ORDER
Vimal Gandhi, President
1. On account of difference between learned Members of Pune, A-Bench, the following points have been referred to me Under Section 255(4) of the Income-tax Act, for consideration and disposal, in accordance with law:
1. Whether, under the facts and circumstances of the case, there was an existence of contract of hire between the parties in the previous years relevant to the assessment years 1991-92 and 1993-94.
2. Whether, under the facts and circumstances of the case, for the purposes of depreciation, the hiring of machinery was with effect from the date of transportation of machinery started or from the date when the hire charges had actually been paid.
3. Whether, under the facts and circumstances of the case, the actual use of machinery in the hands of the assessee started when the machinery was dispatched to its destination or when the machinery is put to use by the hirer.
4. Whether, the machinery is said to be put to use in case of assessee in the business of hiring when the machinery was ready for hiring purpose and not the day the machinery was used by the hirer.
2. I have heard both the parties. The facts of the case are given in detail in the proposed orders of my learned Brothers and need not be repeated in detail. However, to highlight the controversy, important facts are being recapitulated in the following paragraphs.
3. The assessee company in the period relevant to assessment year 1991-92 and 1993-94 was carrying on business of hiring of cranes and other equipments. The assessee claimed depreciation in Asstt. Year 1991-92 on two cranes Model No. Cole 620M and Cole 825(I) having purchased them in the relevant period from M/s TIL Ltd., Calcutta. In the course of assessment proceeding, these cranes were found to have been purchased at the fag end of the previous year and, therefore, Assessing Officer had doubt whether these were used by the assessee for purposes of business in the period ending 31.3.1991. The Assessing Officer, therefore, asked the assessee to prove that conditions of Section 32 of Income-tax Act relating to claim of depreciation, were satisfied.
4. The assessee brought the following facts on record. In respect of crane Model No. Cole 620M, it was claimed that order for purchase of this crane was placed in August, 1990 and advance of Rs. 6,50,000/- was paid. The seller M/s TIL Ltd. issued sale letter on 16.3.1991 and assessee obtained temporary registration of crane from R.T.O., Calcutta on 19.3.1991, It was further explained that assessee’s sister concern M/s Sanghvi Non-ferrous Metal Industries Pvt.Ltd. had obtained a letter of Intent for deployment of Cole 620M crane with ONGC at Kariakal, Tamil Nadu on 4 10.1990 The said sister concern was not in a position to fulfill the commitment and, therefore, a joint request was made by the assessee and sister concern to ONGC to transfer the Intent in the name of the assessee. It was further claimed by the assessee that performance specifications of the crane were tested and examined by M/s TIL Ltd. as per requirement of ONGC between 19.3.1991 to22.3.1991. The assessee has also made arrangement to transport the said crane to Kariakal (Tamil Nadu) by delivering the crane to Assam Roadways on 27.3.1991.
In the above circumstances, it was claimed that crane was put to use for business purposes in the relevant period and thus conditions of Section 32 were satisfied,
5. The Assessing Officer held that original contract of deployment of crane for ONGC was not with the assessee but with its sister concern. The letter of Intent was not transferred in the name of the assessee, in the relevant financial year. Only on 3.4.1991, assessee’s sister concern had written to ONGC that the said concern was not able to obtain loan from Bank, hence unable to purchase the crane and, therefore, not in a position to fulfill the contract. Accordingly letter of Intent was transferred in the name of the assessee. The Assessing Officer was of the view that assessee has not placed any document in writing to prove an arrangement with ONGC prior to April, 1991. It was found that crane was actually used at Kariakal site from 17.4.1991 onwards. As crane was not used till the end of the financial year and as letter of Intent was not in favour of the assessee till the close of the period, the assessee was held to be not entitled to depreciation. The Assessing Officer additionally held that in the relevant period assessee had only temporary registration and, therefore, could not use crane for commercial purpose. He found that permanent registration of the crane was granted only on 14.4.1991. Only after the said date, the assessee became entitled to commercial exploitation of the vehicle. The testing of the crane by the supplier, according to the Assessing Officer, did not advance the case of the assessee. As the crane did not reach the place where it was required to be used and for other reasons stated above, the assessee was held to be not entitled to depreciation.
6. The facts relating to other crane Model No. Cole 825(I)are as under: The said machinery was also purchased at the fag end from Calcutta and claimed to be kept as a standby from 22.3.1991 at the premises of M/s Light Motive, Calcutta. As per the contract with M/s Light Motive, the crane was hired @ Rs. 2,0,000/- per month for 26 days. The Assessing Officer refused to accept above case and observed that there was no requirement by the assessee to provide a standby crane. The Assessing Officer did not accept the explanation of the assessee that crane 830 with M/s Light Motive required some repairs and, therefore, in the interest of business, standby crane was arranged. According to the Assessing Officer, the assessee had no obligation to keep a standby crane which had costed the assessee Rs. 43 lacs. On the basis of his enquiry, the Assessing Officer found that there was no break-down of crane No. 830 during the relevant period. In this connection, he relied upon the statement of Director of company Shri A.D.Sanghvi, recorded Under Section 131 of the Income-tax Act. Some of the questions and answers thereto are reproduced in the assessment order. The Assessing Officer held that crane was lying idle and was not used for any business during the relevant accounting period. He further pointed out that crane was not charted for any commercial purposes. The crane was delivered to the assessee only on 27.3.1991 and had temporary registration with registration authority, South 24 Pargana, Calcutta on 19.3.1991. The temporary registration only entitle the assessee to remove or transport crane but did not authorize its use for commercial purposes. As the crane was not used in the financial year, the Assessing Officer disallowed the claim of depreciation relying upon case laws cited in the assessment order.
7. The assessee impugned above disallowance of depreciation in appeal before the learned CIT (Appeals). The learned CIT (Appeals), on the basis of analysis of facts and circumstances on record, also came to the conclusion that two cranes were not proved to be used by the assessee in the relevant period. The learned CIT (Appeals) held that passive user of the asset was not relevant because assets were purchased at fag end of the financial year and were not used at all. He further observed that if machinery was not used by the assessee but remained idle or unused due to certain reasons, there may be passive user of the assets but even such a case was not established here. He referred to provisions of Section 32 to hold that conditions for claim of depreciation were not satisfied. Similarly claim for depreciation was disallowed in A.Y. 1993-94. The disallowance of depreciation was upheld by the appellate authority.
8. The assessee being aggrieved carried the matter in appeal before the Income-tax Appellate Tribunal, A-Bench, Pune. After hearing the parties, the two learned Members of the Bench proposed different orders. As per the learned Judicial Member, it was undisputed fact that assessee was in the business of giving cranes and other equipments on hire. Thus hire business of the assessee is accepted by both the sides. In his view, it was important question to be considered whether machinery can be said to be put to use by lesser company for business purposes of hiring, though the lessee had not started using the asset during the financial year. The learned Judicial Member found that crane Model No. Cole 620M was claimed to be put to use for purposes of hiring by the assessee company before the assessment year which ended on 31.3.1991. He noted that an order for purchase of this crane was placed with M/s TIL Ltd., Calcutta in the month of August,1990. The sale was executed on 16.3.1991, as per sale letter issued by TIL Ltd. Certain tests were carried out relating to satisfactory performance of the crane from 16th March to 30th March, 1991. He found that a temporary registration of the crane was obtained from the Registration Authority on 19.3.1991. The said crane was dispatched from Calcutta on 27.3.1991 for Kariakal Project, Tamil Nadu. ONGC had issued letter dated 1st October, 1990 to sister concern of the assessee for hiring of crane of certain specification, for Cauvery Project. To fulfill the requirement, an order was placed with M/s TIL Ltd. who had confirmed to supply crane of above specification by December, 1990. The learned Judicial Member also noted that there was correspondence between assessee and its sister concern to establish that both were operative from the same premises and both the parties had exchanged correspondence relating to the same crane. The Judicial Member also noted that assessee made payments towards sale price of the crane to TIL Ltd. within the financial year. He, therefore, concluded that there was no doubt or dispute relating to ownership of the claim. It was further proved that crane was dispatched from Calcutta to Kariakal, Tamil Nadu on 27.3.1991 through Assam Road Carriers. The learned Judicial Member also noted following decisions, cited on behalf of the assessee:
1. CIT v. Geo Tech Construction Corporation 244 ITR 452,
2. CIT v. Mirza Ataullaha Baig 202 ITR 291 (Bom),
3. CIT v. Dilip Singh Sardarsingh Bagga 201 ITR 995.
8.1 The learned Judicial Member also noted the arguments of Departmental Representative that on temporary registration, the crane could not be used for commercial purposes. Permanent and final registration was granted to crane only in the month of April, 1991. Thus with temporary registration, the crane could not be used for commercial purposes or for business purposes and, therefore, assessee was not entitled to depreciation. The letter of Intent was also transferred in the name of the assessee only in the month of April, 1991. Therefore, assessee could not be said to have hired crane to ONGC during the year under consideration. The Departmental Representative had also pointed out that crane had actually reached Kariakal site on 17.4.1991 and could be used thereafter. The learned Judicial Member noted the submissions of Departmental Representative that if on hiring a machinery or asset has not actually been put to use for business purposes by the lessee or the hirer, the lessor would not be entitled to claim depreciation.
