COMMISSIONER OF INCOME-TAX VS SIVAM & CO.
2002 P T D 1332
[242 I T R 76]
[Madras High Court (India)]
Before N. V. Balasubramanian and Mrs. A. Subbulakshmy, JJ
COMMISSIONER OF INCOME-TAX
Versus
SIVAM & CO.
Tax Case No.724 of 1989 (Reference No.384 of 1989), decided on 28/01/1998.
(a) Income-tax---
----Depreciation---Special depreciation ---Borewell---Rigs and compressors mounted on a lorry and used for drilling borewell---Not entitled to special depreciation at 30 per cent.---Indian Income Tax Act, 1961, S. 32.
(b) Incomer tax---
----Investment allowance ---Borewell---Rigs and compressors used for drilling borewell---Not entitled to investment allowance---Indian Income Tax Act, 1961, S.32A.
Held, (i) that the assessee was not entitled to depreciation at the special rate of 30 per cent. in respect of rigs and compressors mounted on a lorry and used for drilling borewell.
CIT v. Popular Borewell Service (1992) 194 ITR 12 (Mad.) fol.
(ii) that investment allowance is not admissible on the machinery installed for the business of digging borewells.
CIT v. N. C. Budbaraja & Co. (1993) 204 ITR 412 (SC) fol.
CIT v. Popular Borewell Service (1992) 194 ITR 12 (Mad.) held no longer good law on this point.
CIT v. Super Drillers (1996) 222 ITR 629 (AP) ref.-
C.V. Rajan for the Commissioner.
C. Chinnaswami for Haji Mohideen Gisthi and K. Sethuram for the Assessee.
JUDGMENT
N. V. BALASUBRAMANIAN, J.---At the instance 'of the Department, the Income-tax Appellate Tribunal has referred the following two questions of law under section 256(1) of the Income Tax Act, 1961 (hereinafter referred to as the "Act) for our consideration:
"(1) Whether, on the facts a the circumstances of the case, the Appellate Tribunal was right in holding that the 'rigs and compressors mounted on a lorry used for drilling borewells are entitled for special depreciation at 30 per cent.?
(2)??????? Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is right in granting the investment allowance under section 32A(2)(b) on the rigs and compressors?"
The assessee is a registered firm and the assessee carries on business in drilling borewells with the help of rigs and compressors mounted on a lorry. The assessee during the course of the assessment proceedings for the assessment year 1982-83 claimed depreciation at 30 per cent. on rigs and compressors on the ground that they constitute an integral part of the lorry. The assessee has also claimed investment allowance on rigs and compressors under section 32A of the Act. The Income-tax Officer rejected both the claims preferred by the assessee and completed the assessment. The assessee preferred an appeal to the Commissioner of Income-tax (Appeals). The Commissioner of Income-tax (Appeals), following the order of the Appellate Tribunal in the assessee's own case for the assessment year 1980-81, accepted the claims of the assessee and allowed the appeal preferred by the assessee.
The Department preferred an appeal before the Income-tax Appellate Tribunal and the Appellate Tribunal following its order in the case of Popular Borewell Service (1986) 15 ITD 240, and the assessee's own case for the assessment year 1980-81, held that the assessee Was entitled to depreciation on rigs and compressors at 30 per cent. and investment allowance on the rigs and compressors under section 32A(2)(b) of the Act.
The Revenue obtained a reference on the questions of law set out earlier.
In so far as the first question of law referred to us is concerned, the issue raised in the question is covered against the assessee by a decision of this Court in the case of CIT v. Popular Borewell Service (1992) 194 ITR 12. It is -also relevant to notice that the assessee's own case was also the subject-matter for consideration by this Court in CIT v. Popular Borewell Service (1992) 194 ITR 12 and this Court in T.C. Nos.539 and 540 of 1986 held that the assessee is not entitled to depreciation at the special rate of 30 per cent. in respect of rigs and compressors mounted on a lorry.
So far as the second question of law that is referred to us is concerned, no doubt, this Court in CIT v. Popular Borewell Service (1992) 194 ITR 12, held that the assessee would be entitled to investment allowance on the ground that drilling operation would result in the production of a thing and the thing produced being a borewell.
In this view of the matter, this Court held in the decision cited supra that the assessee would be entitled to investment, allowance under section 32A of the Act.
Mr. C.V. Rajan, learned counsel for the Revenue, submitted that the decision of this Court in CIT v. Popular Borewell Service (1992) 194 ITR 12, is no longer good law in view of the decision of the Supreme Court in CIT v. N.C. Budharaja & Go. (1993) 204 ITR 412. He brought to our notice the decision of the Supreme Court against the judgment of the Karnataka High Court extending the benefit of section 32A of the Act. to new machinery employed in digging borewells and the Supreme Court held that investment allowance is not admissible to machinery installed for the business of digging borewells. He, therefore, submitted that in view of the decision of the Supreme Court, the earlier decision of this Court required re-consideration.
Mr. C. Chinnaswamy, learned senior counsel appearing for the assessee, supported the order of the Appellate Tribunal.
We have carefully considered the submissions of learned counsel for the parties.
In CIT v. N.C. Budharaja & Co. (1993) 204 ITR 412, the Supreme Court ,held that the expressions "manufacture" and "produce" are normally .associated with movables like articles and goods, big and small but they are never employed to denote construction activity of the nature involved in construction of a dam or a building. The decision of the Supreme Court makes it clear that the benefit of investment allowance is admissible only where the machinery was installed for the manufacture of certain movable articles and goods and not for construction of an immovable property. It is also relevant to notice the the Supreme Court considered an appeal against the decision of the Karnataka High Court wherein the Karnataka High Court extended the benefit of investment allowance to new machinery employed in digging borewells. The Supreme Court held that the investment allowance was not admissible in respect of the new machinery employed in digging borwells.
The Andhra Pradesh High Court in CIT v. Super Drillers (1996; 222 ITR 626, considered the case. of an assessee which. carried on the business- of drilling borewells and held that the assessee was not an industrial undertaking engaged in manufacturing or producing articles of things and was not entitled to relief under sections 80J and 80HH, 80HHA of the Income Tax Act, 1961. The Andhra Pradesh High Court noticed the decision of the Supreme Court in CIT v. N.C. Budharaja & Co. (1993) 204 ITR 412 and held that the business of drilling borewell; cannot be regarded as an industrial undertaking. In view of the decision of the Supreme Court in CIT v. N.C. Budharaja & Co. (1993) 204 ITF 412, we are of the view that the earlier decision of this Court in CIT v Popular Borewell-Service (1992) '194 ITR 12, holding that the assessee would be entitled to investment allowance on the rigs and compressor; employed in drilling operations is no longer good law. Since the decision of this Court is in direct conflict with the decision of the Supreme Court, we are of the view that it is not necessary to refer the matter to the Full Bench to decide the question as the matter is concluded by the decision of the Supreme Court. Accordingly, we hold the earlier decision in CIT v. Popular Borewell Service (1992) 194 ITR 12 (Mad.), holding that the assessee was entitled to investment allowance in respect of the machinery employed in digging borewells in no longer good law Accordingly, we are of the opinion that the second question is liable to be answered in favour of the Revenue. Accordingly, we answer the first question in the negative and in favour of the Revenue and the second question in the negative and in favour of the Revenue. No costs.
M.B.A./670/FC?????????????????????????????????????????????????????????????????????????????????? Reference answered.