2015 (4) TMI 798 - AT - Income Tax

Tribunal grants higher depreciation on workover rigs as heavy goods vehicles, citing High Court precedent.

The Tribunal allowed the appeals, directing the AO to grant higher depreciation at 40% on workover rigs for the assessment years in question. The decision ... Claim of higher depreciation on drilling Rigs - Rig claimed as Heavy motor vehicle (Lorry) - In case of two conflicting views, favourable to the assessee to be adopted - Held that:- CIT(A) has applied the judgment of the Hon’ble Madras High Court rendered in the case of Popular Borewell Service [1991 (4) TMI 59 - MADRAS High Court].However, in our considered view, the CIT(A) was not justified in disallowing the claim by not following the judgment of Hon’ble Jurisdictional High Court in the case of Gujco Carriers [2002 (2) TMI 48 - GUJARAT High Court]. In this case, it was held that the mobile crane of the assessee which admittedly was registered as a heavy motor vehicle, would clearly fall within the expression “motor lorries” which means motor trucks) in entry IIIE(1A) of the Table in Appendix I under rule 5 of the Income-tax Rules, 1962, since it was used by the assessee in its business of running the crane on hire. The assessee was entitled to depreciation at the rate of 40 per cent on the mobile crane.” In the case in hand also, as per the photograph given by the assessee, it is observed that the workover/servicing mobile Rigs specifically designed for such purpose. Moreover, as per proforma invoice enclosed at Page Nos. 24-28, it is evident that it pertains to 100 ton workover/servicing mobile rig. Therefore, the contention that the workover rig remains static is not correct. It is also noteworthy that the assessee-company has raised invoices per kilometer in respect of the movement of the Rig from one place to another. It is not the case that where the bill has been raised solely on the basis of static operations. As per ld. CIT(A) that the depreciation at higher rate would be available if crane is given on hire in view of the judgment of Hon’ble Gujarat High Court in the case of Gujco Carriers [2002 (2) TMI 48 - GUJARAT High Court] but it would not be available to workover mobile rig. We are unable to accept this reasoning as in both the cases there is mobility from place to another and both are designed for rendering specific services. The fact that State Transport Authority has registered the workover/servicing mobile rig under the category Heavy Goods Vehicle Drilling Rig. The Hon’ble jurisdictional High Court in the case of Gujco Carriers (supra), after examining the functions etc., held that motor vehicles like fire trucks, fork lift trucks and crane trucks which are designed for special services fall within the category of “Motor Trucks” (also called “”Motor Lorries”). The Hon’ble Andra Pradesh High Court has allowed higher rate of depreciation on Rig in the case of Super Drillers [1988 (2) TMI 24 - ANDHRA PRADESH High Court]. However, the Hon’ble Madras High Court in the case of Popular Borewell Service [1991 (4) TMI 59 - MADRAS High Court] has taken a different view. Hence, there are conflicting views of the Hon’ble Andra Pradesh High Court and the Madras High Court. Therefore, two views are possible; hence the view which is favourable to the assessee has to be adopted in view of the Judgment of the Hon’ble Supreme Court in the case of CIT vs. Vegetable Products Ltd. [1973 (1) TMI 1 - SUPREME Court]. Therefore, we are of the considered view that the ratio laid down by the Hon’ble Gujarat High Court in the case of Gujco Carriers is squarely applicable in the facts of the present case. Therefore, respectfully following the same we hereby direct the Assessing Officer to allow higher depreciation @ 40% on Rigs as claimed by the assessee. - Decided in favour of assessee. Issues Involved:1. Disallowance of higher rate of depreciation on workover rigs.2. Legality of notice under Section 153A and proceedings initiated thereunder.3. Classification of workover rigs as heavy motor vehicles for depreciation purposes.4. Withdrawal of investment allowance reserves.Detailed Analysis:Disallowance of Higher Rate of Depreciation on Workover Rigs:The primary issue revolves around the disallowance of a higher rate of depreciation on workover rigs by the Assessing Officer (AO). The AO disallowed the claim of depreciation at 40% and instead adopted a 25% rate, resulting in an addition of Rs. 44,15,650/- for the Assessment Year 2002-03. The Commissioner of Income-tax (Appeals) [CIT(A)] upheld this disallowance, leading the assessee to appeal before the Tribunal.The Tribunal examined the relevant provisions of the Income-tax Act and the Motor Vehicles Act. It was noted that the workover rigs were registered as Heavy Goods Vehicles with the State Transport Authority. The Tribunal referenced the judgment of the Hon'ble Gujarat High Court in the case of Gujco Carriers vs. CIT, which allowed higher depreciation on mobile cranes registered as heavy motor vehicles. The Tribunal found that the CIT(A) erred in not following this jurisdictional High Court ruling and instead relied on the Madras High Court's decision in CIT vs. Popular Borewell Service, which had a different view.The Tribunal concluded that the workover rigs, being registered as heavy goods vehicles and used for specific services, should be eligible for higher depreciation at 40%, similar to mobile cranes. Thus, the appeal on this ground was allowed.Legality of Notice under Section 153A:The assessee contended that the notice issued under Section 153A and the subsequent proceedings were illegal and without jurisdiction. However, this issue was not elaborated upon in the Tribunal's final decision, suggesting that the primary focus was on the depreciation matter.Classification of Workover Rigs as Heavy Motor Vehicles:The Tribunal analyzed whether workover rigs could be classified as heavy motor vehicles eligible for higher depreciation. The Tribunal referenced the Motor Vehicles Act, which defines heavy goods vehicles, and noted that the workover rigs were registered as such. The Tribunal also considered the nature of the workover rigs, which are mobile and used for specific services, akin to mobile cranes. The Tribunal concluded that workover rigs fall under the category of heavy motor vehicles and are entitled to higher depreciation.Withdrawal of Investment Allowance Reserves:The assessee raised an additional ground regarding the withdrawal of investment allowance reserves, arguing that it was a legal issue with relevant facts on record. However, the Tribunal's decision primarily focused on the depreciation issue, and this ground was not discussed in detail in the final judgment.Conclusion:The Tribunal allowed the appeals, directing the AO to grant higher depreciation at 40% on workover rigs for the assessment years in question. The decision was based on the registration of the rigs as heavy goods vehicles and the application of the Gujarat High Court's judgment in Gujco Carriers vs. CIT. The Tribunal's order emphasized the importance of following jurisdictional High Court rulings and provided clarity on the classification and depreciation of specialized equipment like workover rigs.