REPORTABLE IN SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO.3282 OF 2008 M/S I.C.D.S. LTD. APPELLANT VERSUS COMMISSIONER OF INCOME RESPONDENTS TAX, MYSORE & ANR. WITH CIVIL APPEAL NO.3286 OF 2008, CIVIL APPEAL NO.3287 OF 2008, CIVIL APPEAL NO.3288 OF 2008, CIVIL APPEAL NO.3289 OF 2008, AND CIVIL APPEAL NO.3290 OF 2008 JUDGMENT D.K. JAIN, J. 1. In all these appeals, by grant of special leave, by Revenue, common question of law relates to claim of assessee for depreciation under Section 32 of 1 Page 1 Income Tax Act, 1961 (for short Act ). assessment years involved are 1991-1992 to 1996-1997. 2. assessee is public limited company, classified by Reserve Bank of India (RBI) as non-banking finance company. It is engaged in business of hire purchase, leasing and real estate etc. vehicles, on which depreciation was claimed, are stated to have been purchased by assessee against direct payment to manufacturers. assessee, as part of its business, leased out these vehicles to its customers and thereafter, had no physical affiliation with vehicles. In fact, lessees were registered as owners of vehicles, in certificate of registration issued under Motor Vehicles Act, 1988 (hereinafter referred to as MV Act ). 3. In its return of income for relevant assessment years, assessee claimed, among other heads, depreciation in relation to certain assets, (additions made to trucks) 2 Page 2 which, as explained above, had been financed by assessee but registered in name of third parties. assessee also claimed depreciation at higher rate on ground that vehicles were used in business of running on hire. 4. Assessing Officer disallowed claims, both of depreciation and higher rate, on ground that assessee s use of these vehicles was only by way of leasing out to others and not as actual user of vehicles in business of running them on hire. It had merely financed purchase of these assets and was neither owner nor user of these assets. Aggrieved, assessee preferred appeals to Commissioner of Income Tax. In so far as question of depreciation at normal rate was concerned, Commissioner (Appeals) agreed with assessee. However, assessee s claim for depreciation at higher rate did not find favour with Commissioner. 3 Page 3 5. Being dissatisfied, both assessee and Revenue carried matter further in appeal before Income-tax Appellate Tribunal (for short Tribunal ). Tribunal agreed with assessee on both counts. On question of claim for depreciation on normal rate, following observations by Tribunal are very significant: In present case business of assessee-appellant is leasing and hiring of vehicles and other machinery. It is definitely not hire purchase, as seen from lease agreements, copies of some of which are on record. Further, allowing only depreciation is not matter of dispute in instant case. lower authorities have already allowed depreciation, of course in normal rates. Therefore, ownership of vehicles and its use is not at all disputed at any stage before Assessing Officer and first appellate authority. Nothing is brought on record, whether lessees of vehicles have claimed depreciation which were used by them. From this only inference that can be drawn is that lessees have not claimed depreciation and it is appellant alone who has claimed depreciation being actual owner of vehicles. 4 Page 4 On higher rate of depreciation, Tribunal culled out observations of Commissioner of Income Tax (Appeals) as under: CIT (Appeals) considered that appellant has only financed to purchase trucks. Therefore, according to him, leasing out trucks or hiring them does not assume character of doing business of hiring trucks. According to CIT (Appeals) appellant must use trucks for its own business of running them on hire to claim higher rate of depreciation. But main activity of appellant is to lease out or give trucks on hire to others. *** *** *** In opinion of CIT (Appeals), language used in rules clearly specified that enhanced depreciation allowance is available only when trucks are used in business of running them on hire also. appellant has only leasing business and it does not run business of hiring trucks to public. According to department distinction is very clear and there is no case for appellant to claim enhanced depreciation on business of hiring trucks. 6. Relying on decision of this Court in Commissioner of Income Tax, Karnataka, Bangalore Vs. Shaan Finance (P) Ltd., Bangalore1, Tribunal held that assessee, having used trucks for purpose of 1 (1998) 3 SCC 605 5 Page 5 business, was entitled to higher rate of depreciation at 50% on trucks leased out by it. 7. Being aggrieved, revenue preferred appeal to High Court under Section 260A of Act. High Court framed following substantial questions of law for its adjudication:- Whether Appellant (assessee) is owner of vehicles which are leased out by it to its customers and Whether Appellant (assessee) is entitled to higher rate of depreciation on said vehicles, on ground that they were hired out to Appellant s customers. 