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Issues:
- Whether the Income-tax Appellate Tribunal was correct in allowing 30% depreciation on rig and compressor used in boring wells? - Whether the assessee-firm engaged in drilling borewells is entitled to relief under section 32A of the Income-tax Act? Analysis: The High Court of Madhya Pradesh dealt with interconnected matters revolving around the depreciation allowance for drilling equipment used in borewells. The Commissioner of Income-tax sought to refer two questions to the court regarding the depreciation rate and relief eligibility for the assessee-firm. The events leading to the case were outlined chronologically, highlighting the appeal process and the differing views of the authorities involved. In the matter of CIT v. Super Drillers [1988] 174 ITR 640, the Andhra Pradesh High Court previously addressed a similar issue. The Tribunal in that case concluded that the drilling equipment used by the assessee fell under the description of "construction equipment" as per technical literature and factual information. The Division Bench upheld this view, emphasizing that the description under item No. D(4) was illustrative, not exhaustive, and encompassed equipment used in heavy construction works. The court analyzed the relevant provisions of the Income-tax Rules, specifically Appendix I, to determine the appropriate depreciation rate for the drilling machinery. It was argued that the nature of work performed by the drilling machines justified a higher depreciation rate of 30%, as opposed to the 15% rate suggested by the Commissioner of Income-tax. The court concurred with the Division Bench's interpretation and reasoning, emphasizing the unique characteristics of the drilling equipment and its alignment with the description under item No. D(4). Ultimately, the court dismissed the unnecessary reference to the High Court, affirming the decision to allow 30% depreciation for the drilling equipment used by the assessee-firm. The judgment provided a detailed analysis of the technical aspects and legal provisions to support the conclusion reached, aligning with the precedent set by the Andhra Pradesh High Court in a similar case. This comprehensive analysis of the judgment highlights the intricate legal reasoning and technical considerations involved in determining the depreciation allowance for specialized equipment used in drilling operations, providing clarity on the applicable provisions and precedents in such matters.
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