Bombay High Court
Smt. Shirley D. Swadi vs Eighth Income-Tax Officer. on 23 May, 1989
Equivalent citations: [1989]30ITD65(MUM)
ORDER
Shri B. S. Ahuja, Judicial Member - The assessee is in appeal against the order of the CIT under sec. 263 of the IT Act, 1961, for the assessment year 1981-82.
2. The CIT on going through the assessment order was of the opinion that it was erroneous in so far as it was prejudicial the interests of revenue because depreciation on two foreign-made cars had been allowed, though they were acquired after 28-2-1975 and had not been used in a business of running them on hire for tourists. The allowance of depreciation was, thus, in violation of the provisions contained in the secone proviso to sec. 32(1) (ii). He, therefore, served notice on the assessee to show cause why depreciation on two Peugeot bearing Nos. MMG 3466 and 4830 should not be withdrawn.
3. The facts were that the two cars had actually been given on hire to the European Asian Bank on a monthly rent of Rs. 80,000. The assessees case was that her business was of running cars on hire for tourists and these two cars were also used in the same business. It was urged that the fact that the assessee did not hires the cars in question directly to the tourists but to the European Asian Bank, which in turn made them available to its foreign clients, did not make any difference. A letter from the bank was produced and it was claimed on that basis that during the period of hire the cars in question were used by the bank only for the use of its overseas visitors and guests touring India.
4. The CIT referred to the meaning of the word "tourist" for the purposes of Customs Formalities an Regulations according to which a person not normally residing in India, who enters India for a period up to six months for legitimate non-immigration purposes, such as, touring, recreation, sports, health, family reasons, study, pilgrimage or business, as a tourist. The CIT reproduced sec. 32(1) (ii), second proviso according to which no deduction shall be allowed in respect of any motor car manufactured outside India, where such motor car is acquired by the assessee after 28th day of February, 1975 and is used otherwise than in a business of running it on hire for tourists.
5. The CIT noticed that the term had not been defined in the Income-tax Act. Even in the definition in the Customers Formalities and Regulations in the booklet "tourist information" produced by the Department of Tourism is accepted then also the assessee could not get the benefit because she herself could not be said to have run the cars in question on hire for tourists.
6. The actual certificate issued by the bank reads as follows :
"Your two Peugeot cars having registration Nos. MMG 3466 and MMG 5830, during the tenure of hire, continue to be used for our overseas visitors and guests touring India, whenever occasion arises."
From this certificate the CIT concluded that the cars which were taken on hire by the bank could not be said to have been used by it only for its overseas visitors. According to the CIT the words "whenever an occasion arises" occurring therein are significant in this connection. The certificate can only be taken to mean that the cars were also used for the banks overseas visitors and guests. He further held that even otherwise if the assessee had given the cars on hire to another party and that party had used it for its overseas visitors it cannot be said that the cars were used by the assessee in a business of running them on hire for tourists. In the instant case there was no condition in the agreement with the bank that the cars would be used only for the tourists. It was also difficult to accept that the bank would have confined the user only to the foreign visitors. He, therefore, rejected the assessees contentions and directed the ITO to withdraw the depreciation.
7. The assessee is aggrieved and is in appeal. We have heard the learned counsel for the assessee and the Departmental Representative. The learned counsel for the assessee has challenged the order of the CIT and his contention is that the order is not sustainable for more than one reason. Firstly, his contention is that the CIT appears to have thought, obviously erroneously that tourist must be a foreign tourist. The second proviso does not, however, use that word at all. A common connotation of tourist according to the dictionary meaning is "one who makes a tour, a sight seeing traveller" (Chambers Twentieth Century Dictionary revised edition). The CIT has come to a wrong conclusion because he was obsessed with the idea that a tourist must be a foreigner and cannot be an Indian and since there was no evidence to show that the cars were used exclusively for foreign tourists, he held that the assessee was not entitled to depreciation. The contention of the learned counsel for the assessee is that it is nowhere laid down in the proviso that the car should have been used exclusively for the overseas visitors and guests. All that the proviso required is that the cars should have been used "in a business of running it on hire for tourists". The learned counsel pointed out that according to the chart submitted before us, Nikhil Traders, a proprietary concern of the assessee owns nine cars. The cars on Sr. Nos 3, 7, 8 and 9 are of foreign-made cars being Dodge Dart, Peugeot and Oldsmobile respectively. The CIT by not withdrawing the depreciation in respect of Dodge Dart and Oldsmobile cars has obviously accepted the assessees claim that the assessee is carrying on the business of running the cars on hire for tourists. If that was not so, the CIT would have withdrawn the depreciation even on those cars. It is immaterial that the depreciation on those cars was a small figure while that of these two cars is a big amount. What is important to find is whether or not the assessee is using the cars in the business of running them on hire for tourists. The contention of the learned counsel, therefore, is that the CIT himself accepts the certificate of the bank and finds that the cars were also used for the banks overseas visitors and guests. In the face of that finding it is impossible to say that so far as these two cars are concerned, the assessee was not carrying on the business of running them on hire for tourists even though the assessee had hired them to the bank and the bank was using them for the tourists.