8. Answering both questions in favour of revenue, High Court held that in view of fact that vehicles were not registered in name of assessee, and that assessee had only financed transaction, it could not be held to be owner of vehicles, and 6 Page 6 thus, was not entitled to claim depreciation in respect of these vehicles. Hence, these appeals by assessee. 9. Section 32 of Act on depreciation, pertinent for controversy at hand, reads as follows: 32.(1) In respect of depreciation of (i) buildings, machinery, plant or furniture, being tangible assets; (ii) know-how, patents, copyrights, trade marks, licences, franchises or any other business or commercial rights of similar nature, being intangible assets acquired on or after 1st day of April, 1998, owned, wholly or partly, by assessee and used for purposes of business or profession, following deductions shall be allowed- (i) in case of assets of undertaking engaged in generation or generation and distribution of power, such percentage on actual cost thereof to assessee as may be prescribed ;] (ii) in case of any block of assets, such percentage on written down value thereof as may be prescribed 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 assessee 7 Page 7 after 28th day of February, 1975 but before 1st day of April, 2001, unless it is used (i) in business of running it on hire for tourists ; or (ii) outside India in his business or profession in another country ; and (b) any machinery or plant if actual cost thereof is allowed as deduction in one or more years under agreement entered into by Central Government under section 42 Provided further that where asset referred to in clause (i) or clause (ii) or clause (iia) as case may be, is acquired by assessee during previous year and is put to use for purposes of business or profession for period of less than one hundred and eighty days in that previous year, deduction under this sub-section in respect of such asset shall be restricted to fifty per cent of amount calculated at percentage prescribed for asset under clause (i) or clause (ii) [or clause (iia)], as case may be. (Emphasis supplied) 10. Depreciation is monetary equivalent of wear and tear suffered by capital asset that is set aside to facilitate its replacement when asset becomes dysfunctional. In P.K. Badiani Vs. Commissioner of Income Tax, Bombay2, this Court has observed that allowance for depreciation is to replace value of 2 (1976) 4 SCC 562 8 Page 8 asset to extent it has depreciated during period of accounting relevant to assessment year and as value has, to that extent, been lost, corresponding allowance for depreciation takes place. 11. Black s Law Dictionary (5th Edn.) defines depreciation to mean, inter alia: fall in value; reduction of worth. deterioration or loss or lessening in value, arising from age, use, and improvements, due to better methods. decline in value of property caused by wear or obsolescence and is usually measured by set formula which reflects these elements over given period of useful life of property.... Consistent gradual process of estimating and allocating cost of capital investments over estimated useful life of asset in order to match cost against earnings... 6th Edition defines it, inter alia, in following ways: In accounting, spreading out cost of capital asset over its estimated useful life. decline in value of property caused by wear or obsolescence and is usually measured by set formula which reflects these elements over given period of useful life of property. 12. Parks in Principles & Practice of Valuation (Fifth Edn., at page 323) states: As for building, depreciation is 9 Page 9 measurement of wearing out through consumption, or use, or effluxion of time. Paton has in his Account's Handbook (3rd Edn.) observed that depreciation is out- of-pocket cost as any other costs. He has further observed-the depreciation charge is merely periodic operating aspect of fixed asset costs. 13. provision on depreciation in Act reads that asset must be owned, wholly or partly, by assessee and used for purposes of business . Therefore, it imposes twin requirement of ownership and usage for business for successful claim under Section 32 of Act. 14. Revenue attacked both legs of this portion of section by contending: (i) that assessee is not owner of vehicles in question and (ii) that assessee did not use these trucks in course of its business. It was argued that depreciation can be claimed by assessee only in case where assessee is both, owner and user of asset. 