8.2 The learned Judicial Member thereafter noted the basic conditions necessary to be satisfied to claim depreciation. The condition was: (i) ownership of the asset, which according to him, was undisputedly fulfilled through the letter of sales and payment by the assessee within the financial year, (ii) delivery of asset within the financial year and that too is not in dispute and duly established by placing relevant material on record. He observed that necessary facts have been discussed as summarized here in above paras.
8.3 With regard to objection of the Revenue that letter of Intent was transferred in the name of the assessee only in April, 1991, the learned Judicial Member observed:
On examination of the material placed on record and several correspondence made by the assessee and its sister concern with ONGC, we are of the view that certain technical formalities have been completed, otherwise the ONGC has placed its order way back in October, 1990 with the specification of the crane as required at Kariakal, T.N. site.
The learned Judicial Member was further of the view that in the light of evidence of ownership of machinery, supply of machinery, registration certificate, transportation of machinery from Calcutta to site, the claim of depreciation could not be denied on technical ground that letter of Intent was replaced in the name of the assessee instead of its sister concern, would not be justified. Such a view would represent only a pedantic approach. He, therefore, observed, “that though the letter of intent in the name of the assessee was replaced in the subsequent financial year, but the assessee has acted in a bonafide manner and accomplished all the conditions to fulfill the obligation of its sister concern of supply of the crane within the time to ONGC.” He further treated as “reasonable” the explanation offered by sister concern for not purchasing and supplying crane. The learned Judicial Member ultimately concluded as under:
Considering number of evidences in respect of the Crane, Model No. Cole 620-M, it is evident that the crane was purchased and put to use for the purpose of business of hiring by the assessee during the accounting year under consideration.
He accordingly directed that depreciation on crane Model No. Cole 620-M be allowed.
9. As far as crane Model No. Cole 825 is concerned, the learned Judicial Member observed,” there is no dispute as far as the purchase and delivery of the said machine is concerned. The only dispute is that the said crane was kept as a standby crane.” In this regard, the learned Judicial Member observed as under:
However, in this regard, there are several evidences placed on record, establishing the fact that the hirer of the crane has demanded for a standby crane and since the assessee has to satisfy a reasonable demand of his client, therefore, in the interest of business relations, provided one standby crane. The crane was hired by M/s Light Motive, who was under a production of the film “City of Joy.
9.1 The learned Judicial Member further considered decision of Hon’ble Kerala High Court in the case of Geo Tech Construction Corporation 244 ITR 452, wherein Court held that words “used for the purpose of the business” were capable of a larger and narrower interpretation. The wider meaning also included not only cases where machinery and plant were actively employed but also cases where there was what may be described as passive user of the asset in the business. If the asset is kept ready for use, then it can be said to be used for purposes of business. Since the Tribunal, in the cited cases, recorded a finding that there was positive material to show the existence of the asset at the work site, the above finding of passive user could not be termed to be one without any basis or illegal. Accordingly, the claim of depreciation was allowed.
9.2 The learned Judicial Member also noted decision of Honble Bombay High Court in the case of CIT v. Mirza Ataullaha Baig 202 ITR 291. He also referred to Motor Vehicles Act to emphasise as to what is the meaning of “transfer” under the said Act. The learned Judicial Member ultimately allowed the claim of depreciation on crane Model No. 825, with the following observations:
On the basis of the evidences and material placed on record, and the precedents cited above, we can safely arrive at a conclusion that for claiming depreciation, the emphasis is on the user of the depreciable assets in the business of the assessee. In the present case, there was an actual, effective and real user in the commercial sense, which was also linked with the hiring activity of the assessee, so a conclusion can be drawn that there was a immediate nexus between the user and the business of the assessee. In this view of the matter, we hereby hold that the assessee was entitled for the claim of depreciation in respect of both the cranes. With this finding, we hereby reverse the view taken by the ld. CIT(A) and allow this ground of the assessee.
Assessment year: 1993-94.
10. The learned Judicial Member noted that Assessing Officer allowed depreciation on two new Kato cranes. The Assessing Officer had found that appellant had imported two Kato cranes during the year under consideration with its contract with ONGC and claimed depreciation @ 12.5% of cost of the cranes. Enquiries conducted by the Assessing Officer revealed that cranes were purchased by the assessee on 11.1.1993 and shifted to Chennai on 21.1.1993 where it landed on 26.2.1993. These cranes were cleared by Customs Authorities on 12.3.1993. In the light of above facts, the Assessing Officer had concluded that cranes were not used for purposes of business during the year under consideration.
10.1 The assessee on the other hand had contended that as assessee was in the business of hiring of cranes, these could be treated as used when they were kept ready for use for business.
10.2 On appeal learned CIT (Appeals) upheld denial of claim of depreciation, following order for assessment year 1991-92 where on almost identical facts and circumstances, his predecessor has disallowed claim of depreciation. In the light of above, the learned CIT (Appeals) passed a very brief order confirming the action of the Assessing Officer.
10.3 The learned Judicial Member, in the proposed order, allowed claim of depreciation in assessment year 1993-94, in the light of discussion of this issue in assessment year 1991-92. The basis of allowing the claim was the finding that since the cranes were purchased during the year and ready for use for hiring or used for hirer, hence assessee was entitled to the claim of depreciation. Before concluding, the learned Judicial Member referred to decision of Supreme Court in the case of CIT v. Shaan Finance Ltd. 231 ITR 308 to the effect that where the business of assessee consist of hiring out machinery and where the income is derived by the assessee from the hiring of such machinery, the assessee must be considered as having used the machinery for the purposes of its business. Though the issue before the Hon’ble Court related to investment allowance, the ratio laid down in the case would apply mutatis mutandis. In the ultimate analysis, the learned Judicial Member observed that for purposes of Section 32, the word “used” means use of an asset for the purpose of business of assessee and do not refer to the use of asset by the hirer. Once a machinery is hired out, that may or may not be used by the hirer. The lessor company has put the machinery into use of business of hiring and is entitled for claim of depreciation. Above view, according to learned Judicial Member, is supported by the decision of Hon’ble Bombay High Court in the case of Dineshkumar Gulabchand Agrawal 267 ITR 768. He accordingly reversed the finding of CIT (Appeals) and held that assessee be allowed depreciation He allowed ground raised by the appellant in the memo of the appeal.
11. The learned Accountant Member did not agree with the view expressed by the learned Judicial Member on the allowability of depreciation on cranes in the two assessment years under appeal. He held that decision of Supreme Court in the case of CIT v. Shaan Finance (P) Ltd. and First Leasing Co. of India Ltd. 231 ITR 308 arose under provision of Section 32A, which did not contain any express requirement relating to use of plant and machinery by the assessee. He further noted that transaction of hire is a transaction of bailment of machinery. He noted that as per cited decision, giving the machinery on hire on receipt of hire charges amounts to user of machinery for the purposes of business of the assessee. In such a situation, the assessee will also be entitled to deduct depreciation while computing its income, but both for grant of investment allowance or depreciation, it has to be proved that contract of hire has come into existence leading to income by way of hire charges to the assessee. However, such contract of hire has not come into existence in the relevant previous year. The assessee will not be entitled to deduct depreciation or claim investment allowance while computing the income. The learned Accountant Member was of the view that decision in the case of Dineshkumar Gulabchand Agrawal 267 ITR 768 was applicable in this case. In the said case, the Court was concerned with interpretation of expression “used”. The Hon’ble Court pointed out that expression “used” means “actually used” for the purposes of business and not “ready for use”. The learned Accountant Member was of the opinion that above decision of jurisdictional High Court was binding on the Tribunal. He further found that privity of contract between assessee and ONGC took place on 17.4.1991 when ONGC started paying hire charges to the assessee. The said date being after the close of the previous year, the assessee was not entitled to deduction of depreciation, for the assessment year 1991-92. The assessee could not claim depreciation merely by showing that machinery was dispatched to ONGC on 27.3.1991 through M/s Assam Roadways. Apart from above observations, the learned Accountant Member was in agreement with other findings of the learned Judicial Member.