8. On behalf of the department reliance was placed on the order of the CIT. It was conceded that the tourist need not be a foreigner but the contention was that as stated by the learned counsel for the assessee, the object behind the provision made in second proviso vide [1975] 98 ITR (St.) 116 was to curb ostentations expenditure by the assessee and according to the learned Departmental Representative the cars were taken by the bank obviously for use by its executives and, therefore, the assessee would not be entitled to depreciation thereon. In reply, the learned counsel for the assessee pointed out that that is not the reason given by the CIT who has proceeded entirely on erroneous grounds for withdrawing the depreciation. The order of the CIT cannot be upheld on grounds other than those given by him and on those grounds his order is totally unsustainable.
9. We have considered the rival contentions. The wording of the second proviso is quite clear and all that it requires is that the foreign-made motor cars must be used in the business of running them on hire for tourists. It is not disputed that tourist may be an Indian or foreigner. Therefore, one of the reasons given by the CIT that there was no proof that the cars were used only for overseas visitors and, therefore, the assessee would not be entitled to depreciation does not stand scrutiny.
The conclusion of the learned CIT that the cars must be used only for overseas visitors is also not sustainable in law. It can be used generally for running them on hire for tourists, but if it is not used for sometime or some day for that purpose the assessee would not be disqualified from claiming the depreciation. The assessees business must be to hire cars for tourists. Such a business is done by owning both Indian and foreign-made cars and making it known to the hoteliers, travel agencies, etc. that one is in such a business. Whether the hoteliers or travel agent require the cars they inform the assessee that they require the cars for the tourists find the assessee supplies those cars either directly to the party concerned or to the hotelier or tourist agency and the hotelier or agent gives them to the tourists for use on hire. It is immaterial whether the assessee gives cars on hire directly to the tourists or to the hotelier or to the travelling agency. So long as the assessees business is of running the cars on hire for tourists, she qualifies for depreciation.
10. The learned CIT does not doubt the certificate issued by the bank. In fact the bank had written a letter dated 8-10-1980 to the assessee which reads as follows :
"Dear Sirs, We frequently need air-conditioned limousines on hire for our overseas visitors and clients touring India. We find it uneconomical to hire these cars on daily basis.
We are interested in hiring 1 or 2 medium sized European or Japanese cars on yearly basis.
Please let us know the type of cars you can offer and your rates, at an earlier.
Thanking you,"
It is clear from this letter that the bank required the cars on hire for their overseas visitors and clients touring India. They would be tourists within the meaning of the word tourist in the second proviso. The assessee supplied the two cars on hire to the bank and the bank had certified as to its user as reproduced in earlier part of the order. The CIT could have doubted the correctness of the certificate and could have rejected it outright. But he does not do so. Obviously, he accepts the banks certificate that the cars were used also for the banks overseas visitors and guests. We do not understand where the CIT gets the idea that the cars must be used only for the overseas visitors because that is not the requirement of the said proviso. So long as the cars are used also for the foreign visitors and guests, they would qualify for depreciation under the second proviso. In any event the business of the assessee is admittedly and undisputedly of running the cars on hire for tourists. Because if the CIT was to doubt the correctness of this claim, he should have been disallowed the depreciation even on the other two cars viz., Dodge Dart and Oldsmobile, but he did not do so. The only premise on which that order can stand is that the assessee is carrying on the business of running the cars on hire for tourists. That being so, and the cars having specifically been hired by the bank because the banks needed the cars frequently for its overseas visitors and clients touring India and the bank certifies that the cars were used for its overseas visitors and guests touring India having not been doubted by the CIT at all, there was no ground available to the CIT for passing the impugned order.
