The BaliapatanamTile Works Ltd, Kannur V. The DCIT, Kannur

ITA 147/COCH/2014

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 77473 (ITAT-COCHIN)
• Duration Of Justice: 3 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-07-2014
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Next Hearing Date: 23-06-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 31-03-2014
• Court: TRIBUNAL
• Department Lawyers: LATHA V KUMAR
• Assessee Lawyers: P BALAGOPAL
• Keywords: Business income; Depreciation
• Section: 32

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE S/SHRI N.R.S.GANESAN, JM AND CHANDRA POOJ ARI, AM I.T.A. NO.147/COCH/2014 ASSESSMENT YEAR : 2007-08 THE BALIAPATAM TILE WORKS LIMITED, PAPPNISSERI-670 561 KANNUR DISTRICT. [PAN:AAACT 8518K] VS. THE DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE-1(1), KANNUR. (ASSESSEE -APPELLANT) (REVENUE-RESPONDEN T) ASSESSEE BY SHRI P.BALAGOPAL, CA REVENUE BY SMT. LATHA V. KUMAR, JR. DR DATE OF HEARING 23/06/2014 DATE OF PRONOUNCEMENT 04/07/2014 O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER OF THE CIT(A), KOZHIKODE DATED 13.01.2014 FOR THE ASSESSME NT YEAR 2007-08. 2. THE ONLY ONE ISSUE FOR OUR CONSIDERATION IS WITH REGARD TO THE RATE OF DEPRECIATION ON LORRIES USED BY THE ASSESSEE. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E HAS CLAIMED DEPRECIATION ON LORRIES AT 30% AND THE LORRIES WERE USED FOR LET TING OUT ON HIRE TO CLAY CONTRACTORS FOR TRANSPORTATION OF CLAY. HOWEVER, T HE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE IS NOT IN THE BUSINESS OF GIVING LORRIES ON HIRE AND FURTHER, IT WAS OBSERVED BY THE ASSESSING OFFICER THAT IT IS ON LY AN ARRANGEMENT THE ASSESSEE HAS MADE WITH THESE CONTRACTORS TO SUPPLY CLAY TO THE ASSESSEE. I.T.A. NO.147/COCH/2014 2 THEREFORE, THE ASSESSING OFFICER DISALLOWED THE HIG HER RATE OF DEPRECIATION AT 30% WHICH IS APPLICABLE TO LORRIES PLYING ON HIRE A ND LIMITED THE DEPRECATION TO 15% AS APPLICABLE TO LORRIES NOT USED IN THE BUSINE SS OF HIRING. ON APPEAL, THE CIT(A) CONFIRMED THE ORDER OF THE ASSESSING OFFICER . AGGRIEVED, THE ASSESSEE HAS FILED THIS APPEAL BEFORE US. 4. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL AVAILABLE ON RECORD. THE LD. AR PLACE RELIANCE ON THE FOLLOWING JUDGMENTS: 1. CIT VS. DR. K.R. JAYACHANDRAN (1995) 212 ITR 63 7 (KER.) 2. CIT VS. MADAN & CO. (2002) 254 ITR 445 (MAD.). 