COMMISSIONER OF INCOME-TAX VS SHIVA SHANKER BORE WELLS
1999 P T D 498
[225 I T R 1029]
[Andhra Pradesh High Court (India)]
Before Syed Shah Mohammed Quadri and R. Bayapu Reddy, JJ
COMMISSIONER OF INCOME-TAX
versus
SHIVA SHANKER BORE WELLS
Case Referred No.25 of 1988. decided on 29/08/1996.
Income-tax---
----Depreciation---Rate of depreciation---30 percent. depreciation for "earth moving machinery"---Description of earth moving machinery in Item No.III-D(4) of Appendix I, Part I, to Income Tax Rules, 1962, is illustrative and not exhaustive---Rigs engaged in drilling borewells are entitled to 30 percent. depreciation---Indian Income Tax Act, 1961, S.32---Indian Income Tax Rules, 1962, Appendix I, Part I, Item No.III-D(4).---[CIT v. Tamil Nadu Agro Industries Corporation (1991) 192 ITR 108 (Mad.) dissented from].
Item No.III-D(4) of Appendix I, Part I, to the Income Tax Rules, 1962, which grants depreciation at 30 per cent is as follows: "Earth moving machinery employed in heavy construction works, such as dams, tunnels, canals, etc. (N.E.S.A.)". The description is not exhaustive but merely illustrative and this is clear because of the use of the expressions "such as" and "etc. " in the provision.
Held accordingly, that depreciation was allowable at 30 percent. on the rigs engaged in drilling of borewells.
CIT v. Super Drillers (1988) 174 ITR 640 (AP) fol.
CIT v. Tamil Nadu Agro Industries Corporation (1991) 192 ITR 108 (Mad.) dissented from.
S.R. Ashok for the Commissioner
Nemo for the Assessee.
JUDGMENT
SYED SHAH MOHAMMED QUADRI, J. ---In this reference, under section 256(1) of the Income Tax Act, 1961, the following question is referred to this Court for opinion
"Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was correct in holding that depreciation was allowable at 30 percent. on, the rigs engaged in drilling of borewells ?"
The assessee is a firm carrying on the business of digging borewells. It claimed depreciation allowance at 30 percent. on the rigs used for digging borewells. The Income-tax Officer allowed depreciation at 10 percent. but, on appeal, the Appellate Assistant Commissioner upheld the claim of the assessee. The Income-tax Appellate Tribunal, on appeal by the Revenue following its own decision in an earlier case (viz., order, dated August 29, 1983, in the case of Super Drillers, Hyderabad, In I.T.A. No. 1475/Hyd of 1982), upheld the order of the Appellate Assistant Commissioner. It is from that order of the Tribunal that the above said question has arisen.
In CIT v. Super Drillers (1988) 174 ITR 640, the Division Bench of this Court held that the description given in the Depreciation Schedule in item No.III-D(4) of Appendix I, Part I, to the Income Tax Rules, 1962, was not exhaustive but merely illustrative and upheld the order of the Tribunal in that case in granting 30 percent depreciation in respect of the drilling equipment.
Learned standing counsel for the Income-tax Department, however, relied upon the judgment of the Madras High Court in CIT v. Tamil Nadu Agro Industries Corporation (1991) 192 ITR 108, and contended that the drilling machine used for digging borewells could not be treated as "earth?moving machinery" and so the petitioner, was not entitled to 30 percent depreciation.
It will be useful to read here item No.III-D(4) of Appendix I, Part I, to the Income-tax Rules, 1962, which is in the following terms
"D. (4) Earth moving machinery employed in heavy construction works, such as dams, tunnels, canals, etc. (N.E.S.A.). ??????????? 30"
An identical question was considered by the Division Bench of this Court in CIT v. Super Drillers (1988) 174 ITR 640. There the assessee contended that it was entitled to 30 percent allowance under Item No.III-D(7) whereas the Revenue, being of the view that the depreciation could be allowed at the general rate as applicable to "plant and machinery" at 10 per cent resisted the claim. The Income-tax Tribunal, on exhaustive consideration of the scientific literature and other relevant matters recorded the finding that the drilling equipment fell under item No.III-D(4) and that was upheld by the Division Bench of this Court c)n reference. The Bench expressed the opinion that item No.III-D(4) was not exhaustive but merely illustrative and that view is supported by the expression "such as" and "etc".
In CIT v. Tamil Nadu Agro Industries Corporation (1991) 192 ITR 108, the Madras High Court was considering the question whether the Appellate Tribunal was right in allowing depreciation at 30 percent. In respect of drills and rigs used by the assessee as against 10 percent allowed by the Income-tax Officer under item No.III "Machinery and plant". The Division Bench of the Madras High Court which dealt with that question, held that though any machinery employed for removing earth from a place, be it on the surface of the earth or by burrowing a hole into the bowels of the earth would fall within the expression "earth moving machinery", yet as it was not used or employed in the excavation of earth in large quantity and in massive scale as is necessary in the case of construction work like dams, canals, etc., drilling machinery or rigs would not come within the ambit of items No.III-D(4). We have already noted that items was construed by the Division Bench of our High Court as not being exhaustive but merely illustrative. We are in respectful agreement with the reasoning given by the Division Bench of our High Court and we are unable to pursuade ourselves to accept the view expressed by the Madras High Court.
For the above reasons, we are unable to uphold the contention of the Revenue that the rigs fall under general item No. III of Part I of Schedule I, which deals with depreciation of machinery and plant (not being a ship). In this view of the matter, following the judgment of our High Court in CIT v. Super Drillers (1988) 174 ITR 640, we answer the question in the affirmative, that, is, in favour of the assessee and against the Revenue.
The reference is accordingly answered.
M.B.A./1797/FC ??????????????????????????????????????????????????????????????????????????????? Reference answered.
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