11. The reason given by the learned Departmental Representative that the cars were perhaps used by the banks executives is not the reason given by the CIT and, therefore, does not justify passing of the impugned order. Maybe that the executives of the bank had also used the cars but the assessee is not concerned with it because the assessee hired them for use by tourists who were the banks guests and the CIT accepts that the cars were used also by the banks overseas visitors and guests who are tourists visiting India within the plain meaning of the word "tourist". Even partial user for tourist would not disqualify the assessee from claiming the depreciation because what we have to see is what is the assessees business and if assessees business of seven cars is to hire them for tourists then it is the same business for the remaining two cars also. There is no material on record to show that the cars were used by the executives of the bank. There is also no material on record to show that the cars were used for any purpose other than use by tourists. The letter of the bank as to why they required the cars and the certificate as to their user clearly bring the assessees case within the requirement of law that they were used in the business of running them on hire for tourists. We, accordingly, allow the appeal, quash the order of the CIT and restore that of the ITO allowing the depreciation.
12. The appeal is allowed.
Per Shri R. P. Garg, Accountant Member - I have very carefully gone through the order prepared by the learned Judical Member. I agree with his finding that the assessees business was running the cars on hire and by virtue of having not withdrawn the depreciation on two out of four foreign cars, the department had accepted that the assessee had been carrying on the business of running cars on hire for tourists. However, I am unable to agree with the findings of the learned Judical Member that depreciation on the other two foreign-made cars (PEUGEOT) bearing Nos. MMG 3466 and 4830 is allowable to the assessee. In my opinion, the mere fact that the assessee is engaged in the business of running cars for tourists, alone does not entitle her to depreciation. To be eligible for depreciation in respect of motor car manufactured outside India the car must also be used by the assessee in that business.
2. The facts are that the two cars had been given on hire to the European Asian Bank on a monthly rent of Rs. 80,000. The bank in turn made them available to its foreign clients including the tourists. The assessee had not hired the cars in question directly to the tourists. These facts, in my opinion, prove that these two cars were not used by the assessee in a business of running the cars on hire for tourists. They were let out on hire by the assessee to a party and were not used by the assessee herself in her business of hiring the cars for tourists. In this connection, it would be relevant to have a look on the provisions of section 32 granting depreciation to the assessee : "32. (1) In respect of depreciation on buildings, machinery, plant or furniture owned by the assessee and used for the purpose of the business or profession, the following deductions shall, subject to the provisions of section 34, be allowed-
(ii) in the case of buildings, machinery, plant or furniture, other than ships covered by caluse (i), such percentage on the written down value thereof as may any case or class of case be prescribed :
PROVIDED PROVIDED FURTHER that no deduction shall be allowed under this clause or clause (iii) in respect of any motor car manufactured outside India, where such motor car is acquired by the assessee after the 28th day of February, 1975 and is used otherwise than in a business of running it on hire for tourists."
The criteria for allowing depreciation on motor car manufactured outside India is that it should be used in a business of running it on hire for tourists. This proviso is to sub-section (1) of section 32 which talks about granting of depreciation on the machinery etc. owned by the assessee and used for the purpose of the business. Article the, in my opinion, has to be understood in the context of a business, the profits and gains of which are to be computed under section 28. That section reads as under :
"28. The following income shall be chargeable to income-tax under the head Profits and gains of business or profession,-
(i) the profits and gains of any business or profession which was carried on by the assessee at any time during the previous year;"
From the above, in my opinion, it is evident that the business contemplated in section 32 should be the business carried on by the assessee and to be eligible to the depreciation claim on the car manufactured outside India, the car should be used in that business. In other words, it should be used in a business carried on by the assessee. User of the car by somebody else or by the lessee (in this case the European Asian Bank) for its overseas visitors and guests touring India would not be sufficient to entitle the assessee to claim depreciation on such cars. The foreign-made car should be used in the business of running it on hire for tourists", which is carried on by the assessee and not in a business carried on by somebody else. User of the car by the lessee even though for the tourists, would not, in my opinion, be a used of the car in a business carried on by the assessee. From another angle also the assessee is not entitled to the depreciation because the cars in question were not hired by the bank from the assessee for the purpose of running them in a business of hiring car to the tourists, as the bank has no such a business. Leasing by itself may be business, but that is not the business of running the car on hire for tourists. In my opinion, therefore, the Commissioner of Income-tax was right in withdrawing the depreciation by invoking the provisions of section 263.
