income-tax Officer Vs. E.V. Ajjappa - Court Judgment

Excerpt:
1. the department has filed this appeal against the order of the deputy commissioner of income-tax (appeals), hubli. the only issue agitated by the department relates to allowance of depreciation on motor buses belonging to the assessee. admittedly, these motor buses are ones running on fixed routes as per the licence given by the government. the buses carry passengers between various stages of operation in between full course of their running and the passengers are supposed to pay the bus fares and are issued tickets thereon.the assessee had claimed depreciation on these buses at the rate of 50 per cent. the ito, however, remarked that depreciation at the rate of 50 per cent was available on buses only if such buses were run on hire.he stated that the buses in the instant case were being operated along prescribed routes sanctioned by the transport authorities and that they were not used for hire during the year. on the basis of the said reasoning, he allowed depreciation on the buses at the rate of 33 1/3 per cent only.2. when the matter came up before the dcit (appeals), the assessee placed reliance on the provisions of the karnataka motor vehicles taxation act, 1957 and particularly on section 4(2) of the said act.the dcit (appeals) referred to the definition of a "stage carriage" in the said act, which meant "a motor vehicle constructed or adapted to carry more than six passengers excluding the driver for hire or reward at separate fares paid by or for individual passengers either for the whole journey or for stages of the journey". he also referred to the definition of the word "hire" as occurring in chamber's 20th century dictionary as "the price paid for the use of any thing: an arrangement by which use or service is granted for payment". the dcit (appeals) thereafter stated that it was undisputed that the buses being plied by the assessee were actually being paid for by its users. he thus finally concluded that the vehicles were plying on hire. on that basis, he directed for allowance of depreciation at the higher rate of 50 per cent.3. the learned counsel for the department argued that the motor buses under consideration were being run on their usual routes and if no passengers would board the buses, no income would be generated from plying of the buses. she argued that the motor buses could not be considered to have been hired out.4. the learned counsel for the assessee, on the other hand, referred to the definition of the word "hire" as appearing in stroud's judicial dictionary and also in black's law dictionary. he strongly contended that according to the said definitions, "hire" would mean compensation for the use of a thing or for labour or services. he argued that since in the instant case, the passengers were compensating the owner of the buses for the journey undertaken by them in the buses, the buses must be considered to have been used in a business of hiring out the same.he also took us to the various provisions of the karnataka motor vehicles taxation act, 1957. he particularly drew our attention to item no. 4 at part a of the schedule attached to the said act which prescribed various rates for payment of tax under the motor vehicles act (in accordance with the capacity of the vehicle) in respect of motor vehicles plying for hire and used for transport of passengers. he also argued that a liberal construction is necessary about the usage of the word "hire" in the present case as has been prescribed by the supreme court in the case of cit v. up cooperative federation ltd. [1989] 176 itr 435.5. we find that appendix-i to the income-tax rules carry the table of rates at which depreciation is admissible on various assets acquired and used by an assessee. so far as the relevant year was concerned, the following two different rates were provided for motor buses, motor lorries and motor taxis falling under two different categories: (i) iii.e(1a) motor buses, motor lorries and motor taxis used in a business of running them on hire (nesa) 50 per cent. (ii) iii.d(9) motor buses and motor lorries other than those used in a business of running them on hire (nesa) 33 1/3 per cent.we now turn our attention to the definition of the word "hire" as referred to by the learned counsel for the assessee and as discussed above. this is necessary inasmuch as this particular word has not been defined anywhere in the income-tax act, itself. passengers who are regularly carried in a private motor car by the assured for voluntary payments are carried for 'hire or reward' for the purposes of an insurance policy.the same dictionary also states that carrying passengers for "hire or reward" also means the carriage of passengers for a monetary reward legally recoverable by the carrier under a contract express or implied by the mere act of entering the vehicle. compensation for the use of a thing, or to arrange for the labour or services.5.3 we also note that item no. 4 of the part a of the schedule to the karnataka motor vehicles taxation act, 1957 prescribes certain rates in respect of motor vehicles plying for hire and used for transport of passengers and in respect of which permits have been issued under the motor vehicles act, 1939. on the other hand, item no. 5 of the same schedule prescribes a different rate for motor vehicles plying for hire or reward used for transport of passengers in respect of which contract carriage permits have been issued under the motor vehicles act. again, item no. 7 