ORDER
M.V. Nayar, A.M.
1. The assessee has come in appeal against the order of CIT(A)-X, New Delhi, in appeal Nos. 249/1999-2000, 303/2000-01 and 213/2001-02 dt. 31st Jan., 2002. Since the facts of the case and grounds of appeal are common for all the 3 years, they are disposed of by a common order. Basically, the appeals are against the action of CIT(A) in confirming the order of AO that the imported vehicles were not used for the business of running on hire for tourists but were leased out to companies who were not connected to tourism.
2. The assessee-company is carrying on the business of car rentals. It has, apart from Indian made cars, several imported cars in its fleet. Depreciation has been claimed both on Indian cars and also on imported cars.
3. The AO has scrutinized the claim of depreciation and the import documents including the terms, the conditions under which import of these vehicles were allowed by the Government. It was noticed that special concessional duty rate was enjoyed by the assessee-company under the following condition which is reproduced below :
“The said goods(vehicles) shall not be sold, transferred, leased or otherwise disposed off, for a period of five years from the date of importation, other than by sale to other specified importers, without prior approval of the Director General of Tourism.”
4. During the course of assessment proceedings it was observed by the AO that these imported cars were leased to 3 Indian companies for a period of 5 years. As per Section 32, the assessee-company is not eligible for depreciation on imported cars unless it is used for the business of giving it on hire for tourists or outside India in its business or profession in another country. Since the above conditions were not fulfilled by the assessee-company the AO disallowed the claim of depreciation on these imported cars as none of these companies to whom they were leased out were tourist-oriented companies.
5. CIT(A) confirmed the action of the AO. The relevant part of the order of the CIT(A) is reproduced as given below :
“I have considered the submission carefully and have perused the assessment orders of the AO. I do not find force in the submission of the learned counsel of the appellant. Section 32 is very clear on this point. To be eligible for depreciation Section 32 states “provided that no deduction shall be allowed under this clause in respect of–
(a) any motor car manufactured outside India, where such motor car is acquired by the assessee after the 25th Feb., 1975, unless it is used–
(i) in a business of running it on hire for tourists, or;
(ii) outside India in his business or profession in another country.
Since these cars were not used for the business of running it on hire for tourists, rather, it is leased out to companies who are not at all connected to tourism, I decline to interfere with the orders of the AO and accordingly, this ground is dismissed.”
6. Against this the assessee is now in appeal before us.
7. Shri Salil Aggarwal, advocate, appeared for the assessee. He argued that all these cars were registered as taxies and were advertised for rental of these cars to tourists. These cars were rented out as short and long-term basis to companies and individuals for their foreign visitors and guests. He further submitted that providing service to tourists as far as car rental companies and the travel trade is concerned is very ambiguous, as a distinction cannot be made between a tourist and other renters. He further contended that to be eligible for depreciation two conditions must be fulfilled which are :
1. a person should be the owner of the property and that
2. the asset is used during the assessment year under consideration
Since these conditions were fulfilled in the case of the assessee-company claim of depreciation should not be denied.
8. Smt. Pratima Kaushik, senior Departmental Representative, relied on the order of the AO. The relevant part of the order of the AO is reproduced as given below :
“The assessee has produced evidence for the import of these cars during the relevant assessment year. The purpose of these cars as declared before the customs authorities, was to give them out on hire by the assessee-company. For this purpose, the import norms are slightly different from the normal import norms and the duty charged is also at a rebated rate. In the bill of entry of these vehicles a specific notation has been made which reads as under :
The said goods (vehicles) shall not be sold transferred, leased or otherwise disposed off, for a period of five years from the date of importation, other than by sale to other specified importers, without prior approval of the Director General of Tourism.’
It is under these conditions that the assessee has availed of a special duty rate.
The assessee was, vide ordersheet entry dt. 16th March, 1999, given a show-cause notice that is reproduced as under :
‘He (the assessee-company) has claimed depreciation on imported cars. He is asked to justify his claim and to show-cause as to why this should not be disallowed as they (the cars) have not been used for tourist purposes. He is asked to justify his claim with evidences on a car-by-car basis.’