3. The appeal is therefore dismissed.
ORDER UNDER SECTION 255(4) OF THE IT ACT, 1961 Since there has been a difference of opinion between us, the following point of difference is referred to the President for nominating the Third Member for resolving the difference under section 255(4) of the IT Act :
"Whether, on the facts and in the circumstances of the case, the assessee, who is running a business of hiring motor cars for tourists, is entitled to depreciation on the two foreign made motor cars let out on a monthly rent by the assessee to European Asian Bank ?"
THIRD MEMBER ORDER Per Shri Ch. G. Krishnamurthy, President - This is an appeal filed by Smt. Shirely D. Swadi against an order passed by the Commissioner of Income-tax, Bombay under section 263 of the Income-tax Act withdrawing the allowance of depreciation on two of the four imported cars owned by the assessee. As there was a difference of opinion between the Members of the Tribunal who heard this appeal as to the correctness of the decision of the Commissioner, this matter has come up before me as a Third Member.
2. The brief facts are that the assessee, who is assessed as an individual, is running a transport business as proprietor of (1) Nikhil Traders, and (2) Contental Auto Rental. She has in all 11 cars, out of which 5 were purchased in the year under appeal. Of these cars, 4 cars were imported cars, one was Dodge Dart, two were Peugeot and one was Oldsmobile. In the year under appeal, both the Peugeot cars were purchased for a total sum of Rs. 5,74,695 on which depreciation at the rate of 40 per cent was claimed. In respect of the other two imported cars, a total depreciation of Rs. 27,800 was claimed. I am not concerned in this appeal with the allowance of the claims made for depreciation on the other cars. The Income-tax Officer allowed the entire claim made by the assessee for depreciation by his order dated 8-9-1983. Thereafter the Commissioner of Income-tax, who happened to peruse the assessment records, came to the conclusion that the allowance of depreciation on the two Peugeot cars was not proper as in his view, those cars were not used by the assessee "in a business of running them on hire for tourists". He felt that the allowance of depreciation on those tow cars had violated the provisions contained in the second proviso to section 32(1) (ii). Initiating proceedings under setion 263 of the Income-tax Act, he gave a notice to the assessee to show cause as to why the depreciation allowed on these two cars should not be withdrawn. In response thereto, the assessee submitted that the assessee had given these two cars on hire at a fixed monthly rent of as high as Rs. 8,000 to European Asian Bank which was to use these cars only for their foreign tourists and guests. As the business of the assessee was of running cars on hire and as these two cars were used in that business alone, the depreciation was rightly allowed and should not be withdrawn. In support of the view that the European Asian Bank was using these cars only for the purpose of foreign tourists, a certificate issued by the European Asian Bank was produced. As the definition of the word "tourist" is not given in the Income-tax Act, a reference was made to the definition of this word as appearing in the booklet issued by the Department of Tourism, Government of India, under the hear "Customs Formalities and Regulators" wherein for the purpose of customs a tourist is defined as a person not normally resident in India, who enters India for a period up to six months in the course of any twelve-month period, for legitimate non- immigration purposes, such as, touring, recreation, sports, health, family reasons, study, pilgrimage or business. The CIT did not agree with any of these submissions. He was of the opinion that depreciation in respect of a car manufactured outside India and acquired after the 28th day of February, 1975 would be allowed only if that car was engaged by the assessee in a business of running it on hire for tourists and the certificate given by European Asian Bank could not be construed as proof of user of these cars only by its overseas visitors. The certificate stated "wherenever the occasion arose". The CIT interpreted these words as meaning that the cars were used also by the banks overseas visitors and guests and not necessarily exclusively by them. Furthermore he pointed out that if the assessee had given the cars on hire to another party and that party had used it for its overseas visitors, it could not be said that the cars were used by the assessee in a business of running the cars on hire for tourists. He, therefore, disagreeing with the assessees submissions held that the ITO was wrong in allowing the depreciation and directed the ITO to withdraw the depreciation allowed by him on these two cars.
