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          IN THE SUPREME COURT OF INDIA

           CIVIL APPELLATE JURISDICTION

           CIVIL APPEAL NO. 3342 OF 2008           (Arising out of SLP(C) No.12846 of 2007)

Commr. of Income Tax, Gujarat                ... Appellant(s)

             Versus

Gupta Global Exim (P) Ltd.                 ... Respondent(s)

                       ORDER

   Leave granted.

   This Civil Appeal is filed by the Department against the

judgment of the Gujarat High Court in Tax Appeal No.203 of

2006.

   The short question which arose for determination before

the High Court was : Whether the respondent-assessee was

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entitled to depreciation at the rate of 40% on trailers and

loaders?

    Briefly, the facts are as follows:

    The assessee is a private limited company engaged in the

business of importing timber logs from abroad and selling

them in India.     During the previous year relevant to the

Assessment Year 1998-99, the respondent-assessee had

purchased trailers and loaders and put them to use on hire.

    The Assessment Officer (AO) took the view that the

assessee was, during the relevant assessment year, in the

business of timber trading and it is only occasionally that the

trucks owned by the assessee were given out on hire to

outside parties and, therefore, the assessee was not in the

business of running the trucks on hire and, therefore, the

assessee was not entitled to claim higher rate of depreciation

at 40%. This finding of the AO was reversed by CIT(A) vide

order dated 29th October, 2004.      It was held by CIT(A) that

transportation income of Rs.12,50,639/- by was of running

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the subject vehicles on hire was an integral part of the

assessee’s business and that its inclusion under the head

‘Business Income’     was not disputed even by the AO.      This

finding of CIT(A) was affirmed by the Tribunal.          By the

impugned judgment, the High Court has refused to interfere

on the ground that the matter involved essentially questions of

fact. Hence, this Civil Appeal by the Department.

      Generally,   this Court   does   not interfere   with the

concurrent finding of facts recorded by the authorities below.

However, we are of the view that in this case, a neat

substantial question of law arose for determination which

needed interpretation of the Depreciation Table given in

Appendix-I to the Income-tax Rules, 1962.        The said Table

gives rates at which depreciation was admissible.

      We quote herein-below clause III which reads as under:

       "Block of assets           Depreciation allowance as                                   percentage of written down                                              value III.    Machinery and Plant

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(i) Machinery and plant other                             25 than those covered by sub- items (1A), (2) and (3) below

(1A) Motor cars, other than those used in a business of running      them     on     hire,                        20 acquired or put to use on or after the 1st day of April, 1990

(2)(i) Aeroplanes-Aeroengines           I                                         I (ii) Motor buses, motor lorries         I                 40 and motor taxis used in a               I business of running them on             I hire."                                  I

    Under     sub-item    2(ii)   of       Item   III,   higher   rate   of

depreciation is admissible on motor trucks used in a business

of running them on hire. Therefore, the user of the same in

the business of the assessee of transportation is the test.

    In the present case, none of the Authorities below (except

the AO) has examined the matter by applying the above test.

The AO has given his finding that the assessee was not in the

business of transportation as he was only in the business of

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trading in timber logs. That, the burden was on the assessee

to establish that it is the owner of motor lorries and that it

used the said motor lorries/trucks in the business of running

them on hire.

    In our view, the entire approach of CIT(A) was erroneous

when he has stated that the transportation income of

Rs.12,50,639/- by way of running the subject vehicles on hire

is an integral part of the appellant’s business and its inclusion

in the head ‘business income’ is not disputed even by the AO.

In our view, mere inclusion of Rs.12,50,639/- in the Total

Business Income is not the determinative factor for deciding

whether trucks were used by the assessee during the relevant

year in a business of running them on hire. In our view, the

CIT(A) had erred in relying upon the accrual of income as a

determinative factor for coming to the conclusion that trucks

were used in a business of running them on hire.

    What is relevant for consideration under sub-item 2(ii) of

Item III of Appendix I to the Income-tax Rules, 1962 is

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whether the assessee was in the business of hiring out his

trucks in addition to his business of trading in timber. The

order of assessment clearly indicates that the assessee was

only in the business of trading in timber. We do not have the

Returns filed by the assessee before us. We do not have the

constitution of the assessee Company before us. There is no

evidence to indicate that the assessee was in the business of

hiring out motor lorries for running them to earn business

income. The entire inference is drawn by CIT(A) only on the

footing that the AO had treated Rs.12,59,639/- as part of

Total Business Income which is not determinative of the above

test, viz., whether the trucks were used in the transportation

business as claimed by the assessee.

    For the aforestated reasons, we set aside the impugned

judgment of the High Court and we remit the matter to

Commissioner    of   Income   Tax   (Appeals)   for   de   novo

examination of the case in accordance with law. Needless to

add that before deciding the matter afresh, the CIT (A) would

give opportunity to the assessee to present its case and, if so

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advised assessee herein can seek amendments of grounds of

appeal to which the Department may put its additional say.

      However, we make it clear that we express no opinion on

the merits of the case as to whether the assessee was in the

business of running the motor lorries on hire. In that regard

contentions are kept open.

      Accordingly, the Appeal stands allowed with no order as

to costs.

                                                  ...................... ..............J.                                     (S.H. KAPADIA)

                                          ............................                                                            ........J.                                      (B. SUDERSHAN REDDY)

New Delhi; May 06, 2008.

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