The assessee filed a reply, vide letter dt. 23rd March, 1999. In this, it claims that in the year under review ‘we had claimed depreciation on three imported cars, which were used in the business of running them for tourists. The details of which are as under……’. The assessee then gave the registration number of the car, date of purchase, amount of purchase, rate of depreciation, amount of depreciation. The total amount of depreciation claimed by the assessee on such cars is Rs. 32,13,244 during the year.
The assessee has also given a list of the companies to whom the above cars have been rented along with the cars the registration number of the cars that have gone to each party. The assessee also has given a copy of the rent agreements. The companies which are renters of the said cars are listed as under:
(a) Western India Securities Ltd.
(b) Flex Industries Ltd.
(c) Quality Frozen Foods Ltd.
For the purpose of clarity, the relevant provisions of the Act under Section 32, which provide for allowability of deductions on imported cars are reproduced as under :
“provided that no deduction shall be allowed under this clause in respect of–
(a) Any motor car manufactured outside India, where such motor car is acquired by the assessee after the 28th Feb., 1975, unless it is used–
(i) in a business of running it on hire for tourists; or
(ii) outside India in his business or profession in another country.”
The above clearly indicates that the assessee-company is not eligible for depreciation on the foreign cars as the cars have obviously not been used for tourist purposes, as has been made mandatory by the provisions mentioned supra. The fact that the cars have been rented out to companies and not to tourists is enough for the said depreciation to be disallowed.
Without prejudice to the above, even if the renter companies had been given for tourist purpose (which way were not, as indicated by a study of the rental agreements, infra), the assessee-company would not be eligible for depreciation as it is not the user of the said cars. Various rulings like the Hon’ble High Court in Punjab National Bank Ltd v. CIT (1983) 141 ITR 886 (Del). CIT v. Suhrid Geigy Ltd. (1982) 133 ITR 884 (Guj) and numerous others have held that depreciation is inseparable from the actual user for business. As per these judgments the control of the actual owner is necessary, in terms of not only getting the benefits, but also running, stopping, repairing, replacing, etc. In other words, it is the daily day-to-day control that is important. The agreements with the companies show that the actual control as elucidated by the Court rulings is not with the assessee, but with the companies to whom the cars have been rented out. In such a case, depreciation cannot be allowed to the assessee-company in any case and without prejudice to the reasoning of this office in the earlier paragraph. The assessee-company has submitted rental agreements with various companies that are listed above. A study of the records shows that the cars have been given out on rent for extended periods.
(a) Agreement with Western India Securities Ltd. ;
(i) The said agreement is for a period of 60 months, viz., five years.
(ii) There is no provision for monthly or for that matter any periodic payment of any rent. All the amounts to be paid are in one lump sum amount.
(iii) In no place in the agreement is it mentioned that the car shall be used for tourist purposes.
(iv) The car shall at all times, throughout the term period of the agreement remain in the control and possession of the renter.
(b) Agreement with Flex Industries Ltd. :
(i) The said agreement is for a period of 60 months, viz., five years.
(ii) There is no provision for monthly or for that matter any periodic payment of any rent. All the amounts to be paid are in one lump sum amount.
(iii) In no place in the agreement is it mentioned that the car shall be used for tourist purposes.
(iv) The car shall at all times, throughout the term period of the agreement remain in the control and possession of the renter.
(b) Agreement with Quality Frozen Foods :
(i) The said agreement is for a period of 60 months, viz., five years,
(ii) There is no provision for monthly or for that matter any periodic payment of any rent. All the amounts to be paid are in one lump sum amount.
(iii) In no place in the agreement is it mentioned that the car shall be used for tourist purposes.
(iv) The car shall at all times, throughout the term period of the agreement remain in the control and possession of the renter.
Irrespective of and without prejudice to the arguments enumerated above in support of the fact that the assessee-company is not eligible for depreciation, it is further brought out that none of the renter companies are tourist companies. The purpose of these companies as brought in their memorandum of association, is not tourism. Their purpose is hardly tourism nor do they send people out, whether Indian or foreigners, on tourist trips. In such a circumstance, it is obvious that depreciation cannot be claimed on these vehicles as they have not been used for tourist purposes. This is without prejudice and in addition to, to the fact that depreciation on these foreign cars cannot be allowed in any case on account of the reasons mentioned earlier.