3. Aggrieved by this order, the assessee filed a further appeal before the Income-tax Appellate Tribunal. The Members of the Tribunal, who heard this appeal, held different view on the question. The learned Judicial Member held, agreeing with the views expressed by the assessee that the used of these cars by the European Asian Bank for their foreign tourists amounted to the user of these cars on a business of hiring these cars for tourists, and therefore, entitled to depreciation. The learned Accountant Member, however, held that used of the cars by somebody else or by the lessee for his overseas visitors and guests touring India would not be sufficient to entitle the cars had to be used by the assessee in its business of running these cars on hire for tourists. He, therefore, agreed with the view expressed by the revenue.
4. As there was thus a difference of opinion between the Members on this issue, the point of difference, framed in the following words, was referred to me as Third Member under section 255(4) of the Income-tax Act :
"Whether, on the facts and in the circumstances of the case, the assessee, who is running a business of hiring motor cars for tourists, is entitled to depreciation on the two foreign made motor cars let out on a monthly rent by the assessee to European Asian Bank ?"
5. I have heard at length the arguments addressed to me by Shri Dastur, the learned Advocate behalf of the assessee, and Shri Prasad, the learned Deoartmental Representative and I have come to the conclusion, on a careful consideration on the facts on record and the relevant provisions of the law, that the view expressed by the learned Judicial Member is the appropriate, just and fair view which also accords with the legislative intent.
6. As already refereed to earlier, the assessee had 11 cars and she had been admittedly carrying on, for quite some time, the business of running these cars on hire for tourists. Had there been a difference of opinion on the point whether the assessee was engaged in the business of running the cars on hire for tourists, between the Members of the Bench who heard this appeal, I would have had to necessarily go into the question as to whether the assessee was engaged in the business of running the cars on hire. Both the learned Members have, however, agreed that the assessee was in fact engaged in the business of running cars on hire except in so far as these two cars are concerned.
7. Section 32 of the Income-tax Act provides for the allowance of depreciation on buildings, machinery, plant or furniture owned by the assessee and used for the purpose of business or profession but by a proviso added by the Finance Act, 1975 w.e.f. 1-4-1975, it was provided that "no deduction shall be allowed under this clause or clause (iii) in respect of any motor car manufactured outside India where such motor car is acquired by the assessee after the 28th day of February, 1975 and in used otherwise than in a business of running it on hire for tourists". By this proviso the depreciation in respect of motor cars manufactured outside India and/or acquired after 28-2-1975 was totally prohibited except in a case where those cars were used in a business of running them on hire for tourists. The object behind this provision is to provide a disincentive stating that the depreciation should not be allowed on foreign manufactured cars imported in to India with a view to put a curb on ostentatious expenditure.