3. DCIT VS. B.P. AGARWALLA & SONS LTD. (2003) 86 I TD 219 (KOL.) (THIRD MEMBER). HE FURTHER SUBMITTED THAT THE ASSESSEE HAS BEEN DUL Y AUTHORIZED BY ITS OBJECT CLAUSE IN MEMORANDUM OF ASSOCIATION TO CARRY ON WIT H THE BUSINESS OF GIVING VEHICLES ON HIRE. THE LD. AR ALSO SUBMITTED THAT TH E ASSESSEE HAS DECLARED INCOME FROM HIRE CHARGES IN ITS P&L ACCOUNT AND THE ASSESSEE WAS ALSO GRANTED HIGH DEPRECIATION IN THE EARLIER ASSESSMENT YEAR. O NLY IN THIS ASSESSMENT YEAR, THE ASSESSING OFFICER HAS NOT GRANTED HIGHER RATE O F DEPRECIATION AT 30% ON TRUCKS. 5. ACCORDING TO THE LD. AR, AS SEEN FROM THE P&L AC COUNT FILED BY THE ASSESSEE PLACED AT PAPER BOOK PGS. 14 TO 28, THE A SSESSEE HAS DECLARED THE LORRY HIRE CHARGES RECOVERED AS INCOME OF THE ASSES SEE WHICH HAS BEEN TREATED AS BUSINESS INCOME OF THE ASSESSEE. THE PLYING OF TRUCKS ON HIRE FOR BRINGING CLAY TO THE ASSESSEE THROUGH CONTRACTORS, THOUGH IT IS USED BY ITSELF, IS CONSTITUTED AS ASSESSEES BUSINESS AND IT MAY BE IN CIDENTAL TO THE ASSESSEES BUSINESS. WHEN THE HIRE CHARGES ARE ASSESSED AS BU SINESS INCOME, THERE IS NO I.T.A. NO.147/COCH/2014 3 REASON TO DISALLOW HIGHER RATE OF DEPRECIATION CLAI MED BY THE ASSESSEE ON LORRY HIRE CHARGES. 6. ON THE OTHER HAND, THE LD. DR SUBMITTED THAT THE ASSESSEE IS NOT IN THE BUSINESS OF PLYING LORRIES ON HIRE. IT IS ONLY AN ARRANGEMENT BETWEEN THE ASSESSEE AND THE CONTRACTORS FOR SUPPLY OF CLAY TO USE ASSESSEES LORRIES TO BRING CLAY FROM THE FIELDS. A PORTION OF THE AGREED COST IS EARMARKED TOWARDS LORRY HIRE CHARGES/EXCAVATOR LOADER CHARGES OF THE LORRIES SUP PLIED BY THE ASSESSEE. THAT BEING SO, HIGHER RATE OF DEPRECIATION AT 30% CANNOT BE ALLOWED. 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE RECORD. IN THIS CASE, WE HAVE COME ACROSS A CO-ORDINATE BENCH DECISION IN TH E CASE OF MATHEW ABRAHAM VS. ACIT IN I.T.A. NO. 92/COCH/2013 VIDE ORDER DATE D 16/08/2013 WHEREIN IT WAS HELD THAT THE ASSESSEE BEING NOT ENGAGED IN THE BUS INESS OF RUNNING THE VEHICLES ON HIRE, THE ASSESSEE IS NOT ENTITLED FOR A HIGHER RATE OF DEPRECIATION ON THE VEHICLES USED IN HIS OWN BUSINESS. THE RELEVANT P ORTION OF THE OBSERVATION IS EXTRACTED BELOW FOR THE SAKE OF CONVENIENCE: 7. WE HAVE HEARD THE RIVAL CONTENTIONS AND CAREFU LLY PERUSED THE RECORD. WE NOTICE THAT THE LD. CIT(A) HAS EXAMINED THE WORK ORDERS ISSUED BY THE RAILWAYS AND CAME TO THE CONCLUSION THAT THE ASSESSEE IS NOT ENG AGED IN THE BUSINESS OF RUNNING OF VEHICLES ON HIRE AND HE NCE, NOT ENTITLED FOR A HIGHER RATE OF DEPRECIATION. FOR TH E SAKE OF CONVENIENCE, WE EXTRACT BELOW THE RELEVANT OBSERVAT IONS MADE BY THE LD. CIT(A): 7. I HAVE