Income Tax Appellate Tribunal - Delhi
Assistant Commissioner Of Income Tax vs Marina Hotel on 24 March, 2008
Equivalent citations: [2008]112ITD159(DELHI), (2008)115TTJ(DELHI)865
ORDER
K.G. Bansal, A.M.
1. Both these appeals of the Revenue involve common grounds regarding the deductibility or otherwise of the depreciation on foreign made cars in computing the income of the assessee. The appeals were argued in a consolidated manner by the learned Counsel for the assessee and the learned Departmental Representative.
2. In view thereof, we find it fit to pass a common order on these appeals For the sake of ready reference, the grounds taken by the Revenue in the appeal for asst. yr. 2001-02 are reproduced below:
(1) The learned CIT(A) erred in directing the AO to allow depreciation on foreign made car without appreciating the fact that the assessee is not in the business of running car on hire for tourist, but in the business of running hotel.
(2) The learned CIT(A) further erred in holding that depreciation has been rightly claimed on imported car without appreciating the fact that the taxi facilities were provided to their own hotel guests/clients and not to the tourists in general.
(3) The learned CIT(A) also erred in directing the AO to allow depreciation without appreciating the fact that the assessee was not running any independent business of tour and travelling.
3. In the assessment order, it is mentioned that the assessee has been conducting the business of running hotels in Delhi and Agra. The assessee claimed depreciation of Rs. 11,44,317 on German made car, Mercedez Benz Type S-320, Sedan Long. He referred to the provisions of Section 32 of the Act, which permits deduction of depreciation on motor cars manufactured outside India if it is inter alia used in the business of running it on hire for tourists. He was of the view that the assessee was engaged in the business of running hotels and not running motor cars on hire for tourists. Therefore, he dismissed the claim of the assessee. Before the learned CIT(A), it was represented that the motor cars were used for providing transport facilities to the guests and clients. A sum of Rs. 67,725 was charged from them in this year. Since the motor cars were being used as taxis, the assessee was entitled to the deduction of depreciation. The learned CIT(A) accepted this view and allowed depreciation.
4. Before us, the learned Departmental Representative referred to Clause (a) of the proviso to Section 32(1), which reads as under:
Provided that no deduction shall be allowed under this clause in respect of--
(a) any motor car manufactured outside India, where such motor car is acquired by the assessee after 28th Feb., 1975 but before 1st April, 2001, unless it is used--
(i) in a business of running it on hire for tourists, or
(ii) outside India in his business or profession in another country.
It was pointed out that the learned CIT(A) has not given any finding on the issue whether the motor cars were used in a business of running them on hire for tourists?)
5. Further, he referred to the incomes earned in various years by the assessee by way of rentals from using the motor cars in its hotel business which, according to him, were too low, thereby leading to an impression that they were primarily used for personal purpose and not run for hire. The details of the rental income are furnished below:
SI. Assessment Income from car Depreciation claimed No. year hiring (Rs.) & allowed (Rs.) 1. 1995-96 47,450 13,72,858 @40% 2. 1996-97 48,530 8,23,715 3. 1997-98 60,163 4,94,229 4. 1998-99 22,908 2,96,537 5. 1999-2000 49,250 1,77,922 6. 2000-01 37,000 1,06,753 7. 2001-02 67,215 11,44,317 @20% 8. 2002-03 29,280 8,85,454 @20% 9. 2003-04 273 7,31,733 @20%
6. As against the aforesaid, the learned Counsel for the assessee pointed out that in the previous year relevant to asst. yr. 2001-02, the assessee imported one more car on the basis of import licence dt. 25th April, 2000, granted by the Foreign Trade Office. The justification for the import was that old Honda and Mercedez Benz motor cars, used for foreign tourists, required replacement. It was certified by the assessee that the imported motor car will be exclusively used for foreign tourists. For these purposes, he referred to pp. 9, 13 and 18 of the paper book.
7. He relied on Board Circular No. 609, dt. 29th July, 1991 [(1992) 96 CTR (St) 233], which inter alia provided that the depreciation may be allowed where transportation services are provided as a part of package tour for the tourists. It was also his case that receipts were low as on booking of suits, free transport was provided to the tourists. This circular applies in the case of tour operators and travel agents. Paras 2.1 and 2.2 of the circular are reproduced below:
2.1 The intention behind this provision is to discourage use of foreign cars for the purposes of business or profession. However, in order to promote tourism industry, an exception has been made in the case of foreign motor cars used in a business of running them on hire for tourists, on which full depreciation is allowable.
