Asstt. Commissioner of Income Tax vs Vipin Doshi

By the Court

Heard.

Following substantial question of law is involved in this appeal :

"Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the drilling machines used by the assessee should be treated as earth-moving machinery, falling under entry 4 of the item III-D of Part I of Appendix I of the Income Tax Rules, 1962, and, therefore, entitled to depreciation at 30 per cent ?"

Admit.

On the request of the learned counsel for the parties, we have taken this matter for final disposal.

This appeal u/s 260A of the Income Tax Act is directed against the order dated 26-10-1998, passed by Tribunal, Jaipur Bench. The respondent-assessee is proprietor of M/s Mewar Trading Company, Udaipur. He filed return declaring a loss of Rs. 7,41,062. The assessing officer completed assessment on 30-3-1987, on loss of Rs. 3,23,531. It was observed that an investment allowance shall be allowed next year if there is positive income. Subsequently notice u/s 148 was served on the assessee. The assessee claimed depreciation on rig at the rate of 30 per cent instead of 15 per cent. It was contended that 30 per cent depreciation is to be allowed on machinery involved in heavy construction. On the basis of material available on the record the assessee Officer arrived at the conclusion that the work done with the rig by the assessee during 11 years could not be categorised as heavy construction, accordingly in his opinion the assessee could not claim depreciation @ 30 per cent. The Commissioner (Appeals) found that the drilling operations had resulted in the production of underground water for use on the surface of the ground and in that circumstances it must be held that the assessee is an industrial undertaking for the purpose of production of underground water for use on the surface of the ground. Thus, in the opinion of Commissioner (Appeals), the required conditions u/s 32A(2)(5)(iii) were fully satisfied, as such the assessee was entitled to claim deduction on account of the investment allowance. The Commissioner (Appeals) allowed the appeal and directed the assessing officer to allow the depreciation @ 30 per cent and investment allowance on the cost of rig machine. The view of the Commissioner (Appeals) were confirmed by the Tribunal, Jaipur Bench.

It is contended by the learned counsel for the revenue that the Tribunal has committed an error in allowing depreciation on rig machine @ 30 per cent for the reason that machinery involved in the heavy construction. It is submitted that the basic condition for allowing the claim of investment allowance is manufacturing, production or construction of article or thing. It is further submitted that the assessee is a contractor for drawing tube wells and installing handpumps for PHED and the assessee does not fulfil the basic condition provided u/s 32A of the Act, i.e., manufacturing, production or construction of article or thing. Learned counsel has placed reliance on a reported decision of this court, dated 11-5-2002, rendered in Commissioner of Income Tax Vs. Bhola Ram, wherein this court has held that rig and compressors mounted on a lorry used for drilling does not fall in the category of heavy machinery or motor lorry under entry No. III(2)(D)(9) of Part 1 of the Income Tax Rules, 1962. The court further held that in such circumstances, the claim of depreciation at . the special rate of 30 per cent cannot be accrued in respect of such rig and compressors. In our view the instant case is squarely covered by the judgment of this court referred to above.

Consequently, this appeal is allowed and the order of Tribunal, dated 26-2-1998, and that of the Commissioner (Appeals), dated 27-1-1992, are set aside. The order of the Assessing officer, dated 27-1-1992 is restored.

OPEN