Rajasthan H.C : 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 IT Rules, 1962, and, therefore, entitled to depreciation at 30 per cent ?

High Court Of Rajasthan

Assistant Commissioner Of Income Tax vs. Vipin Doshi

Sections RULE, Appexdix I, Part I, Entry No. III(iii) D(4), RULE,

Appexdix I, Part I, Entry No. III(ii) D(9)

N.N. Mathur & H.R. Panwar, JJ.

IT Appeal No. 31 of 1999

2nd July, 2002

Counsel Appeared : Sandeep Bhandawat, for the Appellant : Vikas Balia, for the Respondent

JUDGMENT

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 IT 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 under s. 260A of the IT Act is directed against the order dt. 26th Oct., 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 AO completed assessment on 30th March, 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 under s. 148 was served on the assessee. The assessee claimed depreciation on rig @ 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 AO 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 CIT(A) 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 CIT(A), the required conditions under s. 32A(2)(5) (iii) were fully satisfied, as such the assessee was entitled to claim deduction on account of the investment allowance. The CIT(A) allowed the appeal and directed the AO to allow the depreciation @ 30 per cent and investment allowance on the cost of rig machine. The view of the CIT(A) were confirmed by the Tribunal, Jaipur Bench.

5. 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 drilling tubewells and installing handpumps for PHED and the assessee does not fulfil the basic condition provided under 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, dt. 11th May, 2002, rendered in CIT vs. Bhola Ram [reported at (2002) 177 CTR (Raj) 82—Ed.] 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 I of the IT 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, dt. 26th Feb., 1998, and that of the CIT(A), dt. 27th Jan., 1992, are set aside. The order of the AO, dt. 27th Jan., 1992 is restored.

[Citation : 260 ITR 438]

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