2.2 Where tour operators or travel agents use certain foreign motor cars, owned by them, for providing transportation services to tourists, depreciation should be allowed on these cars. The position will not change even where such transportation services are provided as part of a package tour for tourists, which may include a number of other services like boarding and lodging, service of guides etc. A tourist, who opts for a package tour, agrees to pay for a number of services including use of car provided to him by the tour operator or travel agent. Thus, it can be said that the car has been taken by him on hire from such tour operator or travel agent. Therefore, depreciation on foreign motor cars, owned by him and used for providing transportation services to tourists, whether in a package tour or otherwise, should be allowed.
8. Further, he relied on the decision of Hon'ble Kerala High Court in the case of CIT v. Dr. K.R. Jayachandran (1995) 124 CTR (Ker) 11 : (1995) 212 ITR 637 (Ker). The Tribunal had given a finding that plying of ambulance van on hire itself constituted the business of the assessee though it may be incidental to the running of the hospital. In view thereof, it was held that the assessee was entitled to deduction of depreciation at higher rate of 40 per cent. He also relied on the decision of Hon'ble Rajasthan High Court in the case of CIT v. Lake Palace Hotels & Motels (P) Ltd. . The Hon'ble Court pointed out that the question whether a motor car has been used in the business of plying on hire is a question of fact. There was no bar on the assessee to combine a number of businesses. The condition precedent to grant of depreciation is that the motor car was used for plying on hire for the tourists. The Board circular clarifies that when it is used by a travel agent etc. in the package tour, the aforesaid condition is satisfied. There was no reason to deny benefit to a hotelier when the motor car is used to transport tourists for separate and independent charges. The Tribunal had given a finding that this was an independent business as the motor car was provided on demand for hire charges. Thus, it was held that the depreciation was deductible.
9. We have considered the facts of the case and rival submissions. The facts advanced by the learned Counsel are that for asst. yr. 2001-02, the motor cars were used for 'pick up and drop service' of the tourist where suite was booked and also provided on hire when demanded, for which hire charges of Rs. 67,215 were received on plying two motor cars. It was fairly conceded that no hire charge was received (the table shows receipt of Rs. 273) from plying two motor cars in asst. yr. 2003-04 as they were used only for 'pick up and drop service' of the tourists, as the hotel business was very slack. As against this, the case of the learned Departmental Representative was that the hire charges were too low to lead to an inference that the assessee plied two motor cars on hire. The assessee was carrying on the business of running hotels and there was no business of plying of motor cars on hire.
10. On considering the facts of the case, we find that hire charges in one year were nominal at Rs. 67,215 and they were nil in the other year. There is no evidence on record to show that in the package for hiring hotel suite or room hire charges for motor cars were separately charged and shown. In fact, the case of the assessee is otherwise, namely, that 'pick up and drop service' was part of the package for hire of suite in asst. yr. 2001-02 and in all cases in asst. yr. 2003-04. These facts do not establish that the assessee was carrying on any independent and separate business of running motor cars on hire. Thus, the facts of the cases of Lake Palace Hotels & Motels (P) Ltd. (supra) and Dr. K.R. Jayachandran (supra) are distinguishable. The only thing that can be said is that motor cars were primarily used in the hotel business in one year and wholly so used in the second year. The assessee is not carrying on the business of tour operator or travel agent and, thus, Board circular is not applicable. The question still remains whether aforesaid beneficial circular can be extended to a hotel business also. Hon'ble Rajasthan High Court pointed out that there was no reason to deny depreciation in the case of a hotel offering a package of boarding and lodging and providing transport on separate and independent charges.
11. In this case separate and independent charges are not there as motor cars have been primarily or wholly used for providing 'pick up and drop services'. In such a situation, nominal receipts in one year can only be attributed to the business of the hotel. Thus, extending the scope of beneficial circular, applicable to tour operators and travel agents, to hotel business, where there are no or nominal hire charges, will amount to usurping the powers of the Board, granted to it under Section 119 of the Act. The Tribunal has to decide the controversy on merits, of course, by taking Board circular, as it exists into account. If we do that, it is found that the motor cars were used in the business of hotel and not in the business of running them on hire for tourists, Therefore, we are of the view that the learned CIT(A) erred in allowing the deduction of depreciation to the assessee.
