IN THE INCOME TAX APPELLATE TRIBUNAL

DELHI BENCH 'C' NEW DELHI

BEFORE SHRI VIMAL GANDHI, HON'BLE PRESIDENT

(THIRD MEMBER)

ITA No. 852/DEL/2005

ASSTT. YEAR: 2001-02

ITA No.2363/Del/2006

ASSTT. YEAR: 2003-04

Appellant by: Shri Sanjay Kumar, CIT, DR

Respondent by: Shri U.N. Marwah, FCA, Shri Anik Kumar, FCA

AIT Head Note: 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 Income-tax Act, 1961?

 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 Assessing Officer. 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 Assessing Officer that foreign cars were imported under a specific scheme and as per license granted by the Controller of Imports 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 ld. J.M. has thoroughly considered the facts and circumstances of the case and the background in which the dispute rose. 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. Ld DR has not brought to my knowledge any decision taking a view contrary to one canvassed by ld. Representative of the assessee. 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.(Para 15)

O   R   D   E   R

On account of difference between the learned Accountant Member and the learned Judicial Member of ITAT, 'C' Bench, New Delhi, the following question has been referred to me for consideration u/s 255(4) of the Income Tax 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 Income Tax 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 Profit & Loss account, 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 Income Tax 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 ld. 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 jour star hotel 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 Assessing Officer is directed to allow depreciation. "

4.         The Revenue being aggrieved carried the matter in appeal before the Appellate Tribunal. After hearing both the parties, the learned Members of the Tribunal could not reach a consensus. . According to the learned Accountant Member, 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. The learned Accountant Member took into account the detail of income from car hiring shown and depreciation claimed and allowed in different years from Asstt. Year 1995-96 to Asstt. Year 2003-04. He was of the view that assessee had shown nominal or nil receipt as higher 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 ,Accountant Member further held that decision of Hon'ble Rajasthan High Court in the case of Lake Palace Hotels & Motels Pvt. Ltd. 286 ITR 589 and Circular or the Board no. 609 dated 27.9.1971 did not advance the case of the assessee. Accordingly, in the order, ld. Accountant Member proposed that appeal of the revenue be accepted and order of the Assessing Officer be restored.

5.         The Id. Judicial Member did not agree with the above proposed order of the learned Accountant Member. He noted requirement of first proviso to Section 32(1) of the I.T. Act and also the facts found by ld. CIT (A) in the impugned order. Ld. Judicial Member first discussed, the legal position in the light of Circular No. 609 dated 27.9.1971 and decision of Hon'ble Rajasthan High Court in the case of CIT Vs Lake Palace Hotels & Motels Ltd. 286 ITR 589. 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 tourist. 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 Judicial Member, is clarified in the Circular of the C.B.D.T.

6.         Ld. Judicial Member also discussed judgment in the case of Lake Palace Hotels & Motels Pvt. 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 Reserve Bank of India 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 are activities towards the tourism,

The aforesaid circular had stated in no uncertain terms that where a Iran:-,porter or travel agent renders such services by way of a package and which package includes transport, boarding and lodging, it fulfills the conditions of the proviso to sub-clause (l)(b) of section 32 of the Income Tax 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"

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 dated July 29, 19991, 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 Reserve Bank of India 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 fur 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 sued the vehicle in question for running them on hire for tourists. "

7.         Ld. Judicial Member further found that Hon'ble Kerala High Court in the case of CIT Vs Dr. Jayachandran 212 ITR 637 has taken a similar view. Accordingly, the ld. Judicial Member 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.

8.         The ld. Judicial Member upheld the order of ld. 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 Assessing Officer under section 143(3) for assessment year 1995-96 read with the statement of accounts filed by the assessee in the paper book at pages 3 to -8. In earlier years, the assessee had imported Honda car on 15.2.1988, Mercedes car on 30.3.1989 and another Mercedes car on 31.5.1994, which 'were being used fur transporting foreign tourists as is apparent from the application dated 25.2.2000 made to Govt. of India, Dept. of Tourism, for permission to import another Mercedes car as earlier cars had become old and needed replacement (pages 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 RB1 dated 9.2.2000, copy of which is placed at pages 12-17 o/the paper book. The copy of the import licence appearing at page 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 29.8.2000. These evidences clearly show that assessee had imported the car in assessment year 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. "

9.         On account of difference between the learned Members, the matter has been placed before me u/s 255(4) of the Income Tax Act.