10 Page 10 15. We would like to dispose of second contention before considering first. Revenue argued that since lessees were actually using vehicles, they were ones entitled to claim depreciation, and not assessee. We are not persuaded to agree with argument. Section requires that assessee must use asset for purposes of business . It does not mandate usage of asset by assessee itself. As long as asset is utilized for purpose of business of assessee, requirement of Section 32 will stand satisfied, notwithstanding non-usage of asset itself by assessee. In present case before us, assessee is leasing company which leases out trucks that it purchases. Therefore, on combined reading of Section 2(13) and Section 2(24) of Act, income derived from leasing of trucks would be business income, or income derived in course of business, and has been so assessed. Hence, it fulfills aforesaid second 11 Page 11 requirement of Section 32 of Act viz. that asset must be used in course of business. 16. In case of Shaan Finance (P) Ltd. (supra), this Court while interpreting words used for purposes of business in case of analogous provisions of Section 32A(2) and Section 33 of Act, dealing with Investment Allowance and Development Rebate respectively, held thus: - 9. Sub-section (2) of Section 32-A, however, requires to be examined to see whether there is any provision in that sub-section which requires that assessee should not merely use machinery for purposes of his business, but should himself use machinery for purpose of manufacture or for whatever other purpose machinery is designed. Sub-section (2) covers all items in respect of which investment allowance can be granted. These items are, ship, aircraft or machinery or plant of certain kinds specified in that sub-section. In respect of new ship or new aircraft, Section 32-A(2)(a) expressly prescribes that new ship or new aircraft should be acquired by assessee which is itself engaged in business of operation of ships or aircraft. Under sub-section (2)(b), however, any such express requirement that assessee must himself use plant or machinery is absent. Section 32-A(2)(b) merely describes new plant or machinery which is covered by Section 32-A. plant or machinery is described with reference to its purpose. For example, sub-section (2)(b)(i) 12 Page 12 prescribes purposes of business of generation or distribution of electricity or any other form of power . Sub-section (2)(b)(ii) refers to small-scale industrial undertakings which may use machinery for business or manufacture or production of any article, and sub-section (2)(b)(iii) refers to business of construction, manufacture or production of any article or thing other than that specified in Eleventh Schedule. Sub-section 2(b), therefore, refers to uses to which machinery can be put. It does not specify that assessee himself should use machinery for these purposes. In present case, person to whom machinery is hired does use machinery for specified purposes under Section 32-A(2)(b)(iii). That person, however, is not owner of machinery. High Courts of Karnataka and Madras have held that looking to requirements specified in Section 32-A assessees, in present case, fulfil all requirements of that section, namely, (1) machinery is owned by assessees; (2) machinery is used for purpose of assessees' business and; (3) machinery is as specified in sub-section (2). 10. We are inclined to agree with this reasoning of High Courts of Karnataka and Madras. 17. same judgment commented on analogous nature of Section 33 on Development Rebate and clarified that phrase used for purpose of business does not necessarily require usage of asset itself. It held thus: 13 Page 13 11. provisions relating to investment allowance are akin to provisions under Section 33 of Income Tax Act, 1961 relating to development rebate *** *** *** 12. Since provisions of Section 33 dealing with development rebate are similar to provisions of Section 32-A, it is necessary to look at cases dealing with grant of development rebate under Section 33. In case of CIT v. Castlerock Fisheries (1980) 126 ITR 382 Kerala High Court considered case of assessee which temporarily let out its cold-storage plant to sister concern. income derived by such letting was assessed by Income Tax Officer in hands of assessee as business income of assessee for relevant accounting years. assessee claimed development rebate in respect of cold-storage plant. High Court said that it was accepted by department that in letting out plant and machinery, assessee was still doing business and hire charges which it had received, had been assessed as business income of assessee. Hence assessee had complied with all conditions for grant of development rebate including condition that assessee had used machinery for purposes of its