prescribes a different rate of taxes in respect of omnibuses.6. from the above definitions and the use of the word "hire" in the karnataka motor vehicles taxation act, we may be tempted to agree with the argument, on the side of the assessee that even motor buses plying on regular routes (as in the instant case) should be considered as motor vehicles plying for hire and used for transport of passengers and in that view should be allowed the depreciation at a higher rate.however, a question would arise in that case that if buses plying on regular routes be also entitled to depreciation at higher rate, then what can be the other case in which such buses would be entitled to the lower rate of depreciation as prescribed in the income-tax rules. the learned counsel for the assessee strived to give an answer to this question by saying that omnibuses belonging to certain organisations which carry their own employees only should fall under this category.this particular argument would however ultimately be found to be specious if we minutely observe the words used in the depreciation schedule. this schedule refers to motor buses and motor lorries which are used in a business of running them on hire. the different definitions of the word "hire" as found in the stroud's and black's legal and judicial dictionaries as referred to above simply state that if compensation for use of the bus is received by its owner and if passengers are regularly carried then, the definition would apply.these definitions do not specifically state that when passengers use the motor bus for journey purpose by paying separate fares for the portions of their journey, that would also be considered to be a case of "hire" of the motor bus. it has also not been shown to us that the assessee's case really falls under item no. 4 of the schedule to the karnataka motor vehicles taxation act, 1957 and not under item no. 7 thereof dealing with omnibuses. in fact, the word "omnibus" was originally being used to denote a motor bus which carried passengers in general and not a selected group of people who would pay the hiring charges in respect of the bus itself. we also find that the legislature has used in the depreciation schedule attached to the income-tax rules, the words "motor buses .... used in a business of running them on hire" as against "motor buses ... plying for hire". the import of the expression used in the depreciation schedule has got to be taken to mean that the motor bus itself is required to be hired out and not to include the cases where the motor bus by itself is not hired to anybody but that passengers are allowed to hire the services of being carried by the motor bus. we are thus finally of the opinion that the legislature has so intended by providing two different rates of depreciation to motor buses used in two different types of business that the higher rate should be allowed only in such cases where the business of the owner of the motor bus is to let out or hire out the motor bus itself as a whole. this would include the cases where the motor buses are taken on hire by certain groups or organisations for some specific purposes like marriage etc., or even for regular transportation of people. the case of chartered buses plying in large number in various metropolises would serve the example of this type.the other motor buses however which are regularly plied on fixed routes as per the licence issued by the motor vehicles department in which the passengers get the right to occupy a seat only without taking the entire bus on hire, should, in our view, be covered by lower rate of depreciation. if it were the intention of the legislature to allow higher rate of depreciation to these types of motor buses also, then very few cases would remain for applicability of the lower rates of depreciation to motor buses. this conclusion also does not at all seem to be in conflict with the definition of the word "hire" as found in different dictionaries. again, we note that the expression like "motor vehicles plying for hire" is completely different from the expression "motor buses ... used in a business of running them on hire". thus, finally, we are of the opinion that because of the use of the specific language of "used in a business of running them on hire", the various arguments of the learned counsel for the assessee by relying on the definition of the word "hire" in connection with the expression "passengers being carried for hire", would not hold good in the instant case. the further reliance placed by him on the decision of the supreme court in u.p. co-operative federation ltd.'s case (supra) also does not seem to help him. we agree with his argument that higher rate of depreciation has been provided in the schedule for the purpose of giving incentive to certain class of transport operators. but that incentive has been intended to be allowed to transport operators engaged in the business of completely hiring out their vehicles and not to owners of ordinary buses plying on routes. therefore, the decision of the supreme court as relied upon by the assessee's counsel would also go to support our finding only.7. finally we conclude that the buses owned by the assessee in the instant case are entitled to the lower rate of depreciation at 33 1/3 per cent only and not to the higher rate of depreciation at 50 per cent. we therefore reverse the decision of the dcit (appeals) and restore that of the ito and direct that depreciation be allowed on the buses at the lower rate only as mentioned above.

