Here is the official link of judgement of annamalai finance limited (madras HC)
https://judis.nic.in/judis_chennai/qrydisp.aspx?filename=4307
Extracts from it are as follows:
6.3. The Apex Court in COMMISSIONER OF INCOME TAX v. SHAAN FINANCE
P. TD., [1998] 231 ITR 308 held that where the business of the assessee
consists of hiring out of machinery and where the income derived by the
assessee from such hiring is business income the assessee must be considered
as having used the machinery for the purpose of its business. This position
was reiterated by the Supreme Court in COMMISSIONER OF INCOME TAX v.
MAHARASHTRA APEX CORPORATION LTD, [2002] 254 ITR 98, and also the decision of
this Court in COMMISSIONER OF INCOME TAX v. MADAN AND CO., [2002] 254 ITR
445.
6.4. We are, therefore, of the firm opinion that the Tribunal was
right in granting 100% depreciation on steel rollers, and accordingly, we
answer this question in affirmative in favour of the assessee and against the
revenue.
Inference: Use by lessee is not important.
9.1. Question (viii): Whether in the facts and circumstances of the
case, the Tribunal was right in holding that leased out commercial vehicles
are eligible for higher rate of depreciation?
9.2. This issue is settled by a decision of the Delhi High Court in
COMMISSIONER OF INCOME TAX v. BANSAL CREDITS LTD., [2003] 259 ITR 69. On a
plain reading of Section 32 of the Act and entry III(2)(ii) in Appendix I to
the Rules, it is clear that it is the end user of the specified asset which is
relevant for determining the percentage of depreciation. Section 32 of the
Act requires that the asset should be used for the purpose of the assessee's
business and the entry in the Appendix refers to the user it should be put to.
Once it is accepted that the leasing out of the vehicles is one of the modes
of doing business by the assessee and in fact the income from such leasing is
treated as business income of the assessee, it would be clearly contradictory
in terms to hold that the vehicles in question were not used wholly for the
purpose of the assessee's business. The Delhi High Court held that the
assessees, which were engaged in the business of leasing out commercial
vehicles, were entitled to depreciation at the higher rate of 40 per cent as
provided in item III(2)(ii) of Part A of Appendix I to the Income Tax Rules,
1962.
9.3. This Court in COMMISSIONER OF INCOME TAX v. MADAN & CO., [2002]
254 ITR 445, explaining reason for eligibility for higher rate of depreciation
in the case of leased out vehicles, while interpreting Entry III(2)(ii) of
Appendix I, namely "Motor buses, motor lorries and motor taxis used in a
business of running them on hire", held as follows:
"Owners of vehicles who used it for their own purposes are allowed to claim
depreciation at the normal rates. Owners of vehicles mentioned in the entry
when they allow it to be used for a price are allowed to obtain a higher rate
of depreciation. The distinction is based upon the fact that a person who
obtains the temporary right to use of the vehicle on payment of a charge price
is likely to, by the nature of his user, such user being for the purpose of
the hirer and not the owner, depreciate the value of the vehicle faster.
All such vehicles, which are so used, are likely to undergo a little more
rough use than vehicles owned by and used for the personal purposes of the
owner. It is in recognition of that fact of the depreciation occurring at a
faster rate for such vehicles that the law provides for the higher rate of
depreciation.
The fact that the assessee here chose to lease out the vehicle does not on
that score disentitle the assessee to claim the benefit of the higher
depreciation. The lease of the vehicle enables the lessee to have possession
of the vehicle, and have the right to use the vehicle as the lessee wishes,
subject to the terms of any contract between the parties. The lessee during
the period of user is also likely to have to maintain the vehicle subject to
the terms of the contract between the parties. For having the benefit of the
user of the vehicle, the lessee is required to pay a price which is the lease
amount, whether called rent or hire charges. The terminology used for
describing the payment makes no difference in substance. What is paid is an
amount in consideration of the right obtained from the owner to have the use
of the vehicle for the benefit of the lessee for the stated period, and, or
the stated purpose, whether or not by employing his own drivers, and whether
or not also undertaking to maintain the vehicle during the period of the lease
or hire.
The word "hire" used in this entry is only meant to denote that the use of the
vehicle is not by the owner himself for his own purposes, but it is given to
another for use for a limited period of that other for a consideration. For
the purpose of this entry there is no qualitative difference between lease of
the vehicle for a specified period for consideration and letting the vehicle
on hire for short duration on payment of hire charges."
9.3. Applying the ratio laid down in the above decisions, viz., (i)
COMMISSIONER OF INCOME TAX v. BANSAL CREDITS LTD., [2003] 259 ITR 69; and
(ii) COMMISSIONER OF INCOME TAX v. MADAN & CO., [2002] 254 ITR 4 45, this
question is answered in affirmative, in favour of the assessee and against the
revenue.
Inference : Use by lessee is not important
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