business of the assessee was quarry and selling stones.

Charging hire money for delivery of the stones to the customer at their places would not entitle the assessee for depreciation at 40 per cent under item E(1A) but only to 30 per cent under item D(9) of Part III of Appendix I. This view too supports our conclusion.

15. To sum up we hold that the trucks of the assessee were not used in a business of running them on hire during the year under consideration.

Depreciation at the rate of 40 percent as per Entry at Cl. E(1A) of Part III of Appendix I to the Rules was not admissible on them, and depreciation at the rate of 30 per cent as per entry at Cl. D(9) of Part III of the said Appendix had rightly been allowed on them by the ITO. Consequently the orders under appeal are not sustainable.


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