12. In regard to appeal No. 73/PN/97, for assessment year 1993-94, the learned Accountant Member found that cranes landed in Madras on 26.2.1993 and were cleared by Customs Authorities on 12.3.1993. Minor repairs were required to be carried out. The cranes were ready for use in the month of March, 1993. He noted explanation of learned Counsel for the assessee that for some technical reasons, the ONGC backed out of the contract and, therefore, cranes could not be hired to ONGC, though the cranes were ready for use. The learned Accountant Member also noted finding of CIT (Appeals) that assessee will be entitled to deduction only when these cranes have been actually used. The Accountant Member further held that facts in assessment year 1993-94 are similar to facts discussed by him in ITA No. 687/PN/94 for assessment year 1991-92. The decision in the case of Dineshkumar Gulabchand Agrawal (supra) was held to be applicable with full force in respect of these cranes also, namely that user will start from the date cranes were given on hire and not from the date when they were ready to be giving on hire. He accordingly held that assessee is not entitled to deduct depreciation in respect of these cranes in this year.
13. The case was fixed for Third Member hearing and both the parties have been heard. Shri Inamdar, learned Counsel for the assessee vehemently submitted that learned Accountant Member had wrongly relied upon decision of Hon’ble Bombay High Court (Nagpur bench) in the case of Dineshkumar Gulabchand Agrawal v. CIT 267 ITR 768 which was distinguishable on facts as even facts of case of Whittle Anderson Ltd. v. CIT 79 ITR 613 were not noted. If the machinery is ready to be used, then conditions of Section 32 are fully satisfied. For this purpose, he placed reliance on large number of decisions. Shri Inamdar further argued that assessee had paid entire consideration and all the four cranes were delivered to the assessee. AH the four cranes were ready for use but on account of technical reasons, they could not be actually used. In connection with crane Model No. 825, he read out statement of Director Shri A.D.Sanghvi to show that crane was kept as a back up crane for the use of M/s Light Motive making picture “City of Joy”. The statement of Director clearly showed that crane was kept ready for use and, therefore, conditions of Section 32 were fully satisfied. In respect of two cranes imported by the assessee in the year 1993, Shri Inamdar drew my attention to the objections filed by the assessee with ONGC. He read out objections of the assessee filed with ONGC for not opening tender submitted by the assessee for use of cranes in March, 1993. ONGC had accepted assessee’s objections and cranes were actually used in April, 1993. Shri Inamdar relied upon proposed order of learned Judicial Member.
14. Shri Sharma, learned CIT(DR) supported the proposed order of the Accountant Member. He submitted that assessee did not prove any agreement to hire cranes in both the assessment years. Therefore, even if it is accepted that giving of crane on hire would tantamount to user of the crane for purposes of business, the said condition was also not satisfied. Shri Sharma maintained that in the light of decision of jurisdictional High Court in the case of Dinesh kumar Gulabchand Agarwal (supra), the assessee was to prove actual user of the crane which admittedly was not there in both the assessment years. He accordingly supported the order proposed by learned Accountant Member.
15. I have given careful thought to the rival submissions of the parties. There is no dispute first condition for getting depreciation i.e. ownership of the asset has been fully established in this case. The controversy relates to the second condition i.e. the user of the asset for purposes of business. Facts leading to the controversy have already been noted above. I would like now to refer to the relevant decisions on controversy.
15.1 In Machinery Manufacturers Corporation Ltd. v. CIT , Bombay High Court has observed that the expression “used” in Section 10(2)(vi) of the Indian Income-tax Act,1922, corresponding to Section 32 of the Act, has to be given a wider meaning. The expression includes passive as well as active user. It has been judicially held in a number of cases that depreciation might be allowed in certain cases even though the machinery was not in use or was kept idle. The words “used for the purposes of business” are capable of larger and narrower interpretation. If the expression used is construed strictly, it can be taken as connoting or requiring the active requirement or actual working of the machinery, plant or building in the business. On the other hand, a wider meaning will include not only cases where machinery and plant, etc., are actively employed but also cases where there is what may be described as passive user of the same in the business and the same can be said to be in use when it is kept ready for use.
15.2 In the case of Whittle Anderson Ltd. v. CIT 79 ITR 613, their Lordships of the Bombay High Court were concerned with the question whether ginning machines remaining idle under pooling agreement could be said to be used so as to be entitled to the depreciation. Their Lordship made the following relevant observations:
Now the expression “use or used” has several times received interpretation at the hands not only of this court and of other High Courts but by the Supreme Court itself. So far as this court is concerned, in Commissioner of Income-tax v. Viswanath Bhaskar Sathe (1937) 5 I.T.R. 21 (Bom.) in a case which was very similar to the present case, this court, with reference to the provisions of Section 10(2)(vi) of the Indian Income-tax Act, said that the word “used” in that section should be understood in a wide sense so as to embrace passive as well as active user. They pointed out that when machinery is kept ready for use at any moment in a particular factory under an express agreement from which taxable profits are earned, the machinery can be said to be used for the purposes of the business which earned the profits, although it was not actually worked, and the depreciation allowance granted by Section 10(2)(vi) could be given in respect of such machinery. No doubt, that was said in connection with Clause (vi) of Section 10(2), but the Supreme Court has pointed out that all these clauses are in pari material and the expression used in either of them would apply to the other: see the Liquidators of Pursa Ltd. v. Commissioner of Income-tax (194) 25 I.T.R 265 : (1954) S.C.R 767 (S.C).
In Viswanath Bhaskar Sathe’s case, the facts were similar to the present case. The assessee owned a ginning factory and was a member of a pool with the owners of other ginning factories. During the assessment year in question in that case the assessee ‘s factory had not been actually employed in the work of ginning in accordance with the pooling agreement, though he had received a share of the profits. That was because the assessee was under the agreement bound at his own expense to keep his gins and other working plant and machinery in good repair and condition and working order even when his factory was not working, so that it may be ready for actual use at any moment. It was held that, under these circumstances, the assessee was entitled to the allowance under Section 10(2)(vi).
Their Lordship further made reference to decision of Supreme Court as under:
In Liquidators of Pursa Ltd ‘s case (1954) 2 ITR 265 : (1954) S.C.R. 767 (S.C) referring to this expression in Section 10(2)(vi), “used for the purposes of the business”, the Supreme Court ruled that it meant “used for the purpose of enabling the owner to carryon the business and earn profits in the business.
In the penultimate para, their Lordship held as under:
The agreement clearly provided that, although two out of the four presses which were directly in the pooling arrangement were to remain idle while the two presses worked, it is clear that the owners of those presses which were idle had to keep them ready for use at any time and the contingency for their use could also, upon the terms of the agreement, arise at any time and having regard to the definition of the word “used” as indicated in the authorities to which we have referred, it is clear that even these presses which remained under forced idleness were in use during the entire period of the year.
15.3 In the case of CIT v. Dilip Singh Sardarsingh Bagga 201 ITR 995, the Bombay High Court on the question of allowing depreciation and after considering relevant provisions of the Motor Vehicle Act, observed as under:
In view of the foregoing discussion, we are of the clear opinion that the assessee, who had purchased the motor vehicle for valuable consideration and used the same for his business, cannot be denied the benefit of depreciation on the ground that the transfer was not recorded under the Motor Vehicles Act or that the vehicle stood in the name of the vendor in the records of the authorities under the Motor Vehicles Act.
