Functional use test determines depreciation: road construction machinery not moving earth qualifies only for lower depreciation.

Depreciation classification depends on the normal and intended functional use of the machinery. Equipment used in road construction that prepares mix or finishes the road surface, but does not move or shift earth, is not "earth-moving machinery" for higher depreciation. A hot mixing plant and a paver finishing machine were therefore treated as road-making plant and machinery under the relevant entry in Appendix I to the Income-tax Rules, 1962, attracting depreciation at 15 per cent rather than 30 per cent.

---

---

Issues: Whether hot mixing plant and paver finishing machine used in road construction were entitled to depreciation at 30 per cent as earth-moving machinery, or were to be treated as road-making plant and machinery eligible only for depreciation at 15 per cent.

Analysis: The classification depended on the normal and intended use of the machines. Earth-moving machinery is one that moves or shifts earth from one place to another. A hot mixing plant is used to prepare concrete mix and is not an earth-moving machine. A paver finishing machine is used to apply pressure and finish the road surface in the course of road construction, and is likewise not used for moving earth. The machinery was therefore not covered by the category of earth-moving machinery employed in heavy construction works. The proper classification was as road-making plant and machinery under the relevant entry in Appendix I to the Income-tax Rules, 1962.

Conclusion: The assessee was not entitled to depreciation at 30 per cent. The machines fell under the road-making machinery entry and depreciation at 15 per cent was correctly allowed. The reference was answered in favour of the Revenue and against the assessee.

Ratio Decidendi: For depreciation classification, the controlling test is the normal functional use of the machinery; equipment used in road construction that does not move or shift earth is not earth-moving machinery.

---