CAREFULLY, GONE THROUGH THE ASSESSMENT ORDER, THE GROUNDS OF APPEAL AND SUBMISSIONS FILED BY THE APPELLANT AND ALSO THE CASE LAWS RELIED UPON BY THE AUTHORISED REPRESENTATIVE FOR SEEKING RELIEF ON THE ISSUE. AFTER A CAREFUL CONSIDERATION OF THE SAME, MY VIEWS ON THE MATTER WITH REASONS THEREOF ARE AS GIVEN IN SUBSEQUENT PARAGRAPHS. I.T.A. NO.147/COCH/2014 4 8. DURING THE COURSE OF APPEAL PROCEEDINGS, THE A SSESSEE HAS FILED COPIES OF A FEW WORK ORDERS ISSUED BY THE RAILWAYS WHERE THE NATURE OF WORK HAS BEEN MENTIONE D AS COLLECTION AND SUPPLY OF APPROVED QUALITY MACHINE CRUSHED TRACK BALLAST AS PER LATEST REVISED SPECIFICATION FROM OUTSIDE THE RAILWAY LIMIT AND STACKING FOR MEASUREMENTS AT BALLAST DEPOT IN WADAKANCHERI STATION YARD WITH ALL LEAD AND LIFTS, LOADING AND UNLOADING, CONVEYANCE FROM THE PLACE OF AVAILABILITY, CROSSING THE TRACK WHERE EVER REQUIRED ETC. COMPLETE USING CONTRACTORS LABOUR, VEHICLE AND CONSUMABLES. (PAYMENT BY STACK MEASUREMENTS WITHOUT ANY DEDUCTION FOR VOIDS) 9. THE WORK ORDER SHOWS THAT THE APPELLANT HAS TO SUPPLY MATERIAL AND STOCK IT AT RAILWAY SITE. THE ASSESSEE HAS ALSO STATED THAT HE IS IN THE BUSINESS OF SUPPLYING METAL TO THE RAILWAYS AND PUBLIC. IT IS NOT THE CASE OF THE ASSESSEE THAT THE MATERIAL OWNED BY RAILWAYS WAS TRANSPORTED FROM ITS QUARRY TO THE RAILWAY BALLAST. THE DELIVERY OF GOODS TAKES PLACE AT THE BALLAST SITE OF RAILWAYS, THEREFORE AS PER SALE OF GOODS ACT ALSO THE SALE TAKES PLACE ONLY WHEN THE MATERIAL IS HANDED OVER TO THE RAILWAYS. IN FACT IT IS A CASE OF TRANSPORTATION OF THE MATERIAL OWNED BY THE APPELLANT AND NOT THE MATERIAL OWNED BY SOME ONE ELSE. THE VEHICLES ARE USED AS PER THE REQUIREMENT ASCERTAINED BY THE APPELLANT HIMSELF. THE CONTROL OVER THE VEHICLES REMAINS WITH THE APPELLANT. UNDER THESE CIRCUMSTANCES, IT CANNOT BE SAID THAT THE VEHICLES WERE GIVEN ON HIRE TO RAILWAYS OR PUBLIC. THE RELIANCE PLACED BY THE APPELLANT ON THE OBSERVATIONS OF THE HONBLE SUPREME COURT THAT THE TRUE TEST IS THE USER OF THE SAME IN THE BUSINESS OF THE ASSESSEE OF TRANSPORTATION IS MISPLACED. WHAT THE HONBLE SUPREME COURT HAS SAID IS THAT THE VEHICLES SHOULD BE USED IN THE BUSINESS OF TRANSPORTATION OF THE ASSESSEE I.E.. THE I.T.A. NO.147/COCH/2014 5 BUSINESS OF ASSESSEE SHOULD BE TRANSPORTATION. SINCE IN THIS CASE THE ASSESSEE IS NOT IN THE BUSINESS OF TRANSPORTATION AND TRANSPORTATION OF METAL IS JUST INCIDENTAL TO THE BUSINESS OF SALE OF METAL TO RAILWAYS/PUBLIC, THE RELIANCE PLACED BY THE APPELLANT IS NOT CORRECT. DURING