12. In the result, both the appeals of the Revenue are allowed.
K.C. Singhal, J.M. 9th July, 2007
13. After going through the order proposed by my learned Brother and naving discussed the matter, I have not been able to persuade myself to agree with the conclusion arrived at by him. Therefore, a separate order is being passed by me.
14. The question for consideration of the Bench is whether the assessee is entitled to depreciation on car imported by the assessee under the first proviso to Section 32(1) of IT Act, 1961 ('the Act') which provides that no deduction by way of depreciation shall be allowed in respect of any motor car manufactured outside India which has been acquired after 28th day of Feb., 1975, unless it is used:
(i) in a business of running it on hire for tourists; or
(ii) outside India in his business or profession in another country.
15. To appreciate the controversy, it would be appropriate to refer to the relevant facts. The assessee has been in the business as a hotelier since long. The assessee imported one Mercedes Benz S-320 car from Germany during the asst. yr. 2001-02 and used the same in its business. It claimed depreciation @ 40 per cent on such car in the years under consideration. The claim was disallowed by the AO on the grounds that--(i) the car is foreign made car; and (ii) the assessee is not in the business of running the car on hire for tourists. The provision of the first proviso to Section 32(1) of the Act was invoked in disallowing the claim of assessee. On appeal, the CIT(A) considering the facts that--(i) assessee is running four-star hotel at Delhi and Agra, (ii) the car was imported for the purpose of providing transport facilities to guests and clients, and (iii) assessee charged the guests for providing such facilities held that the car was being used as a taxi for the purpose of giving taxi facilities to hotel guests. Hence, the assessee was entitled to depreciation under Section 32(1) proviso. Aggrieved by the same, the Revenue has preferred these appeals before the Tribunal.
16. The arguments of both the parties have already been set out in the proposed order and, therefore, need not be repeated.
17. Let me first discuss the legal position. There is no dispute that in order to claim depreciation on foreign made car, the assessee must be engaged in the business of running the car on hire for tourists. So, where the assessee is exclusively carrying on such business, the depreciation on foreign made car has to be allowed. However, the question arises whether depreciation can be allowed where such business is incidental to other business. For example, the main business of assessee may be as tour operator, travel agent or hotel but transportation of tourists may be incidental to such business. The Board, vide Circular No. 609, dt. 29th July, 1991 has clarified, vide para 2.2 (also extracted in para 4.1 of the proposed order), that depreciation would be allowed in the case of tour operators or travel agents who use such cars for providing transportation services to tourists. It has been further clarified that legal position would not change if the transportation services are provided as part of the package tour for tourists since a tourist who opts for a package tour agrees to pay for a number of services including the use of the car. Thus it can be seen that car has been taken on hire from such tour operator. In view of such Board circular, it has to be held that depreciation would be allowed even where hiring of car is incidental to main business carried on by the assessee.
18. The view expressed in the preceding para is also fortified by the judgment of Hon'ble Rajasthan High Court in the case of Lake Palace Hotels & Motels (P) Ltd. (supra). In that case, the assessee was engaged in the business as a hotelier. It used foreign made cars also for transportation of tourists and, therefore, claimed depreciation on such cars. The claim was disallowed on the ground that assessee was not engaged in the business of running the cars on hire but it was only an activity incidental to hotel activity. The Tribunal allowed the claim after reaching the finding that assessee was running them on hire. In coming to this conclusion, the Tribunal took into consideration the fact that cars were imported by the assessee with the prior approval of the Reserve Bank of India (RBI) under taxi quota with the condition that such cars would be used for running on hire as well as the Board Circular dt. 29th July, 1991 (already referred in the preceding para). The Tribunal also held that merely because the business of hiring was at restricted scale would not take out the case of assessee from the purview of the provisions of Section 32(1) proviso.
19. On reference under Section 256 of the Act, the Court posed the question as "whether the assessee was using the cars owned by him in a business of running them on hire" ? The Hon'ble Court opined at pp. 593-594 of the Report:
...It is not prohibited by law that a person cannot run and combine a number of businesses simultaneously. It is also a common feature that where certain business activities are incidental and supplementary to each other and it is sound to carry on such business also for increasing their profitability, a person can combine such business activities simultaneously notwithstanding that some of such business may only be running primarily with the intention to increase overall profit or reaching the profit in such business activities instead of passing on to others, who may carry on such business independently. Therefore, for the present purposes, the guideline of dominant business and incidental business of the assessee is not relevant.
