1. This is an appeal filed by the assessee against the order of the Commissioner, Andhra Pradesh-1, Hyderabad under Section 263 of the Income Tax Act, 1961 dated 19-2-2001 for the assessment year 1996-97.
2. Following 3 effective grounds have been taken by the assessee in the grounds of appeal: (i) The order under Section 263 dated 19-2-2001 passed by the CIT API for the assessment year 1996-97 is not justified and sustainable either in fact or in law and in both.
(ii) The learned CIT API ought to have considered that the assessee's main business being hiring of cranes to customers and that cranes being heavy machinery which have to be necessarily mounted on motor lorries and registered as such under the MV Act, the assessee is entitled to depreciation at 40% under item (ii), Block III of plant and machinery in the schedule of depreciation.
(iii) The CIT API therefore erred in directing the assessing officer to allow depreciation at 25% on the cranes.
3.1 The facts of the case are as under. Assessment for assessment year 1996-97 was completed on 31-3-1999 under Section 143(3) wherein it was noted by the assessing officer at the business of the assessee was material handling work. The assessee-company was over the business of material handling work and other business which were carried on by different firms in which the Directors of the assessee-company were partners along with others. The assessing officer made an addition of Rs. 5,30,000 in the assessment order, thereby reducing total loss to Rs. 11,22,836 as against the returned loss of Rs. 16,52,836.
3.2 The learned CIT, API after assuming jurisdiction under Section 263 of the Act, passed an order dated 17-2-2001, wherein he held that the assessment order passed under Section 143(3) by the assessing officer on 31-3-1999 was erroneous and prejudicial to the interests of revenue insofar as it relates to allowance of depreciation on cranes at 40 per cent as claimed -by the assessee. According to the learned CIT, the cranes used by the appellant in its business constituted "machinery and plant" other than those covered by sub-item (A)(2) and (3)" and was eligible to depreciation at the rate of 25 per cent whereas the assessing officer allowed the claim of depreciation made by the assessee on the cranes at the rate of 40 per cent under Item 2(ii) of Part 3 of Appendix-1 i.e. accepting the claim of the assessee that the cranes for the purpose of depreciation would fall within the category "motor buses, motor lorries and motor taxies used in a business of running them on hire". The learned CIT therefore, after giving an opportunity to the assessee held that depreciation at the rate of 25 per cent was allowable on the cranes. For coming to the above conclusion, the learned CIT noted that the claim of the assessee was not supported by any case laws whereas the view of the revenue was supported by the following case laws Aggrieved by the above, the assessee has filed appeal before the Tribunal.
4. We have heard the learned Counsel for the assessee and the learned Departmental Representative extensively and perused the record carefully. The main argument of the learned Counsel for the assessee was reliance on the Hon'ble Gujarat High Court's decision in the case of Gujco Carriers v. CIT (2000) 256 ITR 50 (Guj), wherein the Hon'ble Gujarat High Court has allowed depreciation at the rate of 40 per cent to mobile cranes in the facts and circumstances of that particular case. The argument of the learned Counsel was therefore that as there could be two views on the issue, and the assessing officer followed one view, it cannot be said there was any error in the order of the assessing officer. The learned Counsel for the assessee has also produced evidence to show that the cranes were registered under the M.V. Act as heavy motor vehicles and some of them had tyres on which they could move from place to place. According to him, these were mobile cranes and had the same attributes as the cranes considered by the Hon'ble Gujarat High Court in the case of Gujco Carriers (supra).
It is therefore claimed by him that the order of the learned CIT be set aside and the order of the assessing officer be restored.
5. The learned Departmental Representative on the other hand, in addition to relying on the order of the learned CIT, further argued that the appellant has failed to prove that the cranes had the same attributes as those on which 40 per cent depreciation was allowed by the Hon'ble Gujarat High Court. Placing reliance on the Hyderabad Bench-B's order in the case of M.S. Seshagirirao & Co. v. Income Tax Officer (IT Appeal No. 26 (Hyd.) of 2004, dated 30-11-2004) the learned Departmental Representative submitted that the appellant has failed to prove that the impugned cranes had the same attributes as those considered by the Hon'ble Gujarat High Court in the case of Gujco Carriers (supra). He, therefore, submitted that the learned CIT was justified in allowing depreciation on the impugned cranes at 25 per cent only.