8. The Finance Minister, in his Budget speech, while introducing the Budget for 1975-76 stated (at page 116 of 98 ITR Statute Section) that "with a view to curtailing ostentatious expenditure in a business and profession, I propose to deny depreciation in respect of imported cars which are acquired after 28th February, 1975. Simultaneously, I propose to allow full depreciation in respect of indigenous cars, irrespective of their cost". This is basically the object with which this proviso was added denying depreciation to the imported cars acquired after 28th February, 1975, that is, to curtail ostentatious expenditure in business and professions. But at the same time an exception had been carved out that in case the cars were used for running them on hire for tourists, the embargo on the allowance of depreciation was not to apply. In other words, to be entitled to depreciation, the imported cars acquired after 28th February, 1975 must be used in a business of running them on hire for tourists. The running on hire for tourists is the soul of this exception because if the cars are used otherwise than for tourists, then the exception would not apply. Then how to ensure that the cars used in a business were used for running them on hire for tourists. Again, here the object seems to be the promotion of tourism in India with a view to earn more foreign exchange. Unless more comforts are provided to the tourists. unless it is ensured that they would get the same facilities in our country, as they are used to in their own countries, there may be some disinclination or mental blocks in visiting our country. Inorder to provide comfort for them, therefore, exception had been made that the cars manufactured outside India, could be imported into India provided that they were to be used for hiring to tourists. Since the purpose of making an exception is to attract tourists in India, it is understandable that the cars must be meant to be used for tourists alone, but is it possible to except tourists all round the year and it is expectation that in case the tourists be not available, the cars must be shut out from other use. While the latter may be true though not feasible the former may not be possible and feasible in our country. Therefore, the dominant object of keeping a car for purposes of used by the tourist appears to be more important and to be seen as a guiding factor than the actual user of the car solely any exclusively by the tourists. That is one way of looking at this exception. The other way of looking at the exception provided for in this clause is that the cars must be used always for the tourists, in other words, exclusively for them. A person investing lots of money in buying imported cars would only be suffering losses in keeping these cars idle, if there are no tourists available. That is to say if a car is used by a tourist even one in a year and if the car is kept idle for the remaining days in the year, the car should be entitled to depreciation because in that case, it is meant only and exclusively for tourists and was used only for tourists and was not used by other person. But then losses would be insufferable. Though this is an extreme example of testing the applicability of this exception, yet it may reveal the meaning inherent in it. The Legislature would hot have intended this extreme case as normal. If that is the correct intendment of the Legislature in providing for this exception then if their is strong proof to show that the cars were used for tourists whether continuously or continually or whether Indian or foreign, then the denial of depreciation would be incorrect.
9. A situation may also arise where the cars meant for use for foreign tourists, may be used for others also who are not tourists. Both the Members have agreed that the expression tourists used in the section would included not only foreign tourists, but Indian tourists also. In other words, a person living in one part of India may visit another part of India as a tourist and if that person used the car as such then the car can be said to have been used in the business of running it on hire for tourists and the allowance of depreciation cannot be denied. That is not so much the issue in this case as it is whether these two cars have been used by foreign tourists. Having seen the meaning of the words that exception is provided for the allowance of depreciation on imported cars acquired after 28th February, 1975, if they are used in a business of running them on hire for tourists and when it was considered by both the Members that the assessee was in the business of running cars on hire for tourists, what will be the nature of evidence that the assessee could produce to show that these cars were used for tourists. It, therefore, depends more upon the nature of evidence which the assessee can produce to satisfy the requirement of law. As seen above the expression tourist is not defined in the Income-tax Act. One has, therefore, to fall back upon the cognate laws where the expression tourist is defined, although for different purposes. The Department of Tourism has defined the expression Tourist for the purpose of granting customs exemption as "a person not normally resident in India, who enters India for a period up to six months in the course of any twelve- month period, for legitimate non-immigration purposes, such as, touring, recreation, sports, health, family reasons, study, pilgrimage or business". So if a person not normally resident in India, visits India and stays in India for any of the purposes mentioned above, up to a period of six months, he will be treated as a "tourist". It appears that the CIT as well as the learned Brothers on the Bench have considered it expedient to adopt this definition of the word "tourist" as applicable for the purposes of allowance of depreciation under section 32 and in my vie rightly so. Then the test to be applied is whether the foreign visitors came to India for any of the purposes mentioned above which includes business, and stayed in India for a period up to six months. If these conditions are satisfied, then they can be treated as tourists. The tourists that came into India on behalf of European Asian Bank were foreign personnel and they came not for immigration purposes, but for business purposes and they stayed in India for less than six months. Since undisputedly these conditions were satisfied, all the requirements of the definition of the word "Tourist" can be deemed to have been satisfied.