What is relevant is the conditions required for claiming benefit of deduction on account of depreciation on the cars manufactured outside India, i.e., imported cars, by the assessee are fulfilled, or the conditions for claiming additional depreciation as business assets are fulfilled. The condition is only one that such car must be used in the business of running it on hire for tourists or for business of running taxies. The hotel business is a major instrument of carrying on the business of tourism in India and the package of facility which it provides to the/ recipients are activities towards the tourism.
The aforesaid circular had stated in no uncertain terms that where a transporter or travel agent renders such services by way of a package and which package includes transport, boarding and lodging, it fulfils the conditions of the proviso to Sub-clause (1)(b) of Section 32 of the IT Act, 1961.
If a total package of boarding or lodging and transportation by one person can result in bifurcation of service by providing for transport on hire to its customers to hold it as a vehicle used for carrying on business of running it on hire, there is no reason to deny the same interpretation and the result in the case of a hotel having the package of boarding and lodging and providing transport service as a separate and independent condition as a part of a package to be offered which includes boarding, lodging and fare for hiring cars on separate and independent charges when such demand is made. It is not essential for them to have the transport as part of one consideration, whether used or not. Obviously, charging hire is a result of an independent contract.
20. Applying the aforesaid legal position, the Hon'ble Court upheld the order of the Tribunal by observing as under:
In that view of the matter, firstly we are of the opinion that the Circular dt. 29th July, 1991, fully supports the view which the Tribunal has taken. Apart from that the Tribunal has also referred to the fact that the assessee is charging hire for providing the vehicle to its customers as independent business, which is corroborated by the fact that the vehicles were imported by the assessee with the approval of the RBI under the taxi quota only, giving out a clear intention that it is running them on hire. The assessee has also referred to the fact and which is not denied that the respondent assessee is charging hire charges from the customers to use the vehicles for transportation, primarily which is being used for the hotel and for reaching the airport on checking out for leaving the place. The statutory provision nowhere puts a restriction that if a business is running on a restricted scale, the benefit could not be available. Therefore, it cannot be said that there was no evidence on the basis of which the Tribunal could reach its conclusion that the assessee has acquired the vehicles in question for running a taxi on hire and that the assessee has used the vehicle in question for running them on hire for tourists.
21. Similar view has been taken by the Hon'ble Kerala High Court in the case of Dr. Jayachandran (supra). In that case, the assessee was running a hospital and used his ambulance for carrying his patients against charges. The assessee claimed depreciation @ 40 per cent. However, the higher rate of depreciation was disallowed by the CIT under Section 263 of the Act on the ground that assessee was not engaged in the business of hiring. On appeal, the Tribunal set aside the order of CIT by holding that assessee was running the ambulance on hire and consequently, the AO justified in allowing higher rate of depreciation. The High Court rejected the Revenue's application under Section 256(2) by observing that plying of ambulance on hire itself constitutes the business of assessee though it may be incidental to the running of the hospital. It was also held that one business can be advantageously combined with another business.
22. In view of the above discussion it is held that if foreign made car is used by an assessee either exclusively in the business of running on hire or in the business of running on hire being incidental to the main business such as tour operator, travel agent or an hotelier.
23. the present case, the assessee had been using foreign made cars in earlier years and the claim of depreciation had been allowed by the tax authority as is apparent from the order of AO under Section 143(3) for asst. yr. 1995-96 read with the statement of accounts filed by the assessee in the paper book at pp. 3 to 8. In earlier years, the assessee had imported Honda car on 15th Feb., 1988, Mercedes car on 30th March, 1989 and another Mercedes car on 31st May, 1994, which were being used for transporting foreign tourists as is apparent from the application dt. 25th Feb., 2000 made to Government of India, Department of Tourism, for permission to import another Mercedes car as earlier cars had become old and need replacement (pp. 18-19 of the paper book). The perusal of the application also shows that car was required to be used exclusively by foreign tourists. Same justification was given by the assessee in the application made to RBI dt. 9th Feb., 2000, copy of which is placed at pp. 12-17 of the paper book. The copy of the import licence appearing at p. 9 of the paper book shows that licence was granted subject to the condition that car would be used for hotel business and would not be sold or disposed of otherwise. The endorsement on the licence shows that car was imported in India on 29th Aug., 2000. These evidences clearly show that assessee had imported the car in asst. yr. 2001 -02 for exclusive use of tourists. The only question is whether such car was used for transporting the tourist on hire. The case of the assessee has been that clue to drop in business, no separate charge was made from tourists but offered the car for use by tourists from and to airport as part of package. The Board has already clarified that the claim of the assessee cannot be rejected merely on the ground that the car is used as part of package,. There is no evidence that the car was used for some other purposes.