10.       I have heard both the parties. Ld. DR drew my attention once again to the receipts shown by the assessee in 'different years from hiring of car which are also noted by ld. A.M. in the impugned order. He argued that from above details of receipt, it can not be inferred that assessee had carried the business of hiring of car to fall within exception provided in the provision to Section 32(I) of the I.T. Act. Ld. DR 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. Ld. DR placed reliance on the order of A.M. 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.

11.       Ld. Counsel for the assessee Shri Marwah, on the other hand, drew my attention to the details of hiring charges shown from imported cars arid depreciation claimed thereon for the Asstt. Year 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 Asstt. Year 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 profit and loss account, these were separately shown. However, from the year 2002 onward, 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 & 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 pages 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. The matter, according to Shri Marwah, was also covered in favour of the assessee as per Circular No.609 dated 29.7.1991 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 he allowed"

12.       Shri Marwah further relied on decision of Kerala High Court in the case of CIT Vs Dr. K.R. Jayachandran 212 ITR 637. 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 Appellate Tribunal in the case of CIT V s Machino Techno 250 ITR I2(A T) 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 one taken -by them in the past on identical facts. Shri Marwah further argued that in the Asstt. Year 2006-07, revenue earning from hiring of car was more than Rs.2 lakh on account of improvement in the business. Therefore, on facts and the circumstances, it cannot be said that the assessee did not carryon hiring business. Shri Marwah accordingly relied upon arid supported the; proposed order of ld. J.M.

13.       In rebuttal, the ld. DR 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 Assessing Officer was a right order and should be restored.

14.       I have given careful thought to the rival submission of the parties. The Assessing Officer, after reproducing provision of Section 32 of the Income Tax Act, disallowed the claim of depreciation for car relying on the facts that car in dispute was manufactured outside India.

15.    On further appeal, the ld. 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 Assessing Officer. 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 Assessing Officer that foreign cars were imported under a specific scheme and as per license granted by the Controller of Imports 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 ld. J.M. has thoroughly considered the facts and circumstances of the case and the background in which the-dispute rose. 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. Ld DR has not brought to my knowledge any decision taking a view contrary to one canvassed by ld. Representative of the assessee. 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 ld. CIT (A). The revenue has not placed any material on record to show that the aforesaid finding recorded by- ld. CIT (A) suffered from any infirmity. In the light of what has been stated above and in the proposed order of the learned Judicial Member, I see no- scope to interfere with the impugned order of the ld. CIT (A). I agree with the order proposed by the ld. JM and answer the question accordingly.

16.       The matter may now be placed before regular bench for passing order in accordance with law.

IN THE INCOME TAX APPELLATE TRIBUNAL

DELHI BENCH 'C' DELHI

BEFORE SHRI K.C. SINGHAL; JUDICIAL MEMBER

AND SHRI K.G. BANSAL: ACCOUNTANT MEMBER

I.T.A. No. 852(Del)/2005

Assessment Year: 2001-02

ITA No. 2363(Del)/2006

Assessment year: 2003-04

Appellant by: Shri Rajeev Mehrotra, Sr. DR

Respondent by: Shri U.N. Marwah, FCA &

  Shri Anik Kumar, FCA

O   R   D   E   R

PER K.G. BANSAL: AM

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 DR. 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 A. Y. 2001-02 are reproduced below:-

"1. The ld. CIT(A) erred in directing the A.O 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 ld. CIT (Appeals) 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 A.O to allow depreciation without appreciating the fact that the assessee was not running any independent business of tour and traveling."

2.         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 fro tourist. Therefore, he dismissed the claim of the assessee.

2.1       Before the ld. CIT(Appeals), 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 (Appeals) accepted this view and allowed depreciation.

3.         Before us, the learned DR 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 the 28^th day of February, 1975 but before the 1^st day of 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 t " country

It was pointed out that the ld. CIT(Appeals) has not given any finding on the issue whether the motors cars were used in a business of running them

3.1       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 nm for hire. The details of the rental income are furnished below:'-

4.         As against the aforesaid, the learned counsel for the assessee pointed out that in the previous year relevant to assessment year 2001-02, the assessee imported one more car on the basis of import license dated 25.4.2000, granted by the Foreign Trade office. The justification for the import was that old Honda and Mercedez Benz motor cars, used for foreign tourist, required replacement. It was certified by the assessee that the imported motor car wm be exclusively used for foreign tourists. F or these purposes, he referred to pages 9, 13 and 18 of the paper book.

4.1       He relied on Board circular no. 609 dated 27.9.1971, 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 n the case of tour operators and travel agents. Paragraphs 2.1 and 2.2of 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 motorcars 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."