business. High Court said that it must, therefore, necessarily be assumed that conditions laid down in Section 33(1)(a) that machinery or plant is wholly used for purposes of business carried on by assessee, is duly satisfied and assessee is entitled to development rebate. In appeal before this Court, Bench of three Judges of this Court upheld decision of Kerala High Court in above case in CIT v. Castle Rock Fisheries (1997) 10 SCC 77. This Court also held that since 14 Page 14 department has proceeded on explicit basis that despite fact that plant had been temporarily let out by assessee to sister concern, plant and machinery was nevertheless being used by assessee for its business purpose by treating income derived by assessee by such letting out as business income of assessee, development rebate must be considered as having been rightly granted. Therefore, where business of assessee consists of hiring out machinery and/or where income derived by assessee from hiring of such machinery is business income, assessee must be considered as having used machinery for purposes of its business. 13. similar view has been taken by Andhra Pradesh High Court in case of CIT v. Vinod Bhargava (1988) 169 ITR 549 (AP) where Jeevan Reddy, J. (as he then was) held that where leasing of machinery is mode of carrying on business by assessee assessee would be entitled to development rebate. Court observed (p. 551): [O]nce it is held that leasing out of machinery is one mode of doing business by assessee and income derived from leasing out is treated as business income it would be contradictory, in terms, to say that machinery is not used wholly for purpose of assessee's business. 18. Hence, assessee meets second requirement discussed above. assessee did use vehicles in course of its leasing business. In our opinion, fact that 15 Page 15 trucks themselves were not used by assessee is irrelevant for purpose of section. 19. We may now advert to first requirement i.e. issue of ownership. No depreciation allowance is granted in respect of any capital expenditure which assessee may be obliged to incur on property of others. Therefore, entire case hinges on question of ownership; if assessee is owner of vehicles, then he will be entitled to claim on depreciation, otherwise, not. 20. In Mysore Minerals Ltd., M.G. Road, Bangalore Vs. Commissioners of Income Tax, Karnataka, Bangalore3, this Court said thus: authorities shows that very concept depreciation suggests that tax benefit on account of depreciation legitimately belongs to one who has invested in capital asset is utilizing capital asset and thereby losing gradually investment caused by wear and tear, and would need to replace same by having lost its value fully over period of time. 3 (1999) 7 SCC 106 16 Page 16 21. Black s Law Dictionary (6th Edn.) defines 'owner' as under: Owner. person in whom is vested ownership, dominion, or title of property; proprietor. He who has dominion of thing, real or personal, corporeal or incorporeal, which he has right of enjoy and do with as he pleases, even to spoil or destroy it, as far as law permits, unless he be prevented by some agreement or covenant which restrains his right. term is, however, nomen generalissimum, and its meaning is to be gathered from connection in which it is used, and from subject-matter to which it is applied. primary meaning of word as applied to land is one who owns fee and who has right to dispose of property, but terms also included one having possessory right to land or person occupying or cultivating it. term "owner" is used to indicate person in whom one or more interests are vested his own benefit. person in whom interests are vested has title to interests whether he holds them for his own benefit or benefit of another. Thus term title unlike owner .. It defines term 'ownership' as "Collection of right to use and enjoy property, including right to transmit it to others.... right of one or more persons to possess or use thing to exclusion of others. right by which thing belongs to some one in particular, to exclusion of all other persons. exclusive right of possession, enjoyment or disposal; involving as 17 Page 17 essential attribute right to control, handle, and dispose." same dictionary defines term own as To have good legal title . These definitions essentially make ownership function of legal right or title against rest of world. However, as seen above, it is nomen generalissimum, and its meaning is to be gathered from connection in which it is used, and from subject-matter to which it is applied. 