24. When the car was imported on the conditions that it would be used only for the purpose of transporting the tourists, it can well be presumed that the car was used for such purpose. If such car was used as part of the package then naturally no separate charge would appear in the books of account. But it does not mean that the car was not used for carrying the foreign tourists. Accordingly, it is held that the car was used in business of running the same on hire and consequently, the assessee is entitled to depreciation. The order of the CIT(A) is, therefore, upheld.
25. In the result, appeals of the Revenue stand dismissed.
REFERENCE UNDER SECTION 255(4) OF THE IT ACT, 1961 11th July, 2007 Since there is a difference of opinion between the Members constituting the Bench on certain point, we request the Hon'ble President, Tribunal, to kindly refer the following question for the opinion of the Third Member:
Whether on facts and circumstances of the case and in law, the assessee is entitled to claim depreciation in respect of foreign made car under Section 32(1) proviso of IT Act, 1961 ?
Vimal Gandhi, President 24th March, 2008
1. On account of difference between the learned AM and the learned JM of Tribunal, 'C' Bench, New Delhi, the following question has been referred to me for consideration under Section 255(4) of the IT Act:
Whether on facts and circumstances of the case and in law, the assessee is entitled to claim depreciation in respect of foreign made car under Section 32(1) proviso of IT Act, 1961 ?
2. The facts of the case briefly stated are that the assessee, Hotel Marina, Connaught Place, New Delhi, submitted its return declaring loss of Rs. 89,50,417, In the P&L a/c, the assessee had claimed depreciation on imported car which was disallowed with the following observations:
The assessee is not in a business of running cars on hire for tourists. As this car is manufactured outside India, in view of clear provision of Section 32 of the IT Act, 1961, the depreciation claimed on this Mercedes car is not allowable. Therefore, depreciation of Rs. 11,44,317 claimed on imported car is disallowed and added back to the income of the assessee.
3. The assessee impugned above disallowance in appeal before the CIT(A) and contended that Mercedes Benz car, on which depreciation was not allowed, was imported by the assessee for use in the business of running car on hire for tourists. The hotel business was.carried from Delhi. It started at Agra also in the assessment year under consideration. It was submitted that the imported car was purchased for purpose of providing transport facilities to its guests/clients for which separate account was maintained from year to year. The assessee drew attention to receipts shown in the past from car hire. Accordingly, depreciation on the imported car was claimed in appeal. The learned CIT(A) allowed the claim of the assessee with the following observations:
4. Looking to the facts of the case that the appellant is running four star hotels in Delhi and Agra and they had imported the Mercedes Benz car for the purpose of providing transport facilities to guests and clients. It is also stated that they charged their guests for providing these facilities and they have shown a sum of Rs. 67,725 as income from running of the car. Since the car has been used for purpose of taxi for hotel guests, it comes within the proviso of Section 32 and depreciation is allowable on it. This fact is correct as the car is used as a taxi for the purpose of giving taxi facilities to hotel guests and hotel being a part of the hospitality industry where all types of tourists and travel services have been provided to the guests. Depreciation has been rightly claimed on imported car by the appellant as they are running it for taxi business purpose for which they are showing business income. This point is decided in the favour of the appellant. The AO is directed to allow depreciation.
4. The Revenue being aggrieved carried the matter in appeal before the Tribunal. After hearing both the parties, the learned Members of the Tribunal could not reach a consensus. According to the learned AM, the assessee has not been able to prove that it was carrying on business of hire of motor cars. Therefore, in the light of provisions of Section 32(1), the assessee was not entitled to depreciation on car manufactured outside India.
5. The learned AM took into account the detail of income from car hiring "shown and depreciation claimed and allowed in different years from asst. yr. 1995-96 to asst. yr. 2003-04. He was of the view that assessee had shown nominal or nil receipt as hire charges in the year under consideration which clearly showed that assessee was not carrying business of plying of motor cars on hire. The cars were mainly used for pick up and drop service of tourists. The AM further held that decision of Hon'ble Rajasthan High Court in the case of CIT v. Lake Palace Hotels & Motels (P) Ltd. and circular of the Board No. 609 dt. 29th July, 1991 did not advance the case of the assessee. Accordingly, in the order, learned AM proposed that appeal of the Revenue be accepted and order of the AO be restored.