The above reasons clearly indicate that depreciation on imported cars cannot be allowed to the assessee-company.”
9. She also relied on the ruling of the Tribunal, Bombay Bench, in the case of Smt. Sherline B. Swati v. ITO (1989) 34 TTJ (Bom) 393 : (1989) 30 ITD 65 (Bom) and the Tribunal Delhi Bench in the case of Textile Leasing & Finance Co. Ltd. v. Asstt. CIT (ITA No. 3904/Del/1994, dt. 5th March, 1998).
10. We have heard the learned representatives of the parties and considered their arguments as well as have gone through the case law referred to before us and order of Tribunal relied upon by the learned counsel for the assessee.
11. At the very outset it is to be pointed out that depreciation in respect of motor cars manufactured outside India was provided by Finance Act, 1975, w.e.f. 1st April, 1975 and the provisions read as under :
“Provided further that no deduction shall be allowed under this clause in respect of any motor car manufactured outside India, where such motor car is acquired by the assessee after the 28th Feb., 1975 and is used otherwise than in business of running it on hire for tourists.”
12. Later on, the same stood amended w.e.f. 1st April, 1992 and the provisions which are effective from 1st April 1992, reads as under :
“Provided [… ] that no deduction shall be allowed under this clause in respect of–
(a) any motor car manufactured outside India, where such motor car is acquired by the assessee after the 28th Feb., 1975 (but before the 1st day of April, 1991), unless it is used–
(i) in a business of running it on hire for tourists; or
(ii) outside India in his business or profession in another country ; ”
A perusal of the above shall show that there is no much change in the words used in the earlier provisions and the amended provision except making it more clear from 1st April, 1992. CBDT had issued circular in respect of depreciation to be allowed on motor cars manufactured outside India, appearing at p. 1543 Income-tax Law by Chaturvedi & Pithisaria Fifth Edn., Vol. I, as under :
“I. Allowance of depreciation on motor vehicles owned and used by tour operators and travel agents in the business of running these vehicles on hire for tourists–The second proviso to Section 32(1)(ii) of the IT Act, 1961, which disallows depreciation on foreign motor cars, is reproduced below :
‘Provided further that no deduction shall be allowed under this clause in respect of any motor car manufactured outside India, where such motor car is acquired by the assessee after the 28th Feb., 1975 and is used otherwise than in a business of running it on hire for tourists’.
The intention behind this provision is to discourage use of foreign cars for the purposes of business or profession, However, in order to promote tourism industry, an exception has been made in the case of foreign motor cars used in a business of running them on hire for tourists, on which full depreciation is allowable.
Where tour operators or travel agents use certain motor cars, owned by them, for providing transportation services to tourists, deprecation should be allowed on these cars. The position will not change even where such transportation services are provided as part of package tour for tourists, which may include a number of other package tours, agrees to pay for a number of services including use of car provided to him by the tour operator or travel agent. Thus, it can be said that the car has been taken by him on hire from such tour operator or travel agent. Therefore, depreciation on foreign motor cars, owned by him and used for providing transportation services to tourists, whether in a package tour or otherwise, should be allowed.”
13. From the above, the intention of the legislature is clear and it indicates that intention behind this provision was to discourage use of foreign cars for the purpose of business or profession. In view of the above, we shall examine the facts of the case of the assessee.
14. Admittedly, the assessee had imported foreign manufactured different cars after getting necessary approval from Government of India and it is also not disputed that assessee was found engaged in the business of tours and travels and leasing. The assessee had let out these foreign manufactured cars to JCT Electronics Ltd; Q.H. Talbros Ltd.; L.G. Hotline C.P. Ltd; and R.C. Sood & Co. (P) Ltd. It is also on record and not disputed by the assessee that these companies were not involved in the business of tours and travels but they were big business concerns. Copies of agreements entered in between assessee and those companies have also been filed by the assessee which are appearing at pp. 1 to 63 of the paper book filed on the date of hearing. A perusal of page Nos. 1 to 17 of this paper book is copy of rental agreement with M/s JCT Electronics Ltd. and broad features as apparent from different clauses of the agreement are that assessee had let out Toyota Land Crusher, foreign manufactured motor car to, this company and received Rs. 50,41,240 as fixed term advance of sixty months. The period of lease and the monthly rent was Rs. 84,020 which was to be adjusted out of the advance of Rs. 50,41,240. Clause IV of this agreement provided general terms and Sub-clause (b) reads as under :
“Renter shall be allowed to use the rented car for its purpose anywhere in India. The owner undertakes to obtain all–India permit for the rented car for the use of the renter.”