22. scrutiny of material facts at hand raises presumption of ownership in favour of assessee. vehicle, along with its keys, was delivered to assessee upon which, lease agreement was entered into by assessee with customer. Moreover, relevant clauses of agreement between assessee and customer specifically provided that: (i) assessee was exclusive owner of vehicle at all points of time; 18 Page 18 (ii) If lessee committed default, assessee was empowered to re-possess vehicle (and not merely recover money from customer); (iii) At conclusion of lease period, lessee was obliged to return vehicle to assessee; (iv) assessee had right of inspection of vehicle at all times. For sake of ready reference, relevant clauses of lease agreement are extracted hereunder:- 2. Lease Rent lessee shall, during period of lease punctually pay to lessor free of any deduction whatsoever as rent for assets sum of moneys specified in Schedule B hereto. All rents shall be paid at address of Lessor shown above or as otherwise directed by Lessor in writing. rent shown in Schedule B shall be paid month on 1 st day of each month and first rent shall be paid on execution thereof. 4. Ownership assets shall at all times remain sole and exclusive property of lessor and lessee shall have no right, title or interest to mortgage, hypothecate or sell same as bailee 9. Inspection 19 Page 19 Lessor shall have right at all reasonable time to enter upon any premises where assets is believed to be kept and inspect and/or test equipment and/or observe its use. 18. Default If lessee shall make default in payment of moneys or rent payable under provisions of this agreement, Lessee shall pay to Lessor on sum or sums in arrears compensation at rate of 3% per month until payment thereof, such compensation to run from day to day without prejudice to lessor s rights under any terms, conditions and agreements herein expressed or implied. All costs incurred by Lessor in obtaining payment of such arrears or in endeavoring to trace whereabouts of equipments or in obtaining or endeavouring to obtain possession thereof whether by action, suit or otherwise, shall be recoverable from lessee in addition to and without prejudice to lessors right for breach of this lease. 19. Expiration of Lease: Upon expiration of this Lease, Lessee shall deliver to Lessor assets at such place as Lessor may specify in good repair, condition and working order. As soon as return of asset Lessor shall refund amount of security deposit. If lessee fails to deliver equipment to Lessor in accordance with any direction given by Lessor, Lessee shall be deemed to be tenant of assets at same rental and upon same terms herein expressed and such tenancy may be terminated by Lessor immediately upon default by lessee 20 Page 20 hereunder or upon 7 days notice previously given.. 23. Revenue s objection to claim of assessee is founded on lease agreement. It argued that at end of lease period, ownership of vehicle is transferred to lessee at nominal value not exceeding 1% of original cost of vehicle, making assessee in effect financer. However we are not persuaded to agree with Revenue. As long as assessee has right to retain legal title of vehicle against rest of world, it would be owner of vehicle in eyes of law. scrutiny of sale agreement cannot be basis of raising question against ownership of vehicle. clues qua ownership lie in lease agreement itself, which clearly point in favour of assessee. We agree with following observations of Tribunal in this regard: 20. It is evident from above that after lessee takes possession of vehicle under lease deed from appellant-company it (sic.) shall be paying lease rent as prescribed in schedule. ownership of vehicles would vest with 21 Page 21 appellant-company viz., ICDS as per clause (4) of agreement of lease. As per clause (9) of Lease agreement, M/s. ICDS is having right of inspection at any time it wants. As per clause (18) of Lease agreement, in case of default of lease rent, in addition to expenses, interest etc. appellant company is entitled to take possession of vehicle that was leased out. Finally, as per clause (19), on expiry of lease tenure, lessee should return vehicle to appellant company in working order. 21. It is true that lease of goods or rental or hiring agreement is contract under which one party for reward allows another use of goods. lease may be for specified period or in perpetuity. lease differs from hire purchase agreement in that lessee or hirer, is not given option to purchase goods. hiring agreement or lease unlike hire purchase agreement is contract of bailment, plain and simple with no element of sale inherent. bailment has been defined in S.148 of Indian Contract Act, as delivery of goods by one person to another for some purpose, upon contract that they shall, when purpose is accomplished, be returned or otherwise disposed of according to directions of person delivering them. 22. From above discussion, it is clear that transactions occurring in business of assessee-appellant are leases under agreement, but not hire purchase transactions. In fact, they are transactions of hire . Even viewed from angle of author of Lease Financing and Hire Purchase , views of whom were discussed in pages 16 and 17 of this order, transactions involved in appellant business are nothing but lease transactions. 