THE APPELLATE PROCEEDINGS AS NOTED VIDE ORDER SHEET ENTRY DATED 26-11-2012, THE COUNCIL OF THE APPELLANT STATED THAT NO VEHICLE WAS GIVEN ON HIRE TO ANY PARTY. IN VIEW OF THE ABOVE, IT IS HELD THAT ASSESSEE IS NOT IN THE BUSINESS OF RUNNING OF VEHICLES ON HIRE. 8. ADMITTED FACTS ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF SELLING OF METALS AND THE ASSESSEE HAS USED HIS OWN VEHICLES FOR TRANSPORTING THE METALS MAINLY TO RAIL WAY YARD. ACCORDING TO THE ASSESSEE, THE TRANSPORTATION CHARG ES ARE PAID SEPARATELY BY THE RAILWAYS AND HENCE THE VEHICLES S HOULD BE CONSIDERED AS RUN ON HIRE. 9. THE ASSESSEE HAS PLACED RELIANCE IN THE CASE OF M/S STANES TYRE AND RUBBER PRODUCTS LTD (REFERRED SUPRA). WE HAVE GONE THROUGH THE SAID DECISION AND NOTICE THAT THE FACTS PREVAILING IN THAT CASE WAS NOT FOUND DISCUSSED BY HONBLE MADRAS HIGH COURT. THE HONBLE MADRAS HIGH COURT APPEAR TO HAVE MAINLY DEC IDED THAT THE VANS AND THREE WHEELERS USED AS GOODS VEHICLES ARE ENTITLED TO HIGHER DEPRECIATION IF THEY ARE USED FOR HIRE OR RE WARD. HENCE, IN OUR VIEW, THE ASSESSEE CANNOT DERIVE SUPPORT FROM T HE SAID DECISION. IN THE CASE OF GUPTA GLOBAL EXIM (P) LTD , THE HONBLE SUPREME COURT IN CLEAR TERMS HAS OBSERVED AS UNDER: - UNDER ITEM 2(II) OF HEADING III, THE HIGHER RATE O F DEPRECIATION IS ADMISSIBLE ON MOTOR TRUCKS USED IN A BUSINESS OF RUNNING THEM ON HIRE. THEREFORE, THE U SER OF THE SAME IN THE BUSINESS OF THE ASSESSEE OF TRANSPO RTATION IS THE TEST..... IN OUR VIEW, THE ENTIRE APPROACH OF THE COMMISSIONE R OF INCOME TAX (APPEALS) WAS ERRONEOUS WHEN HE HAS STAT ED THAT THE TRANSPORTATION INCOME OF RS.12,50,639 BY W AY OF RUNNING THE SUBJECT VEHICLES ON HIRE IS AN INTEGRAL PART OF THE APPELLANTS BUSINESS AND ITS INCLUSION IN THE H EAD I.T.A. NO.147/COCH/2014 6 BUSINESS INCOME IS NOT DISPUTED BY THE ASSESSING OFFICER. IN OUR VIEW, MERE INCLUSION OF RS.12,50,639/- IN TH E TOTAL BUSINESS INCOME IS NOT THE DETERMINATIVE FACTOR FOR DECIDING WHETHER TRUCKS WERE USED BY THE ASSESSEE DURING THE RELEVANT YEAR IN A BUSINESS OF RUNNING THEM ON HIRE. IN OUR VIEW, THE COMMISSIONER OF INCOME TAX (APPEALS) HAD ERRED IN RELYING UPON T HE ACCRUAL OF INCOME AS A DETERMINATIVE FACTOR FOR COM ING TO THE CONCLUSION THAT THE TRUCKS WERE USED IN A BUSIN ESS OF RUNNING THEM ON HIRE. SINCE THE ASSESSEE IS COLLECTING TRANSPORT CHARGES FROM THE RAILWAYS, IT IS CONTENDED THAT THE ASSESSEE IS IN T HE BUSINESS OF TRANSPORTATION OF GOODS. HOWEVER, THE HONBLE SUPR EME COURT IN THE ABOVE CITED