Pranab Mukherjee in his budget speech had pointed out that in respect of indirect taxes, adjustments have been made by the changes in excise duty, customs and service tax.

What are the changes brought by the interim budget presented by Pranab Mukherjee on February 16?

The budget, being an interim budget mainly for votes on account, the normal expectation as is warranted in an annual budget may not be justified. But then, the industry and the media were hoping for a stimulus package by way of reduction in tax rates and incentives for manufacture, housing, infrastructure and other industries. But there is no reduction in rates for direct taxes.

The rates prescribed in the Finance Act, 2008, for advance tax and tax deduction at source will be the rate applicable not only for income for assessment year (AY) 2009-10 but also for advance tax and tax deduction at source for AY 2010-11.

However, Mr. Mukherjee in his budget speech had pointed out that in respect of indirect taxes, adjustments have been made by the changes in excise duty, customs and service tax.

But these are relatively minor mainly for particular industries such as cement, aviation fuel, naphtha, housing and power sector, besides some concessions in respect of service tax for exports and services relating to goods transport for export. Much needed or much expected reduction in tax rate has not materialised.

But, by way of exercise of powers available to the Central Board of Direct Taxes in prescribing the rates for depreciation, depreciation for commercial vehicles acquired on or after January 1, 2009, and put to use before April 1, 2009, has been increased to 50 per cent vide Notification No. 10 of 2009 dated January 19, 2009. But reduction in general rate of depreciation, which was reduced from 25 per cent to 15 per cent from AY 2006-07 would continue.

One would expect that the revival of the pre-existing rate would have served as a stimulant for industries as depreciation has a direct link with employment by reducing the after-depreciation cost of goods to a significant extent.
There has been an increase in depreciation for commercial vehicles from 40 per cent to 50 per cent. Such depreciation is available both for business and profession. Would it mean that the assessees engaged in professions such as law, medicine and audit would be eligible for 50 per cent deduction for depreciation for cars used for profession?

Commercial vehicle should ordinarily mean any vehicle used for the purpose of commerce which will include profession. But commercial vehicle is understood in the Notes to the Depreciation Schedule as under:

6. Commercial vehicle means heavy goods vehicle, heavy passenger motor vehicle, light motor vehicle, medium goods vehicle and medium passenger motor vehicle but does not include maxi-cab, motor-cab, tractor and road-roller. The expressions heavy goods vehicle, heavy passenger motor vehicle, light motor vehicle, medium goods vehicle, medium passenger motor vehicle, maxi-cab, motor-cab, tractor and road-roller shall have the meanings respectively assigned to them in Sec. 2 of the Motor Vehicles Act, 1988 (59 of 1988).

The above definition would include light vehicles as well. In fact, passenger cars used by the tourism industry should qualify as commercial vehicles, when they are licensed as public transport.

Notwithstanding such persuasive arguments, one has to bear in mind the classification in the Appendix prescribed under Rule 5 in pursuance of Sec. 32(1) for purposes of understanding the entry. Entries under Item III of Part A of the Appendix are relevant in this context. Entry 2 for which the prescribed rate is 15 per cent reads as under:

(2) Motor cars, other than those used in a business of running them on hire, acquired or put to use on or after April 1, 1990.

Entry 3(ii) for which the prescribed rate of depreciation is 30 per cent reads as under:

(ii) Motor buses, motor lorries and motor taxis used in a business of running them on hire. It may, therefore, be seen that motor cars qualify for depreciation at 20 per cent unless run on hire to merit depreciation at 30 per cent. Entry 3(via) as now inserted by the Income-tax (Third Amendment) Rules, 2009, reads: (via) New commercial vehicle which is acquired on or after January 1, 2009, but before April 1, 2009, and is put to use before April 1, 2009, for purposes of business or profession, [See paragraph 6 of the Notes below this Table].

In the light of the definition of commercial vehicles reproduced earlier and reading the entries harmoniously, it would mean that commercial vehicles referred are other than cars falling under Entry 2 and 3(ii). The amendment to the rule is obviously intended to cover only trucks and other heavy vehicles, besides other commercial vehicles hitherto entitled to depreciation at 30 per cent.