22 Page 22 23. As far as factual portion is concerned now we could come to conclusion that leasing of vehicles is nothing but hiring of vehicles. These two aspects are one and same. However, we shall discuss case law cited by both parties on point. 24. only hindrance to claim of assessee, which is also lynchpin of case of Revenue, is Section 2(30) of MV Act, which defines ownership as follows: - owner means person in whose name motor vehicle stands registered, and where such person is minor, guardian of such minor, and in relation to motor vehicle which is subject of hire-purchase agreement, or agreement of lease or agreement of hypothecation, person in possession of vehicle under that agreement. 25. general opening words of Section say that owner of motor vehicle is one in whose name it is registered, which, in present case, is lessee. subsequent specific statement on leasing agreements states that in respect of vehicle given on lease, lessee who is in possession shall be owner. Revenue thus, argued that in case of ownership of vehicles, test of ownership is registration and 23 Page 23 certification. Since certificates were in name of lessee, they would be legal owners of vehicles and ones entitled to claim depreciation. Therefore, general and specific statements on ownership construe ownership in favour of lessee, and hence, are in favour of Revenue. 26. We do not find merit in Revenue s argument for more than one reason: (i) Section 2(30) is deeming provision that creates legal fiction of ownership in favour of lessee only for purpose of MV Act. It defines ownership for subsequent provisions of MV Act, not for purpose of law in general. It serves more as guide to what terms in MV Act mean. Therefore, if MV Act at any point uses term owner in any Section, it means one in whose name vehicle is registered and in case of lease agreement, lessee. That is all. It is not statement of law on ownership in general. Perhaps, repository of general statement of law on ownership may be Sale of Goods Act; (ii) Section 2(30) of MV Act must be read in consonance with sub- 24 Page 24 sections (4) and (5) of Section 51 of MV Act, which were referred to by Mr. S. Ganesh, learned senior counsel for assessee. provisions read as follows: - (4) No entry regarding transfer of ownership of any motor vehicle which is held under said agreement shall be made in certificate of registration except with written consent of person whose name has been specified in certificate of registration as person with whom registered owner has entered into said agreement. (5) Where person whose name has been specified in certificate of registration as person with whom registered owner has entered into said agreement, satisfies registering authority that he has taken possession of vehicle from registered owner owing to default of registered owner under provisions of said agreement and that registered owner refuses to deliver certificate of registration or has absconded, such authority may, after giving registered owner opportunity to make such representation as he may wish to make (by sending to him notice by registered post acknowledgment due at his address entered in certificate of registration) and notwithstanding that certificate of registration is not produced before it, cancel certificate and issue fresh certificate of registration in name of person with whom registered owner has entered into said agreement: 25 Page 25 Provided that fresh certificate of registration shall not be issued in respect of motor vehicle, unless such person pays prescribed fee: Provided further that fresh certificate of registration issued in respect of motor vehicle, other than transport vehicle, shall be valid only for remaining period for which certificate cancelled under this sub-section would have been in force. Therefore, MV Act mandates that during period of lease, vehicle be registered, in certificate of registration, in name of lessee and, on conclusion of lease period, vehicle be registered in name of lessor as owner. Section leaves no choice to lessor but to allow vehicle to be registered in name of lessee Thus, no inference can be drawn from registration certificate as to ownership of legal title of vehicle; and (iii) if lessee was in fact owner, he would have claimed depreciation on vehicles, which, as specifically recorded in order of Appellate Tribunal, was not done. It would be strange situation to have no claim of depreciation in case of particular depreciable asset due to vacuum of ownership. As afore-noted, entire lease rent 26 Page 26 received by assessee is assessed as business income in its hands and entire lease rent paid by lessee has been treated as deductible revenue expenditure in hands of lessee. This reaffirms position that assessee is in fact owner of vehicle, in so far as Section 32 of Act is concerned. 