Commissioner of Income Tax vs Gangotri Tube Wells (P.) Ltd.

A.R. Tiwari, J.—At the instance of the Commissioner, Bhopal, the Tribunal has stated the case and referred the undernoted questions labelled as of law, arising out of the order dated 23-1-1992 passed by the Tribunal in the IT Appeal Nos. 243 and 244 (Indore) of 1991 on rejection of the applications registered as R.A. Nos. 86 and 87 (Indore) of 1992 for the assessment year 1987-88 for our opinion- 1. Whether, on the facts and in the circumstances of the case, the Tribunal is justified in allowing 30 per cent depreciation on rig and air compressor used in drilling of tube-wells in accordance with entry D(4) of the Depreciation Schedule under income tax Rules ?

Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that the assessee-firm which carries on the business of drilling bore-wells is an industrial undertaking engaged in manufacturing or producing articles or things and is entitled to investment allowance u/s 32A of the Act ?

Briefly stated, the facts of the case are that the years of assessment are 1987-88 and 1988-89. The assessee is a Private Ltd. Company. The original assessments were completed on 21-12-1987 and 26-12-1988 respectively. The assessment orders were considered erroneous and prejudicial to the interests of the revenue by the Commissioner. He noticed that the Assessing Officer had allowed depreciation at the rate of 30 per cent on air compressor and drilling rig and other accessories whereas in his opinion depreciation at the rate of 15 per cent should have been allowed. He also noticed that the assessee-company was allowed investment allowance u/s 32A of the income tax Act, 1961 (''the Act''). He was of the opinion that the assessee could not be regarded as an industrial undertaking. He, therefore, set aside the assessment order for both the assessment years and directed de novo assessments. The assessee filed an appeal before the Tribunal. The Tribunal held that the air compressor and drilling rig and their accessories fell within the description ''earth moving machinery employed in heavy construction work such as Dams, Tunnels, Canals etc'' The Tribunal placed reliance on the judgment in Commissioner of Income Tax Vs. Super Drillers, endered by the Andhra Pradesh High Court and, thus, did not agree with the opinion of the Commissioner. The Tribunal also held that drilling of tube-wells resulted in the production of underground water and, thus, held that activity resulted in industrial undertaking. The Tribunal, thus, held that the assessee was entitled to investment allowance u/s 32A as small scale industrial undertaking on 23-1-1992. Dissatisfied, the department filed the application u/s 256(1) of the Act. The Tribunal stated the case and referred the aforesaid questions.

We have heard Shri A.M. Mathur, the learned senior counsel with Shri A.K. Shrivastava for the applicant and Shri G.M. Chaphekar with Shri Sharda, the learned counsel for the non-applicant.

The counsel for the non-applicant pointed out that the question covered by question No. 1 is answered by this Court in CIT v. Kamdhenu Agencies [Miscellaneous Civil Case No. 131 of 1992] in favour of the assessee, and against the department after making reference to the decision in Super Drillers case, (supra). The counsel for the applicant has urged nothing substantial to persuade us to take a different view in the matter. It is, thus, luculent that question No. 1 stands concluded.

As regards the question covered by question No. 2, it is submitted that this question is consequential to question No. 1. The assessee carrying on the business of drilling bore wells is held to be an industrial undertaking, engaged in manufacturing or producing articles or things. This point is also answered in the decision of Super Drillers'' case (supra) holding that drilling operations do result in the production of underground water and in that sense, it must be held that the assessee was an industrial undertaking. We respectfully approve of the view taken in the aforesaid decision.

In view of the aforesaid position, we answer both the questions, in favour of the assessee and against the department. This Miscellaneous Civil Case, thus, stands decided in terms indicated above, but with no orders as to costs. Counsel fee for either side is, however, fixed at Rs. 750 if certified.