COMMISSIONER OF Income Tax vs GANGOTRI TUBE WELLS (P.) LTD.

A. R. TIWARI J. - At the instance of the Commissioner of Income Tax, Bhopal, the Tribunal has stated the case and referred the undernoted questions labelled as of law, arising out of the order dated January 23, 1992, passed by the Tribunal in I.T.A. Nos. 243 and 244/Ind. of 1991 on the applications registered as R.A. Nos. 86 and 87/Ind. of 1992, for the assessment year 1987-88 for our opinion :

"(1) Whether, on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal is justified in allowing 30 per cent. depreciation on rig and air compressor used in drilling of tubewells in accordance with entry D(4) of the Depreciation Schedule under the Income Tax Rules ?

(2) Whether, on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was correct in law in holding that the assessee which carries on business of drilling borewells is an industrial undertaking engaged in manufacturing or producing articles or things and is entitled to investment allowance u/s 32A of the Income Tax 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 limited company. The original assessments were completed on December 21, 1987 and December 26, 1988, respectively. The assessment orders were considered erroneous and prejudicial to the interests of the Revenue by the Commissioner of Income Tax. He noticed that the Assessing Officer had allowed depreciation at 30 per cent. on air-compressor and drilling rig and other accessories whereas in his opinion depreciation at 15 per cent. should have been allowed. He also noticed that the assessee-company was allowed investment allowance u/s 32A the Act. He was of the opinion that the assessee could not be regarded as an industrial undertaking. He, therefore, set aside the assessment orders for both the assessment years and directed de novo assessments. The assessee filed appeals 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, , rendered by the High Court of Andhra Pradesh and thus did not agree with the opinion of the Commissioner of Income Tax. The Tribunal also held that drilling of tubewells resulted in the production of underground water and, thus, held that activity resulted in an industrial undertaking. The Tribunal, thus, held that the assessee was entitled to investment allowance u/s 32A of the Act as a small scale industrial undertaking. Dissatisfied, the Department filed an application u/s 256(1) of the Income Tax Act, 1961. The Tribunal stated the case and referred the aforesaid questions.

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

Counsel for the non-applicant pointed out that the question covered by question No. 1 is answered by this court in Miscellaneous Civil Case No. 131 of 1992 Commissioner of Income Tax Vs. Kamdhenu Agencies, ) in favour of the assessee, and against the Department after making reference to the decision in Commissioner of Income Tax Vs. Super Drillers, . 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 borewells is held to be an industrial undertaking, engaged in manufacturing or producing articles or things. This point is also answered in the decision of Commissioner of Income Tax Vs. Super Drillers, , 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 the terms indicated above, but with no orders as to costs. Counsel fee for either side is, however, fixed at Rs. 750, if certified.

Transmit a copy of this order to the Tribunal.