Circular No. 652

243. Whether, for deriving benefit of higher depreciation, motor lorries must be hired out to some other person or whether user of same in assessee’s business of transportation of goods on hire would suffice

What this is

Circular No. 652 was issued by the Central Board of Direct Taxes on 14 June 1993. Its subject is 243. Whether, for deriving benefit of higher depreciation, motor lorries must be hired out to some other person or whether user of same in assessee’s business of transportation of goods on hire would suffice.

What it does

Settles that the higher rate of depreciation on motor lorries under sub-item 2(ii) of Item III of Appendix I to the Income-tax Rules, 1962 does not require the lorries to be hired out to someone else. Using them in the assessee's own business of transporting goods on hire is enough. The Board extends the reasoning of Circular No. 609 dated 29 July 1991, which allowed the higher rate to a tour operator or travel agent using his own buses or taxis to provide transport services to tourists. It adds the limit: the higher rate does not apply where the buses or lorries are used in some other, non-hiring, business of the assessee.

Why it was issued

A question had been raised whether the vehicles must be hired out to another person, or whether use in the assessee's own goods transport business on hire would suffice.

Who it reaches

Goods transport operators owning lorries used in their own carriage business
Tour operators and travel agents running their own buses and taxis
Businesses using lorries for their own goods, who are outside the higher rate
Assessing Officers applying the depreciation schedule

The instrument, as the Board published it

The words below are the department’s own, reproduced from its published text. Where the department’s copy carried a publisher’s notes after the instrument, those are not reproduced.

243. Whether, for deriving benefit of higher depreciation, motor lorries must be hired out to some other person or whether user of same in assessee’s business of transportation of goods on hire would suffice
1. Under sub-item 2(ii ) of Item-III of Appendix I to the Income-tax Rules, 1962, higher rate of depreciation is admissible on motor buses, motor lorries and motor taxis used in a business of running them on hire. A question has been raised as to whether, for deriving the benefit of higher depreciation, motor lorries must be hired out to some other person or whether the user of the same in the assessee’s business of transportation of goods on hire would suffice.
2. In Board’s Circular No. 609, dated 29-7-1991 (Sl. No. 244 ) it was clarified that where a tour operator or travel agent uses motor buses or motor taxis owned by him in providing transportation services to tourists, higher rate of depreciation would be allowed on such vehicles. It is further clarified that higher depreciation will also be admissible on motor lorries used in the assessee’s business of transportation of goods on hire. The higher rate of depreciation, however, will not apply if the motor buses, motor lorries, etc., are used in some other non-hiring business of the assessee.
Circular : No. 652, dated 14-6-1993.

What to watch

The distinguishing line is hiring: the vehicle must be used in a business of running it on hire, whether for another's goods or another's passengers.
A manufacturer or trader using lorries to move his own stock is in a non-hiring business and gets the ordinary rate.
The rates themselves live in Appendix I to the Rules and have been revised repeatedly since 1993; the circular fixes the test, not the figure.

Where you meet it

A depreciation disallowance in a transporter's assessment where the officer has restricted the claim to the ordinary rate on the ground that the lorries were not let out to anyone.

← Circular No. 653 · Circular No. 651 →

A circular binds the department, not you and not a court. The Board issues a circular to its own officers. An assessee may hold the department to a circular that helps him; the department cannot hold an assessee to one that hurts him, and the Tribunal and the courts decide the law for themselves.

Source: the Income Tax Department’s own published text — its page for this instrument.