6. The learned JM did not agree with the above proposed order of the learned AM. He noted requirement of first proviso to Section 32(1) of the IT Act and also the facts found by learned CIT(A) in the impugned order. Learned JM first discussed the legal position in the light of Circular No. 609 dt. dt. 29th July, 1991 [(1992) 96 CTR (St) 233] and decision, of Hon'ble Rajasthan High Court in the case of CIT v. Lake Palace Hotels & Motels Ltd. (supra)
7. On the basis of circular referred to above, he concluded that depreciation on importing cars would be permissible if cars are used for providing transportation services to tourists. This legal position would not change if transportation services are provided as part of package tour for tourists since the tourist who opts for package tour agrees to pay for a number of services including the use of car. This, according to the learned JM, is clarified in the circular of the CBDT.
8. Learned JM also discussed judgment in the case of Lake Palace Hotels & Motels (P) Ltd. (supra). He noted the facts of that case where the assessee was engaged in business as an hotelier. It used foreign made car for transportation of tourists and claimed depreciation on such cars. The Tribunal had found that car was imported by the assessee with prior approval of RBI and under taxi quota for running on hire. It was held by the Tribunal in that case that merely because business of hiring was at a restricted scale could not deprive the assessee of claim for depreciation under proviso to Section 32(1). On further reference to the Hon'ble High Court, the legal position was explained as under:
...It is not prohibited by law that a person cannot run and combine a number of businesses simultaneously. It is also a common feature that where certain business activities are incidental and supplementary to each other and it is sound to carry on such business also for increasing their profitability, a person can combine such business activities simultaneously notwithstanding that some of such business may only be running primarily with the intention to increase overall profit or reaching the profit in such business activities instead of passing on to others, who may carry on such business independently. Therefore, for the present purposes, the guideline of dominant business and incidental business of the assessee is not relevant.
What is relevant is the conditions required for claiming benefit of deduction on account of depreciation on the cars manufactured outside India, i.e., imported cars, by the assessee are fulfilled, or the conditions for claiming additional depreciation as business assets are fulfilled. The condition is only one that such car must be used in the business of running it on hire for tourists or for business of running taxies. The hotel business is a major instrument of carrying on the business of tourism in India and the package of facility which it provides to the recipients is activity towards the tourism.
The aforesaid circular had stated in no uncertain terms that where a transporter or travel agent renders such services by way of a package and which package includes transport, boarding and lodging, it fulfils the conditions of the proviso to Sub-clause (1)(b) of Section 32 of the IT Act, 1961.
If a total package of boarding or lodging and transportation by one person can result in bifurcation of service by providing for transport on hire to its customers to hold it as a vehicle used for carrying on business of running it on hire, there is no reason to deny the same interpretation and the result in the case of a hotel having the package of boarding and lodging and providing transport service as a separate and independent condition as a part of a package to be offered which includes boarding, lodging and fare for hiring cars on separate and independent charges when such demand is made. It is not essential for them to have the transport as part of one consideration, whether used or not. Obviously, charging hire is a result of an independent contract.
9. Applying the aforesaid legal position, the Hon'ble Court upheld the order of the Tribunal by observing as under:
In that view of the matter, firstly we are of the opinion that the Circular dt. 29th July, 1991, fully supports the view which the Tribunal has taken. Apart from that the Tribunal has also referred to the fact that the assessee is charging hire for providing the vehicle to its customers as independent business, which is corroborated by the fact that the vehicles were imported by the assessee with the approval of the RBI under the taxi quota only, giving out a clear intention that it is running them on hire. The assessee has also referred to the fact and which is not denied that the respondent assessee is charging hire from the customers to use the vehicles for transportation, primarily which is being used for the hotel and for reaching the airport on checking out for leaving the place. The statutory provision nowhere puts a restriction that if a business is running on a restricted scale, the benefit could not be available. Therefore, it cannot be said that there was no evidence on the basis of which the Tribunal could reach its conclusion that the assessee has acquired the vehicles in question for running a taxi on hire and that the assessee has sped the vehicle in question for running them on hire for tourists.