6. It seems that the nature of business of the appellant is not material handling but financing and leasing as has been noted by the learned CIT in para 2 of his order. It is also noticed that the learned CIT in para 6 of his order noted that in support of the claim no case laws were cited by the assessee either before the assessing officer or before the learned CIT whereas the view of the learned CIT was supported by various High Court decisions including the jurisdictional High Court decision of Super Drills' case (supra). It is now a settled position of law that for, coming to the conclusion as to whether .The order of the assessing officer was erroneous or prejudicial to the interest of revenue, the relevant record would be record as was available to the CIT at the time when the record was perused by him for initiating proceedings under Section 263 of the Act. Thus, in the facts of the present case, the learned CIT clearly had jurisdiction and he correctly held that the order of the assessing officer dated 31-3-1999 was erroneous and prejudicial to the interest of revenue. We therefore, hold that assumption of jurisdiction by the learned CIT under Section 263 of the Act was correct.
7. Next issue to be decided is as to whether the appellant is entitled to depreciation of 25 per cent or 40 per cent on the impugned cranes.
As could be seen from ground No. 2 of the appellant, the cranes on which depreciation was claimed were hired out to various parties. As is clear from some photographs filed by the appellant, some of these cranes have control cabins and the cranes are supported by inflatable tyres and these constitute an integral unit. It appears that the cranes are used for material handling only. In the above facts, it is to be decided whether the above cranes can be said to be motor lorries used in the business of hiring. We will discuss the case laws relied upon by the appellant as well as the revenue.
8. The Hon'ble Gujarat High Court, in the case of Guico Carriers (supra), after going into the dictionary meaning of the word 'lorry' and 'truck', held that the above words would mean not only any motor vehicle designed to carry freight or goods but also to perform special services like fire-fighting etc. It was noted by the court that the crane truck was a portable boom mounted on an industrial truck which could be used with hooks, crabs and slings for bundled or coiled material. After considering the definition of goods carriage as per Section 2(14) of the MV Act, 1988, it was held by the court that mobile crane registered as heavy motor vehicle would clearly fall within the expression "motor lorries" and would be entitled to depreciation as that allowable to motor lorries. The assessment year involved in the above case was 1982-83.
9. CIT v. SCS Rig Service . In this case, the Hon'ble Madras High Court held that rigs and compressor cannot be held to be integral parts of motor lorries and, therefore, the rigs and compressor used for drilling borewells though mounted on a lorry cannot be held to fall under motor lorry.
10. CIT v. Super Drills . In this case, the assessee claimed depreciation at 30 per cent on the rig and compressor used in drilling borewells under item D(7) of Appendix-I III, which was disallowed by the assessing officer. The Tribunal, however held that the assessee was entitled to 30 per cent depreciation as per Appendix I III D(4). The High Court confirmed the view of the Tribunal.
From the above it could be seen that the decision of the jurisdictional High Court relied on by the revenue is not applicable to the facts of the case whereas those of the Hon'ble Gujarat High Court and Madras High Court have relevance to the facts of the present case.
11. The difference between the interpretation of the above two courts lies on the meaning given to the words 'integral part'. The Hon'ble Madras High Court has clearly held that rigs and compressor did not form integral part of the motor lorries whereas the Hon'ble Gujarat High Court has held that the crane was integral part of the motor lorry. Thus, apparently, the case of the appellant is akin to that of the case in Gujco Carriers (supra) decided by the Hon'ble Gujarat High Court. As could be seen from para 5 of the 263 order passed by the learned CIT, the fact that the cranes were mobile cranes mounted on motor lorries and registered under the Vehicles Registration Act and that the same wete given on hire to customers are facts which have not been disputed by the learned CIT. Depreciation at the rate of 40 per cent was not allotted as the appellant could not support its claim with any case law. As the Hon'ble Gujarat High Court's decision in the case of Gujco Carriers (supra) is directly on the issue and as the revenue has failed to show that any other High Court has expressed a contrary view, respectfully following the decision of the Hon'ble Gujarat High Court supra, we hold that the appellant is entitled to depreciation at the rate of 40 per cent on the mobile cranes. This ground of the appellant is allowed.