15.4 In the case of CIT v. Salkia Transport Associates 143 ITR 39 (Cal.) five buses owned by the assessee were not registered under the Motor Vehicles Act. Their Lordship noted relevant provisions of the Motor Vehicles Act and on the question whether the assessee was entitled to depreciation under the above circumstances observed as under:
That the assessee has purchased five new buses is not disputed. The only argument is that the vehicles were not registered in the name of the assessee under the Motor Vehicles Act. But that is one of the factors that has to be taken into consideration for deciding the question of ownership of the buses. It cannot be said as a matter of law that unless the buses are registered in the name of the assessee, the assessee cannot be regarded as the owner of the buses. On the contrary, the essential pre-requisite for registration Under Section 22(1) of the Motor Vehicles Act is ownership of a motor vehicle. Unless a person is the owner of a motor vehicle he is not entitled to get it registered in his name Under Section 22(1) of the Motor Vehicles Act. The Tribunal in this case has come to the conclusion on a review of the facts and also of the agreement that the assessee was the owner of the five new buses and as such was entitled to claim depreciation allowance on these buses. The Tribunal has not committed any error of law in coming to this conclusion. The requirement of Section 32 of the I.T. Act is that the vehicles must be “owned by the assessee”. This section does not require that the assessee must be a registered owner of the vehicles in order to claim depreciation allowance in respect of them. We are of the view that, in the facts of this case, the new buses were owned by the assessee within the meaning of Section 32 of the I.T. Act and the assessee was entitled to claim depreciation allowance on these vehicles.
15.5 In the case of Anil Bulk Carriers P.Ltd. v. C.I.T. 276 ITR 625, trucks purchased by the assessee for oil transport business were registered with transport authority only on 1.4.1997. These trucks were also fined for their user for the year ending 31.3.1997. On the question whether assessee was entitled to depreciation in the assessment year 1997-98 on above trucks, their Lordship after considering all relevant decisions, observed as under:
The Tribunal was obsessed with a view that since the registration of the vehicle by the registering officer under the Motor Vehicles Act, 1988 was granted on April 1, 1997, the vehicle could not be plied on March 31, 1997. The Tribunal approached the said problem with wrong angle. For the income-tax purposes the Tribunal was required to examine as to whether the assets (oil tankers) were used during the previous assessment year or not. The user of oil tankers even prior to obtaining registration from the registering authority or without payment of road tax, etc., may be violative of the provisions of the Motor Vehicles Act, 1988. But none the less if the vehicle was plied even without obtaining registration or payment of road tax, etc., it cannot be said, as a matter of fact, that the vehicle has not been used. The attention of the Tribunal was not drawn towards Rule 47 of the Motor Vehicles Rules which gives seven days time to apply for registration of the vehicle with the registering authority under the Motor Vehicles Act. The finding recorded by the Tribunal that the oil tankers were not used on the last date of the previous year is not based on legal evidence, and has given rise to a substantial question of law involved in the appeal and, therefore, it is not correct to say that the appeal is concluded by finding of fact and is not maintainable.
(underlined by me to emphasise)
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In view of above exposition of law the case in hand is to be examined. The two oil tankers along with mounted bodies were purchased for the business purposes by the assessee who is a transporter during the accounting year. It is not the case of the Department that these oil tankers were not necessary for the business purposes of the assessee-appellant. These oil tankers were actually plied on the road on the last date of the accounting year and were challaned and also fined by the C.M.M., Kanpur. Therefore, the oil tankers were actually put to use in the relevant accounting year by the assessee for its business purposes. Alternatively the assessee was entitled for depreciation on these two oil tankers as they were purchased during the relevant accounting year for business purposes and were ready to use, road tax was deposited and the oil tankers were got registered with the registering authority on the last date of the accounting year. Failure of the assessee to produce the hire contract with the parties is in respect of the two oil tankers is of little significance in view of exposition of law that the word “used” under Section 32 of the Act has to be given wider meaning and it will include assets ready for use.
15.6 The Punjab and Haryana High Court in CIT v. Pepsu Road Transport Corporation has held that the assessee who was the transporter had to keep spare engines in the store, was entitled to depreciation on the spare engines in the store, as the engines were meant to be used in the case of need. There is a normal depreciation of value even when machines or equipment is merely kept in the store. Looking to the nature of business of that assessee, who was a transporter it was held that keeping spare engines in store to meet emergent situations, was the requirement of business.
15.7 In the case of Mysore Minerals Ltd. v. C.I.T. 239 ITR 775 (S.C), their Lordship of Supreme Court in respect of claim of depreciation made the following observations:
Section 32 of the Income-tax Act, 1961, confers a benefit on the assessee. The provision should be so interpreted and the words used therein should be assigned such meaning as would enable the assessee to secure the benefit intended to be given by the Legislature to the assessee. It is also well-settled that where there are two possible interpretations of a taxing provision, the one which is favourable to the assessee should be preferred:
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Generally speaking depreciation is an allowance for the diminution in the value due to wear and tear of a capital asset employed by an assessee in his business. Black’s Law Dictionary (fifth edition) defined 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….
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An overall view of the above said authorities shows that the very concept of depreciation suggests that the tax benefit on account of depreciation legitimately belongs to one who has invested in the capital asset, is utilizing the capital asset and thereby losing gradually investment caused by wear and tear, and would need to replace the same by having lost its value fully over a period of time.
It is evident from above noted decisions that depreciation is an allowance for diminution in value due to wear and tear of a capital asset and that claim on account of depreciation legitimately belongs to one who has invested in the capital asset.
15.8 Reference to Section 32(1) as existing in all material time reveals that building, machinery and other assets mentioned in Sub-section (1) when owned by the assessee and “used for purposes of the business or profession” are entitled to (sic) It has been noted that Section 32 confers the benefit on the assessee and it is required to be construed liberally and in a manner which is favourable to the assessee. I find force in assessee’s submission that decision of Hon’ble Bombay High Court in the case of Dinesh kumar Gulabchand Agarwal (supra) has to be read in the light of other decisions of Bombay High Court and of the Supreme Court and when so read, it does not lay any different law. Expression “used” is to be construed in the context of facts and circumstances of the case and would include not only active use of the asset but also passive use of asset for purposes of business. This is what has been consistently held by the Supreme Court and the Bombay High Court in the decisions cited supra. Permanent registration under the Motor Vehicles Act is not sin qua non for claim of depreciation. Temporary registration for a limited period pending permanent registration is good enough to claim depreciation on asset owned by the assessee and used in business, as noted in the decisions of different High Courts. No decision taking a contrary view was cited before me. Hiring of asset is one way of establishing user of the asset in business. But “user” or “used” can be proved independent of hiring agreement. Through other evidence assessee can prove that assets were used for the purposes of business or profession. The expression “purposes of business” itself is very wide expression and it is not necessary that receipt of income must be shown tobe entitled to claim depreciation.
16. With the above legal quoting, I proceed to consider the facts and circumstances in respect of each of the cranes Crane Model No. 620 was purchased on 16.3.1991. The case of the assessee is that it was intended for use through hire to ONGC at Kariakal, Tamil Nadu. However, no cogent material is available on record to show that the said crane was hired in the period ending 31.3.1991. There is no direct or circumstantial evidence to show that it was hired to ONGC in the relevant accounting period. It is not necessary that the assessee should receive hire charges to prove user of the assets. Even an agreement to hire would tantamount to use of the asset. However, even above evidence is not available in this case. The crane was delivered to transport company, Assam Roadways on 27.3.1991 and that it reached Kariakal only in the second week of April, 1991 where it was collected by the assessee. Thereafter contract of hiring was entered by the assessee and crane was hired. Thus even if a wider meaning is given to expression “used for purposes of business” the arrangement to hand over crane, to take delivery at Kariakal in April, 1991 cannot be treated as “used” for purposes of business on or before 31.3.1991. On facts it cannot be taken as even kept ready for use. Therefore, on above facts, revenue authorities were fully justified in not allowing depreciation on this crane.
