SYED SHAH MOHAMMED QUADRI J.

( 1 ) IN these reference cases, under section 256 (1) of the Income-tax Act, 1961, at the instance of the Revenue, the following question is referred to this court for opinion : "whether, on the facts and in the circumstances of the case, the Appellate Tribunal is right in law holding that the assessee is entitled to depreciation on motor trucks ?"

( 2 ) THE assessee in all these cases is the same. The question arises in respect of different assessment years. R. C. No. 13 of 1988 relates to the assessment year 1979-80; R. C. No. 22 of 1988 pertains to the assessment years 1977-78 and 1978-79 and R. C. No. 101 of 1988 arises from out of assessment proceedings for the assessment years 1980-81 and 1981-82. The assessee, a public limited company, purchased trucks. The depreciation allowance, which is the subject-matter of these references, was claimed by the assessee for the above said assessment years. Various amounts were claimed for those assessment years. After purchasing the trucks, the assessee entered into agreements with contractors. The germane terms and conditions of the agreement show that the assessee delivered the trucks to the contractors for operation and transporting wholly and exclusively the material of the assessee. The contractors were to operate the trucks exclusively for the above said purposes. They agreed to deposit a sum of Rs. 15,000 as security for fulfilment of the contract and a further sum of Rs. 33,000 in 42 instalments at the rate of Rs. 1,000 per month for the first 12 months and Rs. 700 per month for the further period of 30 months. The operational staff, to be appointed by the contractors on the trucks, was to have the prior approval of the assessee which had the discretion to disallow any member of the staff to work on the vehicle. Though the contractors were given the custody and possession of the trucks during the period of operation, yet they were under an obligation not to allow the trucks to be used by anyone else or to sub-let the same in any manner or to part with the possession of the same. They were bound to use the trucks exclusively for the specific purpose of the assessee. It is also specifically provided in the agreement that the assessee would remain the owner of the trucks and had the power to get back the possession of the trucks from the contractors, which was delivered to them for purposes of operation. The possession of the contractors is said to be permissive which they would forfeit on violation of any terms and conditions of the agreement. However, the assessee undertook to transfer the ownership of the trucks to the contractors after 42 months from the date of the agreement in the event of the contractor fulfilling the conditions of the agreement. It is also worth noticing that the contractors had the right under the agreement to seek termination of the contract without completing the full target of the transport service of Rs. 5,00,000. They were bound to deliver the vehicle in roadworthy condition. However, if the condition of the trucks at the time of delivery, was found to be unroadworthy, the assessee reserved its right to deduct all the amounts due and the damages caused to the trucks and to repair the same to make it roadworthy. For this purpose, the assessee had the right to deduct the amounts from the deposits made by the contractors. Two more conditions are also relevant and they are - that the assessee had to arrange for a comprehensive insurance policy for the trucks and that was on behalf of the contractors who were bound to reimburse the assessee in that regard; the other condition is that the contractors were bound to make good to the assessee any loss or damage caused to the trucks either by accident or for any other reason. On the basis of the above mentioned clauses of the agreement, the assessee claimed depreciation on the trucks, but the Income-tax Officer disallowed the same. The Appellate Assistant Commissioner confirmed th

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