Query on Depreciation

My Friend as far as I know Income from Building is always chargeable u/h House Property except in case of inseparable composite rent and when let out is to carry on main business more efficiently.

Refer link https://law.incometaxindia.gov.in/DitTaxmann/IncomeTaxActs/2005ITAct/casesec22.htm

Specifically case laws :

1)

Even for real estate businessman income from property is ‘property income’ for period of ownership - If an assessee carries on business of purchasing and selling buildings, income received from the buildings so long as they are owned by the assessee will be shown under the head ‘Income from house property’ and not under the head ‘Profits and gains of business’ - CIT v. Chugandas & Co. [1965] 55 ITR 17 (SC).

2)

Section 22 applies not only to dwelling houses but also to buildings used for other purposes - The word ‘building’ is not confined in its scope only to dwelling houses. The word ‘house’ in association with other words also has many other meanings. But, a commercial building is not regarded as a house. That, however, would not take the income from such buildings out of the ambit of section 22. Though it is not clear from the context as to why the Act describes income from property as income from house property, the substantive provision of law which creates the charge and obligates the person who receives such income to have it assessed under that head does not confine its application only to house property, but extends it to all buildings whether such buildings are used as dwelling houses or for other purposes - CIT v. Chennai Properties & Investments Ltd. [2004] 136 Taxman 202 (Mad.).

Therefore in the first four cases  assessee in not eligible to depreciation.

And for cases 5-8: Please substitute CAR for machinery and then answer because car has two rates whereas machinery(in general) has one rate. therfore machinery is not able to solve my query.

Arre Bhai Thanks ki kya baat hai. Yehi to CA CLUB ka main objective hai ki collectively knowledge gain karo.

U R JUST MIXING A PROVISION INTO ANOTHER PROVISION , U R RIGHT ON ONE HAND THAT DEPRICATION IS NOT ALLOWED IF BULIDING  IS GIVEN ON RENT EVEN , MEANS ITS CHARGABLE UNDER THE HEAD HOUSE PROPERTY BUT WHEN U R  TELLING ITS HIS BUSINESS TO GIVE A BUILDING ON RENT , THEN HE CAN CLAIM DEPRICATION

COME BACK FROM WE START , TELL ME THE ANSWER OF ALL THE QUESTIONS  U ASK FOR

TILL THAT TIME I GET FEW MORE PEOPLE TO THIS FORUM SO THE MATTER CAN GET RESOLVE

building which are used for residential purpose except hotels and boarding houses  rate of deprication is 5%

now tell me what the use of this line in the finance act , when dep. for the building use for the residential purpose cant be charge under any circumstance

u r right but u r mixing the provisions of different heads

My Friend dont lose patience. YES, I am confused thats why I posted query here. If I were sure then why should I have posted it.

My answers to all the Q is:

CASE 1 to 4 : NO depreciation, Income assessable under head HOUSE PROP.

Case 5 & Case 7 : Income u/h PGBP. hence depreciation has to be claimed at higher rate ( say for car at 30%)

Case 6 & case 8 : Income u/h Other Sources, depreciation still has to be claimed but rate (say for car ) will be lower i.e 15%

Originally posted by : ramsinghania
	building which are used for residential purpose except hotels and boarding houses  rate of deprication is 5% now tell me what the use of this line in the finance act , when dep. for the building use for the residential purpose cant be charge under any circumstance u r right but u r mixing the provisions of different heads

 Suppose, TATA Steel let out residential quarters to its employees. In this case, giving on rent is not the business of TATA STEEL but it has done so to carry the business more efficiently. In this case, income from letting is chargeable u/h PGBP but rate of dep will be 5%

sorry i dnt agree ...and i m not loosing the paticence 

yes i do agree on tata example , see dnt mix all the provision

get clear first on the dought of lease which book u use

if u r using t.n. manoharan or singhania i can tell  u the page number of the relavant provisions

read that might be useful bcause lease one might be even ask in exam

Why others are not taking part on this issue????

If only we two keep debating, matter is never gonna resolve. U will mention your view and I will mine.

I am using Bare Act as refernce. And for exams I use Vinod Gupta's Modules

Anyway Thanks

i think the same

lets read and then discuss i think that the best way to solve it now

If  building is let out whther or not its u r business activity of letting out , it wil lbe charged under 14 as it is sepcific section for income from house property , except when it is let out for purpose out facilitating business ( example of TATA steel given by nitin sighal above).

hence i too agree  tat in first 4 cases  there is no depreciation....

@ ramsinghania , u asked the relevance of" builing used for res pupr 5% and other purpose 10% in FA.....etc"

a company owns a building it is using it for residential purpose of its director -- dep 5%

company using it as a factory -- dep 10% 

next when comes to leasing ( very importnant i feel) 

i couldnt read all the judgement notes posted by u guys,

As per some decided case laws judgement tat i have read from t.n.manohrana for nov exam page 285 4th point under heading case laws 

cit vs madan @ co --higher rate is available for vehicle running on hire,running on hire neednot be assesee's own business. assessee carrying on lease businessgives on lease which r run on hire higher rate eligible.

cit vs goodwill india ltd-- merely because lessor lease it out to lessee higher depreciation canot be availed , but it would be available if lessee uses the vehicle for running on hire. the inference is that vehicla run  on hire would depreciate faster 

so from the above points which i read from my book i inferred tat end use has relevance when it is leased....

if its assees business of letting  and let out  for commercial use -- higher rate

if its not assees business and let out for commercial--- higgher rate

if its assees business n let for non commercial purpose-- low rate

if its not assees business n let out for commercial purpose-- low rate

I welcome for comments on my answer....

@ ramya kinthali : Thanks for the opinion. Yes, But still differ from your opinion on last four cases.

The Case of CIT v/s Madan & Co. is :

The word ‘hire’ used in the entry relating to motor lorries etc., 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. Thus, an assessee leasing out motor lorries owned by him and receiving lease rentals would be entitled to higher rate of depreciation by treating the vehicles as being used in the business of running them on hire -  CIT v. Madan & Co. [2002] 254 ITR 445 (Mad.).

It is nowhere specified in that lessee must use it for commercial purposes. Hence I Think use by lessee is irrelevant.

IT is clearly spelt out in text of case u posted...

 Thus, an assessee leasing out motor lorries owned by him and receiving lease rentals would be entitled to higher rate of depreciation by treating the vehicles as being used in the business of running them on hire 

in case of motor car thing to be checked for higher depreciation is whether end user has used it for running on hire or not

so if end use is running on hire means higher rate can be claimed isn't it.....

and the wording commercial purpose i said in previous post is  for house property and machinery...

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