The Mumbai bench of Income Tax Appellate Tribunal ( ITAT ) has recently while allowing depreciation on hired cars held that vehicles are forming part of plant and machinery.
Assessee Transindia Freight Services Pvt. Ltd. y is engaged in the business of car renting.After completing the assessment Assessing Officer( AO)treating income from car rent as “income from other sources” instead of “income from business” and and disallowed depreciation of Rs.17,23,750/.Against the assessment order assessee filed an appeal before ITAT.
Madhur Agarwal and Fenil Bhatt counsels have appeared for the assessee. Indira Adakil, counsel appeared for revenue.
While considering the submission of the both parties the bench found that, the assessee company had entered into two agreements with M/s. Allcargo Global Logistics Ltd. for giving 2 cars of the assessee company on hire.
The car hire charges received thereon was offered by the assessee under the head “income from business” in the return of income and business expenditure together with depreciation on car claimed thereon. These car charges income of Rs.6,00,000/- was treated as “income from other sources” by the AO disallowing the entire business expenditure by the assessee including depreciation except payment to auditors and profession tax.
The similar claim of deduction was made by the assessee in Assessment year. 2008-09 and 2009-10 which was allowed by the AO after having given a categorical finding that the assessee had started a new source of business income in the form of car rental income.
In the Assessment Year 2010-11 in the scrutiny assessment completed the car rental income was taxed under the head “income from other sources” and depreciation allowed thereon to the extent of rental income and all other business expenses were restricted to Rs.50,000/-
When the dispute arises in the decision of the assessing officer, the assessor preferred appeal before Commissioner of Income Tax (Appeal).
The CIT(A) held that” car rental income would become taxable under the head “income from other sources” and directed the AO to allow depreciation on cars as per the Income Tax Act,1961.”
Further CIT(A) determined that the Memorandum of Association only permits hiring of plant and machinery and that the vehicle did not get included in that, accordingly, the hiring of vehicle would not constitute a business activity for the assessee.
After considering these points the division bench of the ITAT comprising M.Balaganesh, Accountant Member and Sandeep Singh Karhail, Judicial Member allowed the appeal filed by the assessee and held that,
“Income received from car rental of Rs.6,00,000/- is to be assessed as “income from business” and consequently, the assessee would be eligible for deduction of all expenses including depreciation as deduction under the head “business”
Further the bench determined that the plant includes vehicles, which fact is evident from depreciation rate chart provided in the Income Tax Rules as vehicles are forming part of the block of assets of plant and machinery.
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