2002 (7) TMI 36 - HC - Income Tax

Court overturns Tribunal decision on drilling machine depreciation, emphasizes strict statutory criteria

The court ruled in favor of the Revenue, setting aside the Tribunal and Commissioner's orders, and restoring the Assessing Officer's decision to disallow ... 'Whether, 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 item No. III-D of Part I of Appendix I to the Income-tax Rules, 1962, and, therefore, entitled to depreciation at 30 per cent.?' - Learned counsel has placed reliance on a reported decision of this court, dated May 11, 2002, rendered in CIT v. Bhola Ram, wherein this court has held that rig and compressors mounted on a lorry used for drilling do not fall in the category of heavy machinery or motor lorry under item No. III(ii)D(4) of Part I to the Income-tax Rules, 1962. The court further held that in such circumstances, the claim of depreciation at the special rate of 30 per cent. cannot be allowed 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 the Income-tax Appellate Tribunal, and that of the Commissioner of Income-tax (Appeals) are set aside. Issues:1. Interpretation of whether drilling machines used by the assessee should be treated as earth-moving machinery for depreciation purposes.Analysis:The appeal in question pertains to the classification of drilling machines used by the assessee for depreciation purposes. The key issue revolves around whether these machines should be considered as earth-moving machinery falling under a specific entry in the Income-tax Rules, which would entitle them to a higher depreciation rate of 30%. The Assessing Officer initially disallowed the higher depreciation claim, stating that the work done with the rig over the years did not qualify as heavy construction. However, the Commissioner of Income-tax (Appeals) disagreed, finding that the drilling operations resulted in the production of underground water for surface use, thus fulfilling the conditions for claiming depreciation at 30% and investment allowance. The Income-tax Appellate Tribunal, Jaipur Bench, upheld the Commissioner's decision.Subsequently, the Revenue contended that the Tribunal erred in allowing the higher depreciation rate, arguing that the assessee, a contractor for drilling tubewells, did not meet the basic condition of manufacturing, production, or construction of an article or thing as required by the Income-tax Act. The Revenue's counsel cited a previous court decision that held similar machinery used for drilling did not qualify for the special depreciation rate. The court agreed with the Revenue's arguments, noting that the case at hand aligned with the precedent cited. Therefore, the court allowed the appeal, setting aside the Tribunal and Commissioner's orders, and restoring the Assessing Officer's decision to disallow the higher depreciation rate for the drilling machines.In conclusion, the judgment focused on the interpretation of the applicable provisions regarding the classification of machinery for depreciation purposes. The court's decision emphasized the importance of meeting specific criteria, such as manufacturing, production, or construction, to qualify for special depreciation rates. The case serves as a reminder of the need for strict adherence to statutory requirements when claiming tax benefits related to machinery depreciation.