Judgment:
1. The Department has filed this appeal against the order of the Deputy Commissioner of Income-tax (Appeals), Hubli. The only issue agitated by the Department relates to allowance of depreciation on motor buses belonging to the assessee. Admittedly, these motor buses are ones running on fixed routes as per the licence given by the Government. The buses carry passengers between various stages of operation in between full course of their running and the passengers are supposed to pay the bus fares and are issued tickets thereon.

The assessee had claimed depreciation on these buses at the rate of 50 per cent. The ITO, however, remarked that depreciation at the rate of 50 per cent was available on buses only if such buses were run on hire.

He stated that the buses in the instant case were being operated along prescribed routes sanctioned by the transport authorities and that they were not used for hire during the year. On the basis of the said reasoning, he allowed depreciation on the buses at the rate of 33 1/3 per cent only.

2. When the matter came up before the DCIT (Appeals), the assessee placed reliance on the provisions of the Karnataka Motor Vehicles Taxation Act, 1957 and particularly on Section 4(2) of the said Act.

The DCIT (Appeals) referred to the definition of a "stage carriage" in the said Act, which meant "a motor vehicle constructed or adapted to carry more than six passengers excluding the driver for hire or reward at separate fares paid by or for individual passengers either for the whole journey or for stages of the journey". He also referred to the definition of the word "hire" as occurring in Chamber's 20th Century Dictionary as "the price paid for the use of any thing: an arrangement by which use or service is granted for payment". The DCIT (Appeals) thereafter stated that it was undisputed that the buses being plied by the assessee were actually being paid for by its users. He thus finally concluded that the vehicles were plying on hire. On that basis, he directed for allowance of depreciation at the higher rate of 50 per cent.

3. The learned Counsel for the department argued that the motor buses under consideration were being run on their usual routes and if no passengers would board the buses, no income would be generated from plying of the buses. She argued that the motor buses could not be considered to have been hired out.

4. The learned Counsel for the assessee, on the other hand, referred to the definition of the word "hire" as appearing in Stroud's Judicial Dictionary and also in Black's Law Dictionary. He strongly contended that according to the said definitions, "hire" would mean compensation for the use of a thing or for labour or services. He argued that since in the instant case, the passengers were compensating the owner of the buses for the journey undertaken by them in the buses, the buses must be considered to have been used in a business of hiring out the same.

He also took us to the various provisions of the Karnataka Motor Vehicles Taxation Act, 1957. He particularly drew our attention to item No. 4 at Part A of the Schedule attached to the said Act which prescribed various rates for payment of tax under the Motor Vehicles Act (in accordance with the capacity of the vehicle) in respect of motor vehicles plying for hire and used for transport of passengers. He also argued that a liberal construction is necessary about the usage of the word "hire" in the present case as has been prescribed by the Supreme Court in the case of CIT v. UP Cooperative Federation Ltd. [1989] 176 ITR 435.

5. We find that Appendix-I to the Income-tax Rules carry the table of rates at which depreciation is admissible on various assets acquired and used by an assessee. So far as the relevant year was concerned, the following two different rates were provided for motor buses, motor lorries and motor taxis falling under two different categories: (i) III.E(1A) Motor buses, motor lorries and motor taxis used in a business of running them on hire (NESA) 50 per cent.

(ii) III.D(9) Motor buses and motor lorries other than those used in a business of running them on hire (NESA) 33 1/3 per cent.

We now turn our attention to the definition of the word "hire" as referred to by the learned Counsel for the assessee and as discussed above. This is necessary inasmuch as this particular word has not been defined anywhere in the Income-tax Act, itself.

Passengers who are regularly carried in a private motor car by the assured for voluntary payments are carried for 'hire or reward' for the purposes of an insurance policy.

The same Dictionary also states that carrying passengers for "hire or reward" also means the carriage of passengers for a monetary reward legally recoverable by the carrier under a contract express or implied by the mere act of entering the vehicle.

Compensation for the use of a thing, or to arrange for the labour or services.

5.3 We also note that item No. 4 of the Part A of the Schedule to the Karnataka Motor Vehicles Taxation Act, 1957 prescribes certain rates in respect of motor vehicles plying for hire and used for transport of passengers and in respect of which permits have been issued under the Motor Vehicles Act, 1939. On the other hand, item No. 5 of the same Schedule prescribes a different rate for motor vehicles plying for hire or reward used for transport of passengers in respect of which contract carriage permits have been issued under the Motor Vehicles Act. Again, item No. 7 prescribes a different rate of taxes in respect of omnibuses.