CASE, HAS CLEARLY EXPRESSED THE VIE W THAT THE MERE RECEIPT OF TRANSPORT CHARGES IS NOT DETERMINAT IVE FACTOR. THUS THE REAL TEST IS WHETHER THE ASSESSEE HAS USED THE VEHICLES IN THE BUSINESS OF RUNNING THEM ON HIRE. 10. IN THE INSTANT CASE, THE ASSESSEES BUSINES S IS SUPPLYING METALS OBTAINED FROM THE QUARRY OWNED BY HIM. ACCO RDING TO THE CONTRACT ENTERED WITH RAILWAYS, THE ASSESSEE IS REQ UIRED TO SUPPLY THE METALS AT THE PLACE SPECIFIED IN THE CONTRACT. THUS, AS OBSERVED BY LD CIT(A), IT IS THE RESPONSIBILITY OF THE ASSESSEE TO TRANSPORT THE METALS TO THE PLACE SPECIFIED BY THE RAILWAYS. SINCE THE ASSESSEE WAS REQUIRED TO TRANSPORT THE METALS T O DIFFERENT PLACES, IT WAS ADVANTAGEOUS FOR BOTH THE ASSESSEE A S WELL AS FOR THE RAILWAYS TO FIX A PRICE FOR THE METALS AND TO FIX TRANSPORT CHARGES SEPARATELY. HENCE, THE TRANSPORTATION OF M ETALS IN THE VEHICLES OWNED BY THE ASSESSEE IS PART OF THE BUSIN ESS CARRIED ON BY THE ASSESSEE, VIZ., OPERATING A QUARRY AND SUPPL YING CRUSHED METALS. HENCE, WE AGREE WITH THE VIEW EXPRESSED BY THE LD. CIT(A) THAT THE TRANSPORTATION IS INCIDENTAL TO THE BUSINESS OF SALE OF METAL TO RAILWAYS/PUBLIC. ACCORDINGLY, WE CONCU R WITH THE VIEW OF LD CIT(A) THAT THE ASSESSEE WAS NOT ENGAGED IN T HE BUSINESS OF RUNNING THE VEHICLES ON HIRE. 11. WE NOTICE THAT A SIMILAR VIEW HAS BEEN EXPR ESSED BY THE HONBLE MADHYA PRADESH HIGH COURT IN THE CASE OF KA ILASH CHAND BAGARIA VS. CIT AND ANOTHER (249 ITR 720). IN THE SAID CASE, THE ASSESSEE THEREIN WAS ENGAGED IN THE BUSINESS OF MAN UFACTURE AND TRADING IN LIMESTONE. HE ALSO USED TRUCKS FOR TRANSPORTING LIMESTONE AND CLAIMED A HIGHER RATE OF DEPRECIATION . THE HONBLE I.T.A. NO.147/COCH/2014 7 HIGH COURT HELD THAT THE DOMINANT PURPOSE FOR WHICH THE ASSESSEE USED THE TRUCKS HAS BEEN FOUND TO BE FOR H IS OWN BUSINESS AND HENCE THE ASSESSEE IS NOT ENTITLED TO HIGHER RATE OF DEPRECIATION. SIMILAR VIEW WAS EXPRESSED BY THE H ONBLE KARNATAKA HIGH COURT IN THE CASE OF VENEER MILLS VS . CIT (201 ITR 764). WE ALSO NOTICE THAT CBDT HAS ISSUED CIRCULAR NO. 652 DATED 14-06-1993 (202 ITR (ST.) 55) WHEREIN THE CBD T HAS ALSO EXPRESSED SIMILAR VIEW. FOR THE SAKE OF CONVENIENCE , WE EXTRACT BELOW THE CIRCULAR NO. 652 REFERRED ABOVE: CIRCULAR NO. 652, DATED 14 TH JUNE, 1993 TO. ALL CHIEF COMMISSIONERS OF INCOME-TAX / ALL DIRECTORS-GENERAL OF INCOME-TAX SIR, SUBJECT: SECTION 32 OF THE INCOME-TAX ACT, 1961 RATE OF DEPRECIATION ON MOTOR LORRIES USED IN THE BUSINESS OF TRANSPORTATION OF GOODS REGARDING. UNDER