17. As far as Crane Model No. Cole 825 is concerned, the same, as per claim of the assessee was used as a back up crane for use by M/s Light Motive, Calcutta who were making picture “City of Joy”. The Assessing Officer, in order to verify the claim of the assessee summoned and recorded statement of Shri A.D. Sanghvi, the Director of the assessee company. My attention was drawn to his statement. The statement fully supports the case of the assessee that the said crane was kept ready as a back up crane, in case crane No. 830 already with above concern, breaks down and needed repair. This step was taken by the assessee for business purposes and cannot be questioned. In the light of legal position discussed above, I am of view that assessee was entitled to use the crane in the manner it liked and this would be “user” of crane for purposes of business. The assessee is entitled to depreciation on the above crane, in the assessment year 1991-92.
17.1 Besides above, it may be mentioned that learned Accountant Member has not controverted any of the facts found or recorded by learned Judicial Member in respect of this crane. For the above reason also, depreciation on this crane is allowed.
18. As far as claim of depreciation on two cranes imported by the assessee in the period relevant to assessment year 1993-94 is concerned, the assessee has placed on record that it had placed tenders with ONGC authorities, Chennai in March, 1993 for hiring of these Kato cranes to above corporation. However, ONGC wrongfully did not open tender of the assessee and accordingly assessee raised objections with the authorities. Copies of above objections are placed in the paper book. The assessee has further pointed out that objections of the assessee were accepted and these cranes were hired and duly used by ONGC at Chennai from April, 1993 onwards.
18.1 On consideration of above facts, I am of view that assessee is entitled to depreciation on these cranes. The assessee has kept these cranes ready for use. In fact it placed tender with ONGC to hire these cranes in March, 1993. On account of technical reasons noted above, the cranes were not actually hired. But on that account depreciation could not be denied to the assessee.
The position in my view is similar to the one where one claims depreciation on taxi or other vehicle, which is kept ready on taxi stand for hiring to a customer, but the vehicle is not actually hired for settlement of terms with the customer. In above situation, the vehicle would be taken to be used for purposes of business when it is kept ready to be used for purposes of business. As already noted, these cranes had temporary registration and even if permanent registration under the Motor Vehicles Act was not with the assessee, that would not materially affect its claim for depreciation as per case law noted above. On facts of the case, in my view, the assessee was entitled to depreciation on two Kato cranes in assessment year 1993-94. For reasons given above, I agree with learned Judicial Member for allowing depreciation on crane Cole No. 825 for assessment year 1991-92 and on two Kato cranes in assessment year 1993-94. I agree with learned Accountant Member that depreciation on crane Cole 620M in assessment year 1991-92 was rightly disallowed.
18.2 The four questions referred to me are answered accordingly.
19. The matter be placed now before the regular bench for an appropriate order, in accordance with law.
(Vimal Gandhi
President
REFERENCE UNDER SECTION 255(4) OF THE I.T. ACT, 1961
1. By virtue of the provisions contained in Section 255(4) of IT. Act, we differ in opinion on the certain points, therefore, refer the following points to the Honourable President, ITAT, for necessary orders:
1) Whether under the facts and circumstances of the case, there was an existence of contract of hire between the parties in the previous years relevant to the Assessment Years 1991-92 and 1993-94.
2) Whether under the facts and circumstances of the case, for the purposes of depreciation, the hiring of machinery was with effect from the date of transportation of machinery started or from the date when the hire charges had actually been paid.
3) Whether under the facts and circumstances of the case, the actual use of machinery in the hands of the assessee started when the when the machinery was dispatched to its destination or when the machinery is put to use by the hirer.
4) Whether the machinery is said to be put to use in case of assessee in the business of hiring when the machinery was ready for hiring purpose and not the day the machinery was used by the hirer.
2. The matter is, therefore, referred to the Hon’ble President for reference to a Third Member.
(K.G. Bansal) (Mukul Shrawat) Accountant Member Judicial Member Mukul Shrawat, Judicial Member 1. These three appeals pertain to the same assessee, therefore, for the sake of convenience the same are consolidated and hereby decided by this common order. A) ITA No. 687/PN/94 2. This appeal has arisen out of the order of CIT(A) dated 23.3.94 and the first ground is as follows: Ground No. 1 - 1. On the facts and in the circumstances of the case, the Appellate Commissioner erred in confirming the disallowance made by the Assessing Officer with respect to depreciation allowable on new cranes. 2. On the facts and in the circumstances of the case, the Assessing Officer be directed to allow depreciation hitherto denied on the new cranes.
3. Briefly stated the facts of the case are that the assessee is in the business of hiring of cranes and other equipments. During the course of assessment proceedings, it was observed by the Assessing Officer (A.O) that two cranes having Model No. Cole 620M and Cole 825(1) were declared as purchased on 27-3-91 from M/s. TIL Ltd., Calcutta. Since these two cranes were purchased at the fag end of the financial year, therefore, the A.O. has raised certain enquiries in respect of allowability of depreciation. We shall take up the facts of the case one by one in respect of both the cranes.
4. The facts in respect of crane having Model No. Cole 620M was that the assessee has placed the orders with M/s. TIL Ltd., Calcutta and the admitted position is that in August 1990, an advance of Rs. 6,50,000/- was paid. The A.O. has observed that the balance amount was stated to be paid at the time of delivery. It is also on record, as per A.O., that on 16.3.91 M/s. TIL issued sale letters and on the basis of those sale letters, the assessee has also received the temporary registration from R.T.O Calcutta on 19.3.91. Further explaining the fact to the A.O, it was stated that the appellant’s sister concern M/s. Sanghvi Non-ferrous Metal Industries Pvt. Ltd. had obtained a Letter of Intent for deployment of Cole 620M crane with ONGC at Kanaka, Tamil Nadu. The intent was received on 4.10.1990. It was further stated before the A.O. that the said sister concern was not in a position to fulfill the commitment, therefore, a joint request was made by the assessee to ONGC to transfer the intent in the name of the assessee. To fulfill the performance specifications, the crane was also got tested and examined as per the requirement of ONGC by M/s. TIL during the period from 19th March to 22nd March 91. The assessee has also made arrangement to transport the said crane to the ONGC at Kariakal (T.N.), and for this purpose, the crane was delivered on 27-3-91 to Assam Roadways. The objection of the A.O. was that the original contract of ONGC was not with the assessee but placed to the sister concern. The Letter of Intent was not in the name of assessee originally but the same was procured in the subsequent financial year. It was noted by the A.O. that on 3rd April 91, the sister concern had written a letter to ONGC that the Bank Loan was not sanctioned, hence unable to purchase the crane, therefore, not in a position to fulfill the contract. It was also requested by the sister concern to transfer the letter of intent in the name of the assessee which was agreed by the legal department of ONGC. A.O. has also observed that there was no written contract between the sister concern and the assessee about this arrangement. The crane was actually used at Kaiakal site from 17 April 91. This is the main reason and the objection for disallowance of claim of depreciation because firstly, the letter of intent was not in favour of the assessee uptill the end of the financial year; secondly, the machinery was not put to use within the financial year. On the basis of these facts, A.O. has concluded that the said crane could not be said to be used at all actively or passively by the assessee for its business purpose during the financial year under consideration, In support of disallowance, the A.O. has also made a point that the assessee was granted only the temporary registration, therefore, the said registration was not meant for commercial purposes. He has recorded that the permanent registration of the said vehicle was granted on 14th April 91 and thereafter, only the assessee was entitled for commercial use of the vehicle. According to A.O, the temporary registration was only for the purpose of transportation of the vehicle. As far as the explanation regarding the test of the crane was concerned, the A.O. was of the view that the supplier has to test all the cranes, hence, do not support in any manner, the claim of depreciation. Finally, he has concluded that since the purchase of the said asset was without any authority and the vehicle was not capable to be used commercially and the vehicle did not reach the place where it was required, therefore, due to these reasons, it was not used at all for the business purposes within the financial year.