27. Finally, learned senior counsel appearing on behalf of assessee also pointed out large number of cases, accepted and unchallenged by Revenue, wherein lessor has been held as owner of asset in lease agreement. [Commissioner of Income-Tax Vs. A.M. Constructions4; Commissioner of Income- Tax Vs. Bansal Credits Ltd.5; Commissioner of Income-Tax Vs. M.G.F. (India) Ltd.6; Commissioner of Income- Tax Vs. Annamalai Finance Ltd.7]. In each of these cases, leasing company was held to be owner of asset, and accordingly held entitled to claim depreciation and also at higher rate applicable on 4 (1999) 238 ITR 775 (AP) 5 (2003) 259 ITR 69 (Del) 6 (2006) 285 ITR 142 (Del.) 7 (2005) 275 ITR 451 (Mad) 27 Page 27 asset hired out. We are in complete agreement with these decisions on said point. 28. There was some controversy regarding invoices issued by manufacturer whether they were issued in name of lessee or lessor. For view we have taken above, we deem it unnecessary to go into said question as it is of no consequence to our final opinion on main issue. From perusal of lease agreement and other related factors, as discussed above, we are satisfied of assessee s ownership of trucks in question. 29. Therefore, in facts of present case, we hold that lessor i.e. assessee is owner of vehicles. As owner, it used assets in course of its business, satisfying both requirements of Section 32 of Act and hence, is entitled to claim depreciation in respect of additions made to trucks, which were leased out. 30. With regard to claim of assessee for higher rate of depreciation, import of same term 28 Page 28 purposes of business , used in second proviso to Section 32(1) of Act gains significance. We are of view that interpretation of these words would not be any different from that which we ascribed to them earlier, under Section 32 (1) of Act. Therefore, assessee fulfills even requirements for claim of higher rate of depreciation, and hence is entitled to same. 31. In this regard, we endorse following observations of Tribunal, which clinch issue in favour of assessee. 15. CBDT vide Circular No. 652, dated 14-6- 1993 has clarified that higher rate of 40% in case of lorries etc. plying on hire shall not apply if vehicle is used in non- hiring business of assessee. This circular cannot be read out of its context to deny higher appreciation in case of leased vehicles when actual use is in hiring business. (Emphasis supplied) Perhaps, author meant that when actual use of vehicle is in hire business, it is entitled for depreciation at higher rate. *** *** *** 39. gist of decision of apex court in case of Shaan Finance (P) Ltd. is that where business of assessee consists of hiring out machinery and/ or where income derived by 29 Page 29 assessee from hiring of such machinery is business income, assessee must be considered as having used machinery for purpose of business. 40. In present case, business of assessee consists of hiring out machinery and trucks where income derived by assessee from hiring of such machinery is business income. Therefore, assessee- appellant viz. ICDS should be considered as having used trucks for purpose of business. 41. It was further brought to our notice that Hon ble Karnataka High Court in its judgment in ITRC No. 789 of 1998 for asst. year 1986- 87 in case of assessee- appellant itself (viz. ICDS) has already decided issue in question in favour of assessee, confirming decision of CIT (A) and ITAT holding that assessee company is entitled to investment allowance and additional depreciation. In this judgment of Karnataka High Court decision of Supreme Court reported in 231 ITR 308 was relied upon. Therefore we have no hesitation to hold that appellant- company is entitled to higher rate of depreciation at 50% on trucks leased out by it. We therefore, reverse orders of CIT (Appeals) on this issue. 32. For foregoing reasons, in our opinion, High Court erred in law in reversing decision of Tribunal. Consequently, appeals are allowed; impugned judgments are set aside and substantial questions of law framed by High Court, extracted in para 7 (supra), are 30 Page 30 answered in favour of assessee and against Revenue. There will, however, be no order as to costs. .. . (D.K. JAIN, J.) .. . (JAGDISH SINGH KHEHAR, J.) NEW DELHI, JANUARY 14, 2013 ARS 31 Page 31 M/S I.C.D.S. LTD. v. COMMISSIONER OF INCOME TAX, MYSORE & ANR