TaxTMI 
TaxTMI 
2016 (7) TMI 1328
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....the mineral oil wells as buildings for the purpose of applying rate of depreciation under section 32 of the Income-tax Act ?" 3. Learned senior counsel for the appellant-assessee, Mr. S. N. Soparkar has submitted that the Tribunal has erred in restricting the alternate claim of depreciation made by the assessee without prejudice to its principal claim under section 42 of the Act. It is further submitted that the Tribunal has erred in restricting the claim of depreciation only at 10 per cent. against 100 per cent. allowed by the Commissioner of Income-tax (Appeals) by treating the oil wells as buildings. It is next contended that the Tribunal has erred in not appreciating that the mineral oil wells can never be equated with the buildings and therefore its action of applying the rate of depreciation of buildings to the mineral oil wells is illegal and cannot be sustained in law. 3.1. Learned senior counsel Mr. S. N. Soparkar has taken us to the orders of the Assessing Officer, the Commissioner of Income-tax (Appeals) and the Tribunal and has contended that building a well forms a mandatory part for drilling of the oil and therefore, the same was constructed and this aspect has ....
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....trial business. In order to qualify as plant, the article must have some degree of durability, as for instance, in Hinton (Inspector of Taxes) v. Maden and Ireland Ltd. [1960] 39 ITR 357 (HL), knives and lasts having an average life of three years used in manufacturing shoes were held to be plant. In CIT v. Taj Mahal Hotel [1971] 82 ITR 44 (SC), the respondent, which ran a hotel installed sanitary and pipeline fittings in one of its branches in respect whereof it claimed development rebate and the question was whether the sanitary and pipeline fittings installed fell within the definition of plant given in section 10(5) of the 1922 Act which was similar to the definition given in section 43(3) of the 1961 Act and this court after approving the definition of plant given by Lindley L. J. in Yarmouth v. France as expounded in Jarrold v. John Good and Sons Ltd. [1962] 40 TC 681 (CA), held that sanitary and pipeline fittings fell within the definition of plant. In IRC v. Barclay, Curle and Co. Ltd. [1970] 76 ITR 62 (HL), the House of Lords held that a dry dock since it fulfilled the function of a plant must be held to be a plant. Lord Reid considered the part which a dry dock p....
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.... amounted to a 'plant' ; but where the structure played no part in the carrying on of these activities but merely constituted a place wherein they were carried on, the building could not be regarded as a plant." 3.4. In addition, learned senior counsel for the appellant has referred to the decision of the hon'ble Supreme Court in the case of Asst. CIT v. Victory Aqua Farm Ltd. reported in [2015] 379 ITR 335 (SC), wherein paragraphs 4 and 6 are reproduced hereunder (page 337) : "It is not in dispute that if these ponds are 'plants', then they are eligible for depreciation at the rates applicable to plant and machinery and case would be covered by the provisions of section 32 of the Act. It is not even necessary to deal with this aspect in detail with reference to the various judgments, inasmuch as judgment of this court in CIT v. Karnataka Power Corporation [2001] 247 ITR 268 (SC) ; [2002] 9 SCC 571 clinches the issue. Therein the court has taken into consideration the earlier judgments on which some reliance was placed by the learned counsel for the Revenue and are suitably dealt with. The relevant portion of the said judgment reads as under (page 27....
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....ished from the plant and that, therefore, the assessee's generating station building was not to be treated as a plant for the purposes of investment allowance. It is difficult to read the judgment in the case of Anand Theatres (supra) so broadly. The question before the court was whether a building that was used as a hotel or a cinema theatre could be given depreciation on the basis that it was a "plant" and it was in relation to that question that the court considered a host of authorities of this country and England and came to the conclusion that a building which was used as a hotel or cinema theatre could not be given depreciation on the basis that it was a plant. We must add that the court said (page 225 of 244 ITR) : "To differentiate a building for grant of additional depreciation by holding it to be a plant in one case where a building is specially designed and constructed with some special features to attract the customers and the building not so con structed but used for the same purpose, namely, as a hotel or theatre would be unreasonable". This observation is, in our view, limited to buildings that are used for the purposes of hotels or cinema theatres and ....
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....artment being No. 582-25/605 J. M. dated January 23, 1926. The said circular categorically lays down that wells and pipes are plant. The Supreme Court decision in the case of Scientific Engineering House P. Ltd. v. CIT was relied upon by Dr. Pal. The Supreme Court, in the said judgment, has quoted with approval from the decision reported in Yarmouth v. France [1887] 19 QBD 647 that : 'there is no definition of plant in the Act : but in its ordinary sense, it includes whatever apparatus is used by a business man for carrying on his business,-not his stock-in-trade which he buys or makes for sale ; but all goods and chattels, fixed or movable, live or dead, which be keeps for permanent employment in his business.' The same view has been taken by the House of Lords in Hinton (Inspector of Taxes) v. Maden and Ireland Ltd. [1960] 39 ITR 357 (HL) ; [1959] 38 TC 391, 417 and 424. In Income-tax Reference No. 260 of 1987 (Tribeni Tissues Ltd. v. CIT [1991] 190 ITR 487 (Cal)), the Division Bench of this court pre sided over by Ajit Kumar Sengupta J., held that tube-well is a plant entitled to investment allowance. It has been furt....
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....mineral oil concern. It is necessary to understand the assessee's operation before deciding the depreciation rates for the wells used by the assessee. It is necessary to understand the process of drilling and exploration activities for a gas well. Before drilling a well, geographical and geo physical surveys are conducted and probable site for well is decided. At the time of drilling the well, drilling fluid or drilling mud is constantly circulated round the well board. When the drilling is completed, casing pipe is lowered in the well to ensure the safe control of production, to prevent water entering in wellbore and to keep rock formations from 'sloughing' into wellbore. Valves, chokes and fittings controlling the explored gas are installed at wellhead, which is known as 'Christmas tree'. Stated briefly, there is a well, dug after drilling and there is a casing lowered in the well. The assessee has incurred expenses on drilling, cost of casing and cost of lowering the casing. The assessee has claimed 100 per cent. depreciation on all costs. (5.2) Now, the question is whether a well constitutes a plant ? Is there any plant below groun....
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....eutical factory was held to be in the nature of a plant and not a building. The decision of the Gujarat High Court in the case of Shree Digvijay Woollen Mills Ltd. v. CIT [1993] 204 ITR 398 (Guj) relied upon the learned Commissioner of Income-tax-Departmental representative was not whether tube well is a plant but it held that the expenditure on tube well is a capital expenditure. It held that even if it did not result in the creation of an asset, it would not cease to be an expenditure of the nature of capital. 65. The assessee dug the well and put steel pipes therein to reach the reservoirs of oil and natural gas. It is thus a passage created by the assessee to reach reservoir. The well is to protect, cover and put a structure around the space drilled from which mineral oil or gas is obtained. The cost is of digging and laying steel pipeline and is the expenditure claimed as cost of the plant but the cost of apparatus which is used to extract oil and natural gas is separately booked under the head machinery. This also gives an impression that the gas oil wells are not plant. It is but a setting through which the assessee extracted oil and gases, and therefore a part of t....