5. The facts in respect of crane having Model No. Cole 825(1) are as follow. The observation of A.O. was that the said machinery was kept as standby crane from 22-3-91 at the premises of M/s. Light Motive, Calcutta. It was found by the A.O. that the contract with M/s. Light Motive was to provide the subject crane on hire at the rate of Rs. 2,50,000/- per month consisting 26 working days. According to A.O, there was no requirement by the lessee to provide a standby crane. In this connection, the explanation by the assessee was that crane 830 required some repairs, therefore, in the interest of business, standby crane was arranged. However, according to the A.O, the assessee was not under any obligation to keep a standby crane which has costed the assessee as much as a sum of Rs. 43 lakhs. The A.O. has also noted that on enquiry, it was found that there was no break-down during the said period. Further, the A.O. has also Recorded statement on oath Under Section 131 of one of the Director of the company namely Shri A.D. Sanghvi and the question and answers have also been reproduced in the assessment order. The A.O. has concluded that the crane was lying idle and only kept to be used in future, therefore, it was not even used passively by the assessee, According to him, crane was not charted for commercial purposes during the year. The crane was delivered at the fag end of the year i.e. 27-3-91 and the registration authority, South 24 Pargana, Calcutta has allowed only the temporary registration dated 19-3-91. Again, he has mentioned that this temporary registration meant only for the purpose of removing or transportation of the vehicle by road, The assessee had no authority or valid registration for the purpose of commercial use during the financial year. After analysing certain case-laws, he has disallowed the claim of depreciation in respect of this crane as well. Being aggrieved, the issue was carried before the first appellate authority.
6. The Learned CIT(A) has also analysed the factual aspect in detail and most of the arguments and explanation were reproduced in the impugned appellate order, He has arrived at the conclusion that on the basis of the facts as well as other materials as examined by the A.O, it was evident that the said two cranes were not at all used in the business of the company in the concerned previous year. According to him, the user of the assets could not be proved by the assessee. In his opinion, even the passive user of the asset was not relevant because the assets were purchased at the fag end of the financial year and could not be put to use at all, According to him, it was the case that the machinery was being not used by the assessee but remained idle or unused due to certain reasons, therefore, could not be said to be even the passive user of the asset. By citing Section 32 of the I.T. Act, he has confirmed the action of A.O. Since the disallowance was affirmed, hence the assessee is further in appeal now before us.
7. We have heard submissions of both the sides at length and also carefully examined the factual matrix of the case in the light of several case-laws cited and material placed before us. At the outset, it is necessary to place on record that the undisputed fact is that assessee is in the business of giving on hire cranes and other equipments. Thus, hiring business is not in dispute and accepted by both the sides. This fundamental fact is necessary to be recorded because the issue raised before us, is directly dependent on the fact that whether a machinery can be said to be put to use by lessor company on acquisition for its business purpose of hiring though the lessee has not started using the asset during the financial year under consideration. This question can further be bifurcated into two limbs – (a) whether on purchase and on hiring of an asset, a machinery can be held to be put to use by an assessee who is in the business of hiring of assets and (b) whether under such circumstances, for the purposes of claiming of depreciation in the hands of assessee, it is materially important to examine the user of the equipment by the lessee. In other words, whether the claim of depreciation in the hands of the hiring company depends upon the usage of machinery by the lessee or hirer during the financial year under consideration. We have to answer these questions in respect of crane having Model No. Cole 620M claimed to be put to use for the purpose of business of hiring by the assessee company. Undisputed position is that the previous year of the assessee ended on 31st March 91, The assessee has placed an order with the manufacturer of crane namely M/s. TIL Ltd., Calcutta in the month of August 1990 and paid an advance of Rs. 6,95,000/-, The sale was executed on 16-3-91 as per the sale letter issued by M/s. TIL Ltd., copy placed in compilation, Certain tests have aiso been carried out to satisfy the performance of the crane during the period of 16th March till 30th March, A temporary registration has also been obtained from the registration authority on 19th March 91, copy is placed at page 18 of compilation. it was stated by the Ld. A.R. appearing on behalf of assessee Mr. S.N. Inamdar that the said crane was dispatched from Calcutta on 27-3-91 for Kariakal Project at Tamil Nadu. Ld. A.R. has also drawn our attention on a letter dated 1st October 90 issued by O.N.G.C. addressed to M/s. Sanghvi Non-Ferrous Metal Industries, the sister concern about hiring of crane for Cauvery Project. The said letter has made certain specifications about the crane and the contract was subjected to the satisfaction of the said condition. To fulfill the requirement and the specifications of crane, an order was placed to the manufacturer of crane namely M/s. TIL Ltd., who has confirmed to fulfill the specifications and deliver the crane 620M by the end of December 90 and given top priority to the said order, a letter in this regard is placed on page 15 of the paper book (dated 30th November 90). Ld. A.R. has also referred few more correspondence between TIL Ltd and assessee as well as sister concern, At this juncture, Ld. A.R. has clarified that since the assessee as well as the sister concern are operating from the same premises, therefore, the manufacturer of the crane has made the correspondence sometimes in one name and sometimes in another name but in either case, it was related to the same crane and meant to be addressed to the assessee. Page 6 of the paper book specify the details of payment made to TIL Ltd, by the assessee company, which were within the financial year. Ld. A.R. has stressed that as far as the ownership of the crane is concerned, the same was not objected or doubted by the revenue authorities. He has also drawn our attention to Consignment note on page 27 of the paper book dated 27.3.91 of Assam Road Carriers through which the said crane was transported from Calcutta to Kariakal, T.N. The arguments of Ld. A.R. was that the assessee being in the business of hiring of crane, is entitled for claim of depreciation in the year in which the crane was undoubtedly purchased by the assessee and put to use for the purpose of hiring. He has also vehemently argued that it is immaterial as far as the hiring company is concerned for the purpose of depreciation in its hand, whether the vehicle hired out was used by the hirer or the lessee for their respective business purpose. In support the following case-laws were cited:
1. C.I.T. v. Geo Tech Construction Corporation 244 ITR 452
2. C.I.T. v. Mirza Ataullaha Baig 202 ITR 291 (Bom)
3. C.I.T. v. Dilip Singh Sardarsingh Bagga 201 ITR 995
8. The Learned D.R has strongly relied upon the order of A.O. and drawn our attention on certain observations of A.O. He has stressed that firstly the machinery in question was temporarily registered before the registration authority, therefore, it was not meant for commercial use. The registration was granted only in the subsequent financial year in the month of April 91. Since the machinery was forbidden for commercial use, therefore, could not be said to be used for the purpose of business, hence not entitled for depreciation. Another argument of Ld. D.R, was that the letter of intent was in the name of the sister concern and the contract was changed in the name of the assessee by issuing another letter of intent by ONGC only in the month of April 91, hence due to this reason as well, the assessee could not be said to have hired the machinery to ONGC during the year under consideration. Further, he has aryue that the crane was dispatched at the fag end of the financial year and the admitted position is that it has reached to the site in the month of April and actually used only from 17 April 91 at Kariakal site. So, in his opinion, this crane was not used at all for the purpose of business either by the assessee or by the ONGC during the financial year. In support, he has cited the decision of Hon’ble Bombay High’ Court, – Nagpur Bench, in the case of Dinesh kumar Agarwal 267 ITR 786 wherein it was held that the word “used” denotes that the asset has been actually used and not that it is merely ready for use. He has also cited an another decision of Hon’ble Supreme Court in the case of Shaan Finance, 231 ITR 308. In support of his argument stated that the Hon’ble Supreme Court has held that for the purpose of investment allowance, one has to examine the actual usage of machinery by the lessee, According to the Ld. D.R, if on hiring a machinery or any asset has not actually been put to use for business purposes by the lessee or the hirer, then the lessor or the hiring company should also not be entitled for claim of depreciation.
8.1 Within this narrow compass of facts and legal position and in view of the questions framed supra, we are of the considered view that the assessee has a strong case in view of the reasons assigned here-in-below. Basic condition of claim of depreciation is ownership over an asset. This is undisputedly fulfilled by the assessee due to the reason that the letter of sales as well as payments all are within the financial year. The next condition is the delivery of an asset within the financial year and that too is not in dispute and duly established by placing relevant material on record. Necessary facts in this regard have already been discussed in detail in above paragraphs. As far as the objection of the revenue in respect of letter of the intent is concerned, on examination of the material placed on record and several correspondece made by the assessee and its sister concern with ONGC, we are of the view that certain technical formalities have been completed, otherwise the ONGC has placed its order way back in October 1990 with the specification of the crane as required at Kariakai, T.N. site. Whether on this technical ground that the letter of intent was replaced in the name of assessee instead of its sister concern, is it justifiable to ignore all other material facts such as ownership of the machinery, supply of machinery, registration certificate in the name of assessee, machinery being transported from Calcutta to the site by the assessee etc., etc. Definitely one must net be very pragmatic but has not to adopt a pedantic approach so that a broader view should be adopted. In view of this, we hereby hold that though the letter of intent in the name of the assessee was replaced in the subsequent financial year, but the assessee has acted in a bonafide manner and accomplished all the conditions to fulfill the obligation of its sister concern of supply of the crane within the time to ONGC. At this juncture, It is also worth mentioning that a reasonable explanation has also been offered by the sister concern as to why this crane was not purchased and the explanation was that the bank loan was not sanctioned in the name of the said sister concern, This being the difficulty faced by the sister concern, a business decision was taken to fulfill the contract by supply of crane and appears to be a prudent decision generally being taken in the normal course of business, Cosidering number of evidences in respect of the Crane, Model No. Cole 620-M, it is evident that the crane was purchased and put to use for the purpose of business of hiring by the assessee during the accounting year under consideration.