10. The question then would be as to whether the hiring of cars must be directly by the assessee to those tourists or it could be through the medium of an intermediary. A tourist visiting India has myriad ways of engaging cars on hire. To cite a few examples, he can directly enter into correspondence with the hiring agency in India if the address is available to him or he may hire the cars through travel agents or through the hotels or through friends or through relatives or on arrival by contacting the airport authorities, or by direct contact after landing in India and last but not the least through their employers, if they happen to come to India on behalf of business i.e., their principals. If by any one of these modes a foreign tourist hires a car and uses it for the purpose in India, the car can be said to have been used for hire for a tourist. If so much is clear then what happened in this case was that the European Asian Bank, with a view to place the car at the disposal of their foreign visitors, hired these two cars from the assessee on a monthly basis by letting the assessee know in writing that those cars were being taken on hire for use by foreign tourists. To put it differently, the condition of hiring out these cars was user by foreign tourists. The first source of evidence in this regard is a letter written by the European Asian Bank to the assessee on 8th October, 1980 wherein it was stated : (considered by the CIT as genuine) "We frequently need air-conditioned limousines on hire for our overseas visitors and clients touring India. We find it uneconomical to hire these cars on a daily basis. We are interested in hiring 1 or 2 medium sized European of Japanese cars on yearly basis. Please let us know the type of cars you can offer and your rates, at the earliest."
In response to this letter, the assessee had lent two of its cars to the European Asian Bank. European Asian Bank, at the instance, perhaps of the assessee, had furnished a certificate on 16-9-1985 to the following effect : (seen and considered by the CIT) "Dear sirs, Your two Peugeot cars having registration Nos. MMG 3466 and MMG 5830 during the tenure of hire, continue to be used for our overseas visitors and guests touring India, whenever the occasion arises."
This certificate clinches the issue that these cars were used by the overseas visitors and guests touring India, whenever the occasion arose. What more evidence could the assessee be expected to produce about the user of these cars by the tourist. I have not been told by the learned D. R. that there could be any other possible way of adducing evidence for user of the cars by the tourists otherwise than by way of certificates where these cars were lent on hire to agencies in India who used these cars for being placed at the disposal of foreign tourists. A log book maintained by the leasing agency may be a good and direct evidence, but that is not within the purview of the lessor assessee.
11. Now the question is whether the assessee, when she leased out the cars to an agency in India, can be said to have used those cars in a business of hiring them for tourists. There is no requirement in the proviso which I have quoted above that the cars must be let out by the assessee directly on hire for tourists. The cars are business assets. They are to be commercially exploited. The commercial explosion by an assessee of the commercial assets has to be done in a manner most suited to the convenience, wisdom and exigencies to which these assets are capable of. These assets were let out to another agency for being used exclusively by them for foreign tourists. I fail to see how this kind of exploitation of a commercial asset can be said to be otherwise than in a business of running the cars on hire for tourists. As rightly pointed out by Shri Dastur, in the course of his arguments that hiring of a car to a tourist for a specified period is not different from leasing of an immovable asset for a specified period. In either case. the possession of the asset is parted with. The hiring of a car may be on hourly, daily, weekly, fortnightly or monthly basis. It does not make any difference for the purpose of the business if the cars are hired monthly to another for being used only for foreign tourists or Indian tourists for that matter. So long as they are used by tourists and so long as they continue to remain the assets of the assessee, I think the requirement of the exception carved out in this proviso is satisfied and depreciation cannot be denied. To interpret this exception to mean that the assessee must herself hire out these cars directly and not by leasing them out to others even though it be for foreign tourists would be to read more into this proviso than is contemplated. I am, therefore, of the opinion that on the basis of the evidence on record, it is not possible to say that the cars were not used for tourists by the assessee. The expression "whenever the occasion arises" used in the certificate only denotes that these cars were used by the foreign tourists. The argument sought to be raised by the learned D. R. based upon these words, that whenever there was no occasion to use these cars for overseas visitors, they were used in India by the companys executives and, therefore, the cars were not used for the purposes of tourists is difficult to accept without any proof. While it is difficult to agree with this interpretation, although such a possibility cannot be ruled out though it is a surmise, I do not think that it can be said that these cars were used by the executives of the European Asian Bank. I do not think, it is commercially viable and economical to hire cars, on such a high rent per month, for the executives of the European Asian Bank when indigenously manufactured cars are available at a much lesser charge. That apart, this is not the point of issue or difference between the learned Members. Neither Member had held in his order that these cars were used by the company executives. As a Third Member, I cannot go into this question for the first time because this is again a matter of evidence.