6. From the above definitions and the use of the word "hire" in the Karnataka Motor Vehicles Taxation Act, we may be tempted to agree with the argument, on the side of the assessee that even motor buses plying on regular routes (as in the instant case) should be considered as motor vehicles plying for hire and used for transport of passengers and in that view should be allowed the depreciation at a higher rate.

However, a question would arise in that case that if buses plying on regular routes be also entitled to depreciation at higher rate, then what can be the other case in which such buses would be entitled to the lower rate of depreciation as prescribed in the Income-tax Rules. The learned Counsel for the assessee strived to give an answer to this question by saying that omnibuses belonging to certain organisations which carry their own employees only should fall under this category.

This particular argument would however ultimately be found to be specious if we minutely observe the words used in the Depreciation Schedule. This Schedule refers to motor buses and motor lorries which are used in a business of running them on hire. The different definitions of the word "hire" as found in the Stroud's and Black's Legal and Judicial Dictionaries as referred to above simply state that if compensation for use of the bus is received by its owner and if passengers are regularly carried then, the definition would apply.

These definitions do not specifically state that when passengers use the motor bus for journey purpose by paying separate fares for the portions of their journey, that would also be considered to be a case of "hire" of the motor bus. It has also not been shown to us that the assessee's case really falls under Item No. 4 of the Schedule to the Karnataka Motor Vehicles Taxation Act, 1957 and not under Item No. 7 thereof dealing with omnibuses. In fact, the word "omnibus" was originally being used to denote a motor bus which carried passengers in general and not a selected group of people who would pay the hiring charges in respect of the bus itself. We also find that the Legislature has used in the depreciation schedule attached to the Income-tax Rules, the words "motor buses .... used in a business of running them on hire" as against "motor buses ... plying for hire". The import of the expression used in the depreciation schedule has got to be taken to mean that the motor bus itself is required to be hired out and not to include the cases where the motor bus by itself is not hired to anybody but that passengers are allowed to hire the services of being carried by the motor bus. We are thus finally of the opinion that the Legislature has so intended by providing two different rates of depreciation to motor buses used in two different types of business that the higher rate should be allowed only in such cases where the business of the owner of the motor bus is to let out or hire out the motor bus itself as a whole. This would include the cases where the motor buses are taken on hire by certain groups or organisations for some specific purposes like marriage etc., or even for regular transportation of people. The case of chartered buses plying in large number in various metropolises would serve the example of this type.

The other motor buses however which are regularly plied on fixed routes as per the licence issued by the Motor Vehicles Department in which the passengers get the right to occupy a seat only without taking the entire bus on hire, should, in our view, be covered by lower rate of depreciation. If it were the intention of the Legislature to allow higher rate of depreciation to these types of motor buses also, then very few cases would remain for applicability of the lower rates of depreciation to motor buses. This conclusion also does not at all seem to be in conflict with the definition of the word "hire" as found in different dictionaries. Again, we note that the expression like "motor vehicles plying for hire" is completely different from the expression "motor buses ... used in a business of running them on hire". Thus, finally, we are of the opinion that because of the use of the specific language of "used in a business of running them on hire", the various arguments of the learned Counsel for the assessee by relying on the definition of the word "hire" in connection with the expression "passengers being carried for hire", would not hold good in the instant case. The further reliance placed by him on the decision of the Supreme Court in U.P. Co-operative Federation Ltd.'s case (supra) also does not seem to help him. We agree with his argument that higher rate of depreciation has been provided in the Schedule for the purpose of giving incentive to certain class of transport operators. But that incentive has been intended to be allowed to transport operators engaged in the business of completely hiring out their vehicles and not to owners of ordinary buses plying on routes. Therefore, the decision of the Supreme Court as relied upon by the assessee's counsel would also go to support our finding only.

7. Finally we conclude that the buses owned by the assessee in the instant case are entitled to the lower rate of depreciation at 33 1/3 per cent only and not to the higher rate of depreciation at 50 per cent. We therefore reverse the decision of the DCIT (Appeals) and restore that of the ITO and direct that depreciation be allowed on the buses at the lower rate only as mentioned above.