9. As far as the other crane Model No. Cole 825 is concerned, there is no dispute as far as the purchase and delivery of the said machine Is concerned. The only dispute Is that the said crane was kept as a standby crane. However, In this regard, there are several evidences placed on record, establishing the fact that the hirer of the crane has demanded for a standby crane and since the assesses has to satisfy a reasonable demand of his client, therefore, in the interest of business relations, provided one standby crane. The crane was hired by M/s. Light Motive, who was under a production of the film “City of Joy”. To provide uninterrupted service of crane, it was decided to provide a substitute ready to be used in the case of an eventuality, so the decision was purely in the consideration of the business prospect, hence, cannot be overlooked on the basis of some presumptions.
10. We have duly considered the case laws cited from both the sides and on careful examination, we have noticed that the Hon’ble Kerala High Court in the case of Geo Tech Construction Corporation 244 ITR 452, has held that the words “used for the purpose of the business” were capable of a larger and narrower interpretation. if the expression “used” was construed strictly it could be taken as connoting or requiring the active employment or the actual working of the machinery, plant or building in the business. On the other hand, the wider meaning would include not only cases where the machinery, plant were actively employed but also cases where there was what may be described as passive user of the same in the business. An asset could be said to be used, when it was kept ready for use. Since the Tribunal had recorded the finding that there was positive material to show the existence of the asset at the work site, and about the passive user it could not be termed to be one without any basis or illegal. Accordingly, the claim for depreciation was allowable.
In an another case, Hon’ble Bombay High Court viz. C.I.T. v. Mirza Ataullaha Baig 202 ITR 291, has opined that “the law is well-settled that in a case of sale in which the price is to be paid by instalments, the property passes as soon as sale is made, even though the price has not been fully paid and may later be paid In instalments. An assessee, who has purchased a motor vehicle for valuable consideration and used the same for his business, cannot be denied the benefit of depreciation thereon on the ground that the transfer was not recorded under the Motor Vehicles Act or that the vehicle stood in the name of the vendor in the records of the authorities under the Motor Vehicles Act”. A decision of Bombay High Court was referred therein namely C.I.T. v. Dilip Singh Sardarsingh Bagga 201 ITR 995, wherein also the same view was expressed as mentioned above. On the basis of the evidences and material placed on record, and the precedents cited above, we can safely arrive at a conclusion that for claiming depreciation, the emphasis is on the user of the depreciable assets in the business of the assessee. In the present case, there was an actual, effective and real user in the commercial sense, which was also linked with the hiring activity of the assessee, so a conclusion can be drawn that there was a immediate nexus between the user and the business of the assessee. In this view of the matter, we hereby hold that the assessee was entitled for the claim of depreciation in respect of both the cranes. With this finding, we hereby reverse the view taken by the Id CIT(A) and allow this ground of the assessee.
11. Ground No. 2 reads as under :-“Ground No. 2-
1. On the facts and in the circumstances of the case, the Appellate Commissioner erred in confirming the Assessing Officer’s allowance of depreciation on truck mounted cranes at the general rate applicable to plant & machinery under clause III (1) of Appendix I instead of at the rate applicable to motor lorries under clause III (2)(ii) of Appendix I.
2. On the facts and in the circumstances of the case, the Assessing Officer be directed to allow depreciation on truck mounted cranes at the rates applicable to motor lorries as specified in Clause 111 (2) (ii), of Appendix I.
The appellant has claimed the depreciation on truck mounted crane at the special rate whereas the A.O. has allowed the rate of depreciation as applicable to the plant and machinery. The assessee has explained that there were two types of cranes namely “Mobile Crane” and the other is “Crawler Crane”. It was explained that in respect of crawler crane, the depreciation at the rate of 33.1/3 % was claimed, however, in respect of mobile crane or truck mounted crane, depreciation at the rate of 50% was claimed. The first appellate authority has not accepted the claim of the assessee and held that the said crane would be eligible for normal depreciation at the rate of 33.33%.
12. The case laws cited from the side of the assessee are as follows:
1. Gujco Carriers v. C.I.T. 256 ITR 50
2. Sanco Trans Ltd. v. Asst. C.I.T. 61 ITD317
3. C.I.T. v. Bansal Credits Ltd. 259 ITR 69 (Del.)
4. C.I.T v. Madan and Co., 254 ITR 445
In view of above citations, the issue is now very well settled because several Courts have held that the Mobile cranes are entitled for higher rate of depreciation. The Hon’ble Gujarat High Court in the case of Gujco Carriers (supra) has held that the mobile crane of the assessee which admittedly was registered as a heavy motor vehicle, as is the case of the assessee, would clearly fall within the expression “Motor lorries in entry 111 E (1A) of the Table in Appendix I under Rule 5 of income Tax Rules, 1962. The Court has also mentioned that the crane was used by that assessee in its business of running the crane on hire, as is the case of the appellant, the assessee was entitled for higher rate of depreciation. Respectfully following these decisions, we hereby reverse the finding of the Id CIT(A) and direct to allow rate of depreciation as per the prescribed rates mentioned here-in-above. This ground is hereby allowed.
13. This appeal is allowed.
ITA No. 306/PN/96 (A.Y. 1991-92)
14. This is an appeal filed by the assessee arising out of the order of CIT(A) dated 17-1-96 wherein the penalty Under Section 271 (1)(c) of Rs. 20,32,152/- was confirmed and being aggrieved, the appellant is now before us. The substantive ground before us is that no concealment penalty should have been levied merely on denial of claim of depreciation on crane.
15. While deciding appeal on merits for the A.Y. 1991-92, the year under consideration, in above paras, we have decided the issue in favour of the assessee and directed to allow claim of depreciation in respect of both the two cranes. Once it is held that the claim was genuine and admissible as per law in above paras, hence the consequence of the said decision is that there was no concealment of income. Since the assessee has won the quantum appeal in respect of claim of depreciation, hence there is no occasion left for levy of penalty Under Section 271(1)(c), resultantly, the same is hereby deleted. Grounds raised in this regard are allowed.
ITA No. 73/PN/97 (A.Y. 1993-94)
16. This appeal was filed by the assesses against the order of CIT(A) dated 6.12.96. Ground No. 1 reads as follows:
Ground No. 1 –
1. On the facts and in the circumstances of the case, the Appellate Commissioner erred in confirming the disallowance made by the Assessing Officer with respect to depreciation allowable on new cranes.
2. On the facts and in the circumstances of the case, the Assessing Officer be directed to allow depreciation hitherto denied on the new cranes.
The A.O. has disallowed depreciation on two new Kato cranes. It was observed by the A.O. that the appellant had imported two Kato cranes during the year under consideration in connection with its contract with ONGC and claimed depreciation at the rate of 12.5% on the cranes. Enquiries were conducted which reveal, as per A.O., that the cranes were purchased by the assessee on 11.1.93 and shifted to Madras on 21.193. Here it is relevant to mention that the previous year ended on 31.3.93. ft was also observed that the cranes were landed at Madras on 26-2-93 which were cleared from Customs on 12-3-93. Due to this reason, the A.O, was of the view that the cranes were not put to use during the year under consideration. On the other hand, the contention of the assessee was that the business of the assessee company was to operate cranes on hire though, these two cranes were ready for use for the business of the assessee. When the issue was carried before the first appellate authority, the id CIT(A) has simply mentioned that in the past, for the A.Y. 1991-92, on a/most identical facts and circumstances, his predecessor had disallowed the claim of depreciation. ln a brief finding, the Id CIT(A) has followed the past history and confirmed the action of the A.O.
