Depreciation and investment allowance depend on the true character of machinery, bore-well equipment and earth-moving tools qualify differently.

Machinery mounted on a lorry does not become a motor lorry or road transport vehicle merely by being transported on it, so special depreciation was denied for rig and compressor used for bore-well drilling. By contrast, drills, air-compressors and jack-hammers used in heavy construction work such as dams and tunnels qualified as earth-moving machinery and attracted special depreciation. Sinking bore-wells was also treated as production of a thing for investment allowance purposes, and the rig and compressor were held not to be road transport vehicles, so the statutory exclusion did not apply.

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Issues: (i) Whether rig and compressor mounted on a lorry and used for drilling bore-wells fall under the special depreciation entry for motor lorries; (ii) whether drills, air-compressors and jack-hammers used in construction of dams and tunnels are entitled to special depreciation as earth-moving machinery; (iii) whether sinking of bore-wells amounts to manufacture or production of a thing for investment allowance and whether rig and compressor mounted on a lorry are road transport vehicles excluded from such allowance.

Issue (i): Whether rig and compressor mounted on a lorry and used for drilling bore-wells fall under the special depreciation entry for motor lorries.

Analysis: The relevant entry in the depreciation schedule covered motor buses, motor lorries, motor taxis and motor tractors. The rig and compressor were held to be separate items of machinery and not integral parts of the lorry. They were mounted on the lorry only to facilitate transport from place to place for sinking bore-wells. Applying the ordinary and popular meaning of the expression, such equipment could not be treated as a motor lorry merely because it was mounted on one.

Conclusion: The claim to special depreciation at 30% on the rig and compressor as motor lorries was rejected and the issue was decided in favour of Revenue.

Issue (ii): Whether drills, air-compressors and jack-hammers used in construction of dams and tunnels are entitled to special depreciation as earth-moving machinery.

Analysis: The machinery was found, on the facts, to be used for drilling and blasting rocks in heavy construction work. The entry for earth-moving machinery employed in heavy construction works such as dams, tunnels and canals applied to such equipment. The Court accepted that the machinery answered the description of earth-moving machinery used in heavy construction works.

Conclusion: Special depreciation at 30% was held allowable on the drills, air-compressors and jack-hammers and the issue was decided against Revenue.

Issue (iii): Whether sinking of bore-wells amounts to manufacture or production of a thing for investment allowance and whether rig and compressor mounted on a lorry are road transport vehicles excluded from such allowance.

Analysis: Investment allowance under section 32A applied to small-scale industries engaged in manufacture or production of an article or thing. Sinking of bore-wells was held to bring into existence a recognisable thing, namely, a bore-well, and therefore amounted to production of a thing. The rig and compressor mounted on a lorry were also held not to be road transport vehicles, as they were not vehicles used for carrying passengers or goods but equipment used for bore-well drilling. The statutory exclusion for road transport vehicles therefore did not apply.

Conclusion: The assessee was held entitled to investment allowance in respect of the rig and compressor and the issue was decided against Revenue.

Final Conclusion: The references were answered partly in favour of Revenue on the depreciation issue concerning rig and compressor used for bore-well drilling, and in favour of the assessees on the remaining depreciation and investment allowance questions.

Ratio Decidendi: For the purpose of depreciation and investment allowance, machinery mounted on a lorry does not become a motor lorry or road transport vehicle unless it answers that description in ordinary commercial understanding and statutory context; conversely, equipment used in heavy construction work may qualify as earth-moving machinery, and sinking bore-wells can amount to production of a thing for investment allowance.

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