ORDER
R.D. Agrawala, Judicial Member
1. In this appeal preferred by the revenue for the assessment year 1984-85, three substantial grounds are taken which read as under:
(1) The AAC ought to have held that depreciation at 40 per cent was eligible only if the car was used in a business of running on hire.
(2) The AAC erred in ignoring the fact that the car was not registered as a taxi.
(3) The AAC ought to have held that in the circumstances of the case no such business of running a motor taxi on hire was carried on by the assessee.
2. We have heard the learned representatives on both sides.
3. A few facts first. During the year under account, the assessee purchased a car and leased it out to M/s Jupudy Jagannadharao & Sons at a rental of Rs. 50 per day. Depreciation at the rate of 40 per cent was claimed on the car. The Income-tax Officer allowed it at 20 per cent.
4. On appeal, the learned Appellate Assistant Commissioner, Visakhapatnam whose order dated 22nd November 1985 is impugned before us held that the assessee was entitled to 40 per cent depreciation since the motor vehicle was given on hire.
5. It is this finding of the first appellate authority which is challenged before us by the revenue.
6. Shri Radhakrishnamurthy, the learned departmental representative, contended before us that the car was never used by the assessee as a taxi ; that it was simply let out on hire to a single person ; that the vehicle was also never registered as a taxi nor road tax paid thereon as taxi and in these circumstances depreciation which was admissible would be governed by Appendix I–Entry III Machinery and Plant (not being a ship) item (7) and not Entry E item (1A). Opposing this, Shri D. Kameshwara Rao, C.A., canvassed before us that although there is no dispute to the facts that the car was rented out by the assessee to one person, this renting out assumed the character of changing the use of the vehicle as a taxi. The learned Representative conceded that the car may not have been registered as a taxi on which tax payable for a private car alone may be paid and not the increased road tax leviable for a taxi and in the process facts. constituting an offence in the Motor Vehicles Act may also be present, yet, so long as the car was rented, out and fetching rent, for the purposes of admissibility of depreciation under the Income-tax Rules, 1962 it fell within the category, latter of the two described above thereby entitling it to get depreciation at the rate of 40 per cent. In reply, the learned Departmental Representative, opposing these contentions urged that while in the former entry, i.e., Appendix I Entry III item (7) the Legislature has used the word ‘motor car’, in the latter entry Appendix I Entry E item (1A), it used the terminology ‘motor taxis’ used in a business of running them on “hire”, which makes all the difference.
7. Having considered the rival submissions carefully, we are of the view that the learned Appellate Assistant Commissioner fell in a legal error when he applied the latter entry and granted depreciation of 40 per cent as the assessee’s case falls within the purview of first entry entitling him only to get depreciation of 20 per cent. We say so for the following reasons.
8. The assessee after purchasing a car leased it out only to one party on a rental of Rs. 50 per day. It is difficult to concur with the learned Appellate Asstt. Commissioner that this situation could be equated wherein a vehicle is used as a taxi for general hiring by the public at large. While there may not be any dispute that the assessee let the car on hire at a fixed rental, we are not inclined to agree that it could mean that the vehicle is being used as a taxi. What is meant by use of a car as taxi is that it is available to public in general or in any case to a restricted class of public such as taxis attached to big hotels, etc., for general hire. It cannot be conveniently forgotten that under the Motor Vehicles Act, the car needs separate registration as a taxi and in all the States of the country taxis are allotted separate digital numbers to be displayed on their number plates which itself goes to suggest that a particular vehicle is being used as a taxi. We are, therefore, not impressed by the plea canvassed by the learned counsel for the assessee that the fact that the assessee did not get the car registered as a taxi and was not paying road tax thereon leviable as per the provisions of Motor Vehicles Act should be totally kept aside while determining that the vehicle in question was being run as a taxi.
9. After violating certain statutory provisions of the Motor Vehicles Act, the assessee cannot be permitted to take advantage of its own wrong and yet derive a benefit which is admissible only in the contingency of the car being used in a particular manner. Infraction of the provisions of the Motor Vehicles Act in the case in hand, has a direct bearing on the determination as to whether a vehicle could be treated as a motor car or taxi.
10. In the present case what appears is that on the basis of a contract, the assessee agreed to give on hire a car at a rental of Rs. 50 per day. Such a contract may be binding between the parties to it but it cannot take the character of something in rem by which public at large would be concerned with. As stated above, if a vehicle is not available for general hire nor registered properly as a taxi, we cannot call it a taxi.
11. Coming to the legal position also, we agree with the learned departmental representative that where the Legislature intended to allow 40 per cent depreciation, it used the words ‘motor taxis’ unlike in the other entry where it has used the term ‘motor cars’. At this stage we reproduce below the aforesaid two entries :
20. Appendix I Part I Entry III – Machinery and Plant
(not being ship) –
item 7 Motor cars, motor
cycles, scooters and
other mopeds.
40. Appendix I Part I Entry E Motor buses, motor lorries item (1A) and motor taxis used in a business of running them on hire.
12. What was the need for the Legislature to use two different terminologies at two places in the same appendix ? The only reasonable way in which this question could be logically answered is that where the motor is used as a motor bus, motor lorry or motor taxi, depreciation admissible would be 40 per cent and where it is used only as a motor car, the depreciation would be only 20 per cent. If the Legislature had a different intention akin to the plea raised before us on behalf of the assessee, it could have also used the words motor car instead of motor taxi in item (1A) of Entry E.
13. The underlying idea in making this distinction is also manifest. Where a motor is used as a bus, lorry or taxi, it admits of more wear and tear for a variety of reasons. Where it is used as a private car, it is handled in a much safer, better and careful manner. It is for this reason that while in the former case, the depreciation allowable is 40 per cent, in the latter it is only 20 per cent. We are also not impressed by the reasoning assigned by the learned Appellate Asstt. Commissioner to say that if as per the Income-tax Officer there was no business and the car was not a business asset, no depreciation could have been admissible. The gravamen of the controversy is not as to whether the car is business asset or not. The controversy in fact revolves round as to whether the car is used as a taxi or not. What we feel is that the facts and circumstances of the case go to support the view that the vehicle in this case is being used though as a private car but not as a taxi. The depreciation, therefore, will be regulated by item (1A) by entry E of Appendix I and not by item (7) of Entry III of Appendix I.
14. In the result, the revenue succeeds and the appeal is allowed.