17. We have already discussed this issue at length (supra) and following certain precedents have held that since the cranes were purchased during the year and ready for the use of hiring or used by the hirer, hence assessee is entitled for the claim of depreciation. Before we conclude, it is also worth mentioning that in the case of C.I.T. v. Shaan Fiance Ltd. 231 ITR 308, the Hon’ble Supreme Court has held that where the business of the assessee consists of hiring out machineries and/or where the Income derived by the assessee from the hiring of such machinery is business income, the assessee must be considered as having used the machinery for the purpose of its business. Though the issue before the Hon’ble Court was claim of investment allowance but the ratio laid down in this case law applies mutatis mutandis now before us. Further, a fine distinction can also be made with the word “used” in Section 32, means use of an asset for the purpose of the business of the assessee and do not refer the use of an asset by the hirer. Once a machinery is hired out, that may or may not be used by the hirer, the lessor company has put the machinery into use of business of hiring and entitled for the claim of depreciation. So, the case laws cited from the side of the revenue such as Dinesh kumar Gulabchand Agrawal 267 ITR 768 (Bom) do not apply in the present context because therein the view was expressed by the Hon’ble Court in respect of an assessee, who has not actually used an asset for the purpose of his business, further the question of leasing or hiring was not in consideration by the Hon’ble Court. Without repeating the detailed discussions already held here-in-above, we hereby reverse the finding of the Id CIT(A), who has simply followed the earlier order of the A.Y. 1991-92, already decided in favour of assessee (supra), resultantly, the grounds raised for the year under consideration as well are allowed.
18. Ground No. 2 of the appeal reads as under:
Ground No. 2 –
a. On the facts and in the circumstances of the case, the Appellate Commissioner erred in confirming the Assessing Officer’s allowance of depreciation on truck mounted cranes at the general rate applicable to plant & machinery under clause III (1) of Appendix I instead of at the rate applicable to motor lorries under Clause III (2)(ii) of Appendix I.
b. On the facts and in the circumstances of the case, the Assessing Officer be directed to allow depreciation on truck mounted cranes at the rates applicable to motor lorries as specified in clause III (2)(ii) of Appendix I.
The A.O. has allowed depreciation on truck mounted cranes at the rate of 25% being the rate applicable to plant and machinery instead of 40% being the rate applicable to trucks and motor lorries used in the business of hiring. The first appellate authority has simply followed the assessee’s own appeal decided by his predecessor for the A.Y. 1991-92 and confirmed the action of the A.O. Now as per above, we have already decided that appeal relying upon certain precedents and directed to allow the higher rate of depreciation. Since a view has already been taken in above paras, hence following the same for this year as well, the ground raised by the assessee is hereby allowed.
19. In the results, the appeals are allowed.
(K.G. Bansal) (Mukul Shrawat) Accountant Member Judicial Member K.G. BANSAL, Accountant Member
1. The facts of the case in Appeal No. 687/PN/94, for AY 1991-92, regarding a crane, having Model No. Cole 620M, for AY 1991-92 have been fairly stated by my learned Brother in paragraph 4 of his order, These relevant facts may be briefly recapitulated here. The assessee had obtained temporary registration for this crane on 19.03.91 on the basis of sale letter dated 16.03.91. The crane was actually purchased on 27.03.91 after tests as per specification of ONGC had been conducted. The arrangement for transportation of the crane to Kariakal, Tamil Nadu, for use of ONGC by way of lease, was entrusted to Assam Roadways on 27.03.91. The ONGC received the crane in April 91 and started using the crane from 17.04.91. The first hire charge bill dated 01.05.91 shows that the hire charges were calculated from 17.04.91. The learned DR quoted the decision of Hon’ble Supreme Court in the case of CIT v. Shaan Finance(P.) Ltd, and First leasing Co, of India Ltd. , That case arose under the provisions of Section 32A. That section did not contain any express requirement that the assessee must himself use a plant and machinery. The Hon’ble Court held that a leasing or finance company, which owns machinery and leases it to third parties to use the machinery for manufacture of articles or things specified in the section, is entitled to investment allowance in respect of such machinery. The Hon’ble Court pointed out that when machinery is given on hire by the owner to the hirer on payment of hire charges (emphasis supplied), the income derived by the owner is business income. The hirer, who pays the hire charges, is entitled to claim the expenses as revenue expenses. Therefore, the transaction of hire is a transaction bailment of the machinery. In absence of any element of sale, there is no reason for treating such an agreement as on of “transfer” for disallowing the grant of investment allowance, when the assessee complies with the other requirements of Section 32A. The ratio of the case is that when a machinery is given on hire in-lieu of payment of hire charges, income of the assessee is business income and, therefore, the assessee is entitled to deduct investment allowance Under Section 32A, if other conditions of the section are satisfied. In other words, giving the machinery on hire on receipt of. hire charges amounts to user of the machinery for the purpose of business of the assessee. In such a situation, the assessee will also be entitled to deduct depreciation while computing its income. However, sina qua non for grant of investment allowance or depreciation is that the contract of hire has come into existence leading to income by way of hire charges to the assessee. However such contract of hire has not come into existence in the relevant previous year, the assessee will not be entitled to deduct depreciation or claim investment allowance while computing the income. The learned DR had also relied on the decision of Bombay High Court, Nagpur Bench, in the case of Dinesh kumar Gulabchand Agrawal v. CIT and Anr. . The Hon’ble Court had to decide the matter whether user of asset also includes in its ambit an asset which is ready for use but actually used. The Hon’ble Court considered its own earlier decision in the case of Whittle Anderson Ltd. v. CIT . In that judgment, the Court was concerned with the interpretation of the expression “use” or “used”, whereas in the case of Dinesh kumar Gulabchand Agrawal, the Court was concerned with the interpretation of the word “used”, The Hon’ble Court pointed out that the expression “used” means actually used for the purpose of business and not “ready for use”. Being the decision of jurisdictional High Court, this decision is of binding nature, The facts of the instant case are that privity of contract between the assessee and ONGC took place only on 17.04.91, when ONGC started paying hire charges to the assessee. After that date, we are not concerned whether ONGC actually used the crane in its business, because, in so far as the assessee is concerned, the assessee used the crane in its business from 17.04.91. This date falls after the close of the previous year relevant to AY 1991-92. Therefore, the assessee is not entitled to deduction of depreciation on the ground that the asset was ready for use as it had been dispatched to the ONGC on 27.03.91 through M/s Assam Roadways.
2. Apart from this issue, I am in agreement with my learned brother in respect of other findings given by him. Thus, ground Nos. 1, 2, 3 and 4 of the appeal are partly allowed.
3. In regard to appeal No. 73/PN/97 for AY 1993-94, the facts are that two cranes were purchased on 11.01.93 by way of import and shifted to Madras on 21.01.93, These cranes landed in Madras on 26.02.93 and cleared by the Customs authorities on 12,03.93. Minor repairs had to be carried out, but the cranes were ready for use in the month of March’93.lt was explained by the learned Counsel of the assessee that for some technical reasons, the ONGC.. backed out of the contract and, therefore, though the cranes were ready for use, they were not actually used in the sense that no hire charge was received in this year in respect of these cranes. The case of the assessee before the CIT(A) was that the cranes were ready for use and, therefore, non hiring of the cranes, as no customer could be found, should not come in a way of deduction of depreciation. The learned CIT(A) held that the assessee will be entitled to deduct depreciation only when these cranes have been actually used by way of giving them on hire, The facts, in so far as deduction of depreciation is concerned, are similar to the facts discussed in my order in ITA No. 687/PN/94 for AY 1991-92(supra), The decision of Hon’ble Bombay High Court in the case of Dinesh kumar Gulabchand Agrawal(supra) is applicable with full force in respect of these cranes also, namely, that the user will start from the day the cranes are given on hire and not from the day when they were ready for giving on hire. Therefore, I am of the view that the assessee is not entitled to deduct depreciation in respect of these cranes also in this year.
4. Apart from this issue, I am in agreement with my learned brother in respect of other findings given by him. In result, ground Nos. 1 and 2 of the appeal are dismissed.