10. Learned JM further found that Hon'ble Kerala High Court in the case of CIT v. Dr. K.R. Jayachandran (1995) 124 CTR (Ker) 11 : (1995) 212 ITR 637 (Ker) has taken a similar view. Accordingly, the learned JM concluded that if a foreign made car is used by an assessee either exclusively in the business of running on hire or being incidental to main business such as tour operator, travel agent or a hotelier, depreciation would be allowed.
11. The learned JM upheld the order of learned CIT(A) with the following observations:
16. In the present case, the assessee had been using foreign made cars in earlier years and the claim of depreciation had been allowed by the tax authority as is apparent from the order of AO under Section 143(3) for asst. yr. 1995-96 read with the statement of accounts filed by the assessee in the paper book at pp. 3 to 8. In earlier years, the assessee had imported Honda car on 15th Feb., 1988, Mercedes car on 30th March, 1989 and another Mercedes car on 31st May, 1994, which were being used for transporting foreign tourists as is apparent from the application dt. 25th Feb., 2000 made to Government of India, Department of Tourism, for permission to import another Mercedes car as earlier cars had become old and needed replacement (pp. 18-19 of the paper book). The perusal of the application also shows that car was required to be used exclusively by foreign tourists. Same justification was given by the assessee in the application made to RBI dt. 9th Feb., 2000, copy of which is placed at pp. 12-17 of the paper book. The copy of the import licence appearing at p. 9 of the paper book shows that licence was granted subject to the condition that car would be used for hotel business and would not be sold or disposed of otherwise. The endorsement on the licence shows that car was imported in India on 29th Aug., 2000. These evidences clearly show that assessee had imported the car in asst. yr. 2001-02 for exclusive use of tourists. The only question is whether such car was used for transporting the tourist on hire. The case of the assessee has been that due to drop in business, no separate charge was made from tourists but offered the car for use by tourists from and to airport as part of package. The Board has already clarified that the claim of the assessee cannot be rejected merely on the ground that the car is used as part of package. There is no evidence that the car was used for some other purposes. When the car was imported on the conditions that it would be used only for the purpose of transporting the tourists, it can well be presumed that the car was used for such purpose. If such car was used as part of the package then naturally no separate charge would appear in the books of account. But it does not mean that the car was not used for carrying the foreign tourists. Accordingly, it is held that the car was used in business of running the same on hire and consequently, the assessee is entitled to depreciation. The order of the CIT(A) is, therefore, upheld.
12. On account of difference between the learned Members, the matter has been placed before me under Section 255(4) of the IT Act.
13. I have heard both the parties. Learned Departmental Representative drew my attention once again to the receipts shown by the assessee in different years from hiring of car which are also noted by learned AM in the impugned order. He argued that from above details of receipt, it cannot be inferred that assessee had carried the business of hiring of car to fall within exception provided in the proviso to Section 32(1) of the IT Act. Learned Departmental Representative further argued that there was no separate log book relating to movement of imported cars and no evidence to show that imported cars were separately given on hire. Cars might have been used as part of the business of the hotel. In that case, no depreciation was permissible. Learned Departmental Representative placed reliance on the order of AM who, according to him, has rightly recorded that the assessee on facts failed to prove that it carried business of running of car on hire for tourists. In the light of above factual finding, the assessee was not entitled to any depreciation.
14. Learned counsel for the assessee Shri Marwah, on the other hand, drew my attention to the details of hiring charges shown from imported cars and depreciation claimed thereon for the asst. yrs. 1995-96 to 2002-03. He pointed out that except for the year under consideration, the claim of the assessee for depreciation was all along accepted. He submitted that hotel business upto asst. yr. 2001-02 was good and imported car was used to be given to the guests for hiring i.e. as a pick up and drop service from airport and also for sightseeing at night. For these charges, the assessee maintained separate register and even in the P&L a/c, these were separately shown. However, from the year 2002 onwards, there was slackness in the hotel business and, accordingly, imported cars were used as a part of package. Various guests or tourists staying in the hotel were permitted to use the imported car as part of the package. Charges for the use of imported car were not separately made and were included in the hotel bill. Shri Marwah further pointed out that cars were imported by the assessee as per permission and license granted by the Controller of Imports and Exports. The car was permitted to be imported to India for specific purpose of use by tourists. Shri Marwah also drew my attention to copies of application and license granted by competent authorities available at pp. 9 to 19 of the paper book. No dispute was raised on the above facts stated by the assessee. In fact, these were specifically admitted all along in the past and depreciation claimed was allowed.