SUB-ITEM 2(II) OF ITEM NO. III OF APPENDIX I TO THE INCOME- TAX RULES, 1962 HIGHER RATE OF DEPRECIATION IS ADMI SSIBLE ON MOTOR BUSES, MOTOR LORRIES AND MOTOR TAXIS USED IN A BUSI NESS OF RUNNING THEM ON HIRE. A QUESTION HAS BEEN RAISED AS TO WHE THER, FOR DERIVING THE BENEFIT OF HIGHER DEPRECIATION, MOTOR LORRIES M UST BE HIRED OUT TO SOME OTHER PERSON OR WHETHER THE USER OF THE SAME I N THE ASSESSEES BUSINESS OF TRANSPORTATION OF GOODS ON HIRE WOULD S UFFICE. 2. IN BOARDS CIRCULAR NO. 609, DATED 29 TH JULY 1991, IT WAS CLARIFIED THAT WHERE A TOUR OPERATOR OR TRAVEL AGENT USES MOT OR BUSES OR MOTOR TAXIES OWNED BY HIM IN PROVIDING TRANSPORTATI ON SERVICES TO TOURISTS, HIGHER RATE OF DEPRECIATION WOULD BE ALLO WED ON SUCH VEHICLES. IT IS FURTHER CLARIFIED THAT HIGHER DEPR ECIATION WILL ALSO BE ADMISSIBLE ON MOTOR LORRIES USED IN THE ASSESSEES BUSINESS OF TRANSPORTATION OF GOODS ON HIRE. THE HIGHER RATE OF DEPRECIATION, HOWEVER, WILL NOT APPLY IF THE MOTOR BUSES, MOTOR L ORRIES, ETC. ARE USED IN SOME OTHER NON-HIRING BUSINESS OF THE ASSES SEE. 3. THIS MAY BE BROUGHT TO THE NOTICE OF ALL THE OF FICERS IN YOUR CHARGE. I.T.A. NO.147/COCH/2014 8 12. WE HAVE ALREADY NOTICED THAT THE ASSESSEE IS NO T ENGAGED IN THE BUSINESS OF RUNNING THE VEHICLES ON HIRE. T HE FACTS PREVAILING IN THE DECISION RENDERED BY HONBLE MADHYA PRADESH HIGH COURT IN THE CASE OF KAILASH CHAND BAGARIA VS. CIT AND ANOTH ER (SUPRA) IS IDENTICAL TO THE FACTS PREVAILING IN THE INSTANT CA SE. HENCE, WE DO NOT FIND ANY INFIRMITY IN THE DECISION RENDERED BY THE LD. CIT(A) IN HOLDING THAT THE ASSESSEE IS NOT ENTITLED FOR A HIG HER RATE OF DEPRECIATION ON THE VEHICLES USED IN HIS OWN BUSINE SS. ACCORDINGLY, WE CONFIRM HIS ORDER. 13. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS DISMISSED. 8. IN VIEW OF THE ABOVE CO-ORDINATE BENCH DECISION, WE ARE INCLINED TO DISMISS THE APPEAL FILED BY THE ASSESSEE. 9. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS DISMISSED. PRONOUNCED ACCORDINGLY ON 04-07 -2014. SD/- SD/- (N.R.S.GANESAN) (CHANDRA POOJARI) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE: KOCHI DATED: 4TH JULY, 2014 GJ COPY TO: 1. THE BALIAPATAM TILE WORKS LIMITED, PAPPNISSERI-6 70 561, KANNUR DISTRICT. 2. THE DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE-1( 1), KANNUR. 3. THE COMMISSIONER OF INCOME-TAX(APPEALS), KOZHIKO DE. 4. THE COMMISSIONER OF INCOME-TAX, KOZHIKODE. 5. D.R., I.T.A.T., COCHIN BENCH, COCHIN. 6. GUARD FILE. BY ORDER (ASSISTANT REGISTRAR) I.T.A.T, COCHIN