15. This indicates that assessee-company had allowed renter, i.e., M/s JCT Electronics Ltd., the use of the rented car for any purpose. The right to use is not restricted anywhere and Section 32 as reproduced above provides that depreciation shall be allowed in respect of motor cars manufactured outside India, if it is used in a business of renting it on hire for tourists (underlined by us). No doubt, the assessee had fulfilled the first requirement of rented out the motor car, manufactured outside India, on hire but the important word “tourist” is missing. Perusal of Clause (iv)(b), as reproduced above, shall show that renter had been given unrestricted power to use it for any purpose and use of the car in question is not meant for tourists’ purpose at all. The AO was justified to observe that there was not a single mention in the agreement in between assessee and different Indian concerns that car shall be used for tourists’ purpose. Perusal of the above clause of the agreement fortifies this observation further as in case assessee and renter company were actually interested to utilize the foreign manufactured motor cars for tourists purpose, some stipulation about that important clause must have been existing in the agreement and very absence of that clause makes it abundantly clear that motor car on foreign manufactured given to JCT Electronics Ltd., was not meant for tourists’ purposes. Once it is concluded that motor car was not used for tourists’ purpose, then the very intention of the legislature for providing depreciation on foreign manufactured motor cars is missing as CBDT had specifically pointed out that this provision is meant to discourage use of motor cars manufactured outside India, for the purpose of business or profession. Renter of the car was given liberty in the above referred to clause to use it for business or profession as there is no specific purpose for utilizing the car for tourists’ purposes and thus the assessee cannot be allowed the benefit of claiming depreciation in the above referred to purchases as it has failed to bring on record that motor cars manufactured outside India was given to M/s JCT Electronics Ltd., for being used for tourists purposes.
16. Agreements in respect of all other Indian concerns to whom motor cars manufactured outside India have been let out by the assessee are on identical terms as also admitted by the learned counsel for the assessee and facts being the same, the same conclusion is to be arrived at in respect of other cars given to other Indian concerns.
17. Reliance was placed by the learned counsel on the order of Tribunal in the case of Textile Leasing Finance Co. Ltd. v. Asstt. CIT being ITA No, 3904/Del/1994, decided by Tribunal, Delhi Bench, vide order dt. 5th March, 1998, in which the Bench had taken into consideration the decision of Third Member in the case of Smt. Sherline B. Swati (supra). We have gone through the facts of both the cases. In the case of Smt Sherline B. Swati (supra), the motor car was hired by European Asian Bank for their tourists while in the case of Textile Leasing & Finance Co., only one car was purchased by that company and let out to its sister concern who certified that said car was being used for tourists only. Facts of the said case are not identical to the facts of the present case. In the instant case, we have gone through the agreement entered in between assessee and the Indian company who had taken the motor cars manufactured outside India on lease and admittedly they were not for tourists purpose. Even the assessee failed to prove the fact that cars were being utilized by Indian companies for foreign tourists at that time during currency of the agreement. Later on, some certificates had been filed but those certificates are not going to help the case of the assessee because mere using the car once or twice by foreign tourists of those company would not make any difference as dominant purpose of letting out the motor car, as is apparent from the copy of agreement, is for unrestricted use by the renter company and no restrictions have been imposed by the assessee while entering into agreement with those companies to the effect that such motor cars would be utilized for tourists only. Absence of such clause in the agreement will make out a case in favour of Revenue and order of AO as well as CIT(A) is to be confirmed as we have already concluded that assessee failed to prove on record that motor cars manufactured outside India were used on hire for tourists. The assessee-company, therefore, is not entitled for depreciation and the common ground raised by the assessee has no force.
18. All the appeals stand dismissed accordingly.