15. The matter, according to Shri Marwah, was also covered in favour of me assessee as per Circular No. 609 dt. 29th July, 1991 of CBDT wherein para 2.2 reads as under:
Where tour operators or travel agents use certain foreign motor cars, owned by them, for providing transportation services to tourists, depreciation should be allowed on these cars. The position will not change even where such transportation services are provided as part of a package tour for tourists, which may include a number of other services like boarding lodging, service of guides, etc. A tourist, who opts for a package tour, agrees to pay for a number of services including use of car provided to him by the tour operator or travel agent. Thus, it can be said that the car has been taken by him on hire from such tour operator or travel agent. Therefore, depreciation on foreign motor cars, owned by him and used for providing transportation services to tourists, whether in a package tour or otherwise, should be allowed.
16. Shri Marwah further relied on decision of Kerala High Court in the case of CIT v. Dr. K.R. Jayachandran (supra). It was a case of a nursing home where the imported vehicle was used as incidental to the nursing home business. Hiring of imported vehicle was not a separate business. Even in that case, their Lordships held that assessee was entitled to depreciation. Shri Marwah also relied upon decision of Tribunal in the case of Dy. CIT v. Machino Techno Sales Ltd. (2001) 70 TTJ (Cal)(TM) 340 : (2001) 250 ITR 12 (Cal)(TM)(AT) wherein principles laid down by Kerala High Court were applied by the Tribunal. Shri Marwah further argued that rule of consistency was applicable in this case. The Revenue authorities were not entitled to take a view different from the one taken by them in the past on identical facts. Shri Marwah further argued that in the asst. yr. 2006-07, revenue earning from hiring of car was more than Rs. 2 lakhs on account of improvement in the business. Therefore, on facts and the circumstances, it cannot be said that the assessee did not carry on hiring business. Shri Marwah accordingly relied upon and supported the proposed order of learned JM.
17. In rebuttal, the learned Departmental Representative again emphasized that onus was on the assessee to show that imported car was used in hiring business. The assessee has shown meagre receipt of only Rs. 273 and, therefore, it cannot be said that car was used for hiring. He accordingly submitted that order of the AO was a right order and should be restored.
18. I have given careful thought to the rival submissions of the parties. The AO, after reproducing provision of Section 32 of the IT Act, disallowed the claim of depreciation for car relying on the facts that car in dispute was manufactured outside India.
19. On further appeal, the learned CIT(A) allowed the claim. The relevant observations have already been reproduced in earlier part of the order. It is not in dispute that assessee had been utilizing imported cars since the year 1979 by giving it on hire to tourists residing in its hotel. Hiring charges were separately shown and assessed and claim of depreciation duly allowed to the assessee. It is no doubt true that in the period under consideration, hiring charges were considerably reduced. However, reduction in the charges has been duly explained. It is explained that rent for hiring imported cars was not separately charged but included in the hotel bill as car was offered for use as a package with letting of the hotel. Hire charges were part of the hotel charges. This has to be done on account of reduction in tourists after 9/11. This claim of the assessee has not been refuted by the AO. He disallowed the claim without looking to the peculiar facts of the case and as per observations already reproduced above. It has also not been considered by the AO that foreign cars were imported under a specific scheme and as per license granted by the Controller of Imports and Exports under the EPCG Scheme. Under the scheme, imported car could be registered and used for tourist purposes only. There is no material on record to show that the cars were not used for hire business as accepted in earlier years. In my considered opinion, the learned JM has thoroughly considered the facts and circumstances of the case and the background in which the dispute arose. He has also correctly relied upon decisions of Rajasthan and Kerala High Courts. It has been authoritatively held that depreciation is to be allowed even if cars are used to carry an incidental business. Learned Departmental Representative has not brought to my knowledge any decision taking a view contrary to one canvassed by learned Representative of the assessee.
20. I am, therefore, unable to agree that assessee failed to show that it has used imported car for the business of running them on hire for tourists. There is no change in facts and circumstances of the case in the year under consideration. The reduction in hire charges was duly accepted by the learned CIT(A). The Revenue has not placed any material on record to show that the aforesaid finding recorded by learned CIT(A) suffered from any infirmity.
21. In the light of what has been stated above and in the proposed order of the learned JM, I see no scope to interfere with the impugned order of the learned CIT(A). I agree with the order proposed by the learned JM and answer the question accordingly.
22. The matter may now be placed before regular Bench for passing order in accordance with law.