12. At this stage, I must refer to a decision relied upon by the learned D. R. a decision given by the Bombay Bench C in the case of J. D. Cooper v. First ITO [1986] 17 ITD 890. In this case also, the question of allowance of depreciation on foreign cars arose as in the case before me. There the assessee owned two cars manufactured outside India and had given them on hire to a foreign company which was temporarily doing business in India. The assessees claim for depreciation on the vehicles was disallowed by the ITO under the proviso to section 32(1) (ii) on the ground that the assessee had used the cars as tourist taxies. The Commissioner confirmed the ITOs view ignoring the assessees contention that the cars had not been registered as tourist taxies with the Regional Transport Authorities. The Tribunal held that the cars were given on hire not to any particular tourist but to a foreign company which had established its office in India for business. The persons employed in that company had not come to India as tourists. They had come to India to carry on business. It could not, therefore, be said that the cars in question had been used in a business of running them on hire for tourists. In fact if the cars have to be used for being given on hire to tourists, the assessee would not have failed to get them registered with the Regional Transport Authority as tourist taxies. The nonregistration gave rise to the presumption that they had not been used in a business of running them on hire for tourists. Relying upon this decision, the learned D. R. strongly urged that in this case also the cars were hired not to any particular tourist but to a foreign company, which had established its office in India for business, the depreciation on those cars should not have been allowed and was rightly withdrawn by the CIT. But the learned Advocate for the assessee Shri Dastur submitted that this decision was inapplicable to the facts of this case, because the learned Bench had not noticed the definition of the word "tourist" though available by that time, which included even a person coming to India for business purposes provided he had not stayed in India for a period of exceeding six months. That Bench obviously opioned that a visit to India for business purposes could not be considered as tourist. Had this decision been noticed by the Bench the Bench would not have observed that as those foreign tourists came to India to carry on business, they ceased to be tourists. They would have certainly held that the visits of those tourists for business was as tourists. He, therefore, submitted that this decision is not against the assessee but in a way supports the view the assessee had been canvassing for. I am inclined to agree with the view submitted by the learned counsel for the assessee because here I find that the Bench had not noticed the definition of the word "tourist" and had proceeded on the basis that the foreign company having established an office in India for business and since the persons coming to india had come only for the purpose of business, they could not be said to be tourists and, therefore, the user of these cars in a business of that kind, would be said to be user of cars in a business of running them on hire for tourists. It is no doubt true that the Bench in this case has pointed out that hiring to a particular tourist is more important as was registration. The hiring of the cars to a foreign company was referred to with a view to justify its justify its conclusion that a foreign company, if it employs persons coming to India for business purpose could not be said to be tourists. Since the definition of the word "tourists" includes foreign nationals coming to India for business purpose, even those persons coming to India for business purposes could be said to be tourists and if cars were given to those persons on hire, it could be said that the cars were used in the business for running them on hire for tourists. This decision, therefore, does not come in the way of agreeing with the assessees contention put forward in this case, based upon the definition of the expression "tourists" as given by the Department of Tourism.
13. During the course of arguments before me, reference was made to the decisions of the Bombay High Court in CIT v. Jayanand Khira & Co. (P.) Ltd. [1988] 170 ITR 31, of Kerala High Court in the case of CIT v. Castlerock Fisheries [1980] 126 ITR 382 and to a decision given by the Punjab & Haryana High Court in CIT v. Jagadhri Electric Supply & Industrial Co. [1983] 140 ITR 490. Though these decisions were not directly on the issue and were cited to draw some indirect support for the propositions canvassed before me, more to prove the nature of business, I am of the view that reference to those decisions for the purpose of indirect support may not be necessary in this case as I held that this case was essentially a case of evidence on facts and not so much of interpretation of law, because, as I pointed out earlier, the learned Members had agreed that the assessee was in the business of running cars on hire for tourists but the kind of letting out these two cars to European Asian Bank could not be said to be letting out of the cars for tourists. On a consideration of these facts, I come to the conclusion that the view expressed by the learned Judicial Member is the appropriate view that has to be accepted. I, therefore, agree with him.
14. The matter will now go before the regular Bench so that the appeal can be disposed of in accordance with the majority view expressed.