4.2       Further, he relied on the decision of Hon'ble Kerla High Court in the case of CIT Vs. Dr. K.R. Jayachandran, (1995) 212ITR 637. 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%. He also, relied on the decision of Hon'ble Rajasthan High Court in the case of Lake Palace Hotels & Motels P. Ltd., (2006) 786 ITR 589. 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 tact. 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.

5.         We have considered the facts of the .case and rival submissions. The facts advanced by the learned counsel are that for A.Y. 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 hirecharge was received (the table shows receipt of Rs. 273/-) from plying two motor cars in A. Y. 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 Ld. D.R. was that the hire charges were too low to lead to an inference that the assessee plied two motorcars on hire. The assessee was carrying on the business of running hotels and there was no business of plying of motor cars on hire. 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 hotel suite or room hire charges for motor cars were 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 A. Y. 2001-02 and in all cases in A. Y. 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 case of Hotel Lake Palace and Dr. K.R. Jayachandran 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. 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 charges, will amount to usurping the powers of the Board, granted to it u/s 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 (Appeals) erred in allowing the deduction of depreciation to the assessee.

6.      In the, both the appeals of the revenue arc allowed

Order pronounced in the open court on May 17^th, 2007

PER SINGHAL, J. M.

7.         After going through the order proposed by my Ld. Brother and having 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.

8.         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 Income-tax 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 February, 1975, unless it is used:-

(i) in a business of running it on hire fur tourists; or

(ii) outside India in his business or profession in another country,

9.         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 assessment year 2001-02 and used the same in' its business. I t claimed depreciation @ 40% on such car in the years under consideration. The claim was disallowed by the Assessing Officer 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 provisions 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 purposing 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.

10.    The arguments of both the parties have already been set out in the proposed order and, therefore, need not be repeated.

11.    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 tourist; may be incidental to such business. The Board, vide Circular No. 609 dated 27.9.1971 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 tourist. It has been further clarified that legal position would not change if the transportation services are provided as part or 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 in the assessee.

12.    The view expressed in the preceding para is also fortified by the judgement of honourable Rajasthan High Court in the case of Lake Palace Hotels & Motels (P) Ltd. 286 ITR 589. 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 alter 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 dated 27.9.1971 (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(I) proviso.

13.       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 honourable Court opined at pages 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 lo other.',;, 1vho may carryon 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 he 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 Income-tax Act, 1961.

If a total package of boarding or lodging and transportation by one person can result in bifurcation of service by providing/or 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 jar them to have the transport as part of one consideration, whether used or not. Obviously, charging hire is a result of an independent contract"

Applying the aforesaid legal position, the honourable 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 dated July 29. 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 Reserve Bank of India 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 u 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 "

14.       Similar view has been taken by the honourable Kerala High Court in the case of Dr, Jayachandran. 212 ITR 637 In that case, the assessee was running a hospital and used his ambulance for carrying his patients against charges. The assessee claimed depreciation @ 40@. However, the higher rate or depreciation was disallowed by the CIT under section 163 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 Assessing Officer 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.

15.       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.

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 Assessing Officer under section 143(3) for assessment year 1995-96 read with the statement or accounts filed by the assessee in the paper book at pages 3 to 8. In earlier years the assessee had imported Honda car on 15.2.1988. Mercedes car on 30.3.1989 and another Mercedes car on 31.5.1994, which were being used for transporting foreign tourists as is apparent from the application dated 25.2.2000 made to Govt. of India. Dept. or Tourism for permission to import another Mercedes car as earlier cars had become old and need replacement (pages 18-19 or 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 dated 9.2.2000. copy of which is placed at pages 12-17 or the paper book, The copy of the import licence appearing at page 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 off otherwise The endorsement on the licence shows that car was imported In India on 29.8.2000. These evidences clearly show that assessee had imported the car in assessment year 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 c1ari tied 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 docs 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.

17.       In the result appeals of the Revenue stand dismissed.

IN THE INCOME TAX APPELLATE TRIBUNAL

"C" BENCH, NEW DELIII

BEFORE SHIH K.C. SINGHAL, JUDICIAL MEMBER AND SHIH K.G. BANSAL, ACCOUNTANT MEMBER

I.TA. No. 852(Del)/2005

Assessment year: 2001-02

I.TA. No. 2363(Del)/2006

Assessment year: 2003-04

REFERENCE UNDER SECTION 255(4) OF

THE INCOME-TAX ACT, 1961

'Since there is a difference of opinion between the Members constituting the Bench on certain point, we request the Hon'ble President, Income Tax Appellate 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 Income-tax Act, 1961?"