1998 (1) TMI 18 - HC - Income Tax

Summary

Issues:
1. Entitlement to special depreciation at 30% for rigs and compressors mounted on a lorry used for drilling borewells.
2. Entitlement to investment allowance under section 32A(2)(b) on the rigs and compressors.

Analysis:

The case involved the assessment of a firm engaged in drilling borewells claiming special depreciation and investment allowance on rigs and compressors mounted on a lorry. Initially, the Income-tax Officer rejected both claims, but the Commissioner of Income-tax (Appeals) accepted them based on previous tribunal orders. The Income-tax Appellate Tribunal also ruled in favor of the assessee, allowing the depreciation at 30% and investment allowance under section 32A(2)(b) of the Income-tax Act, 1961.

Regarding the first issue of special depreciation, the court referred to a previous decision where it was held that the assessee was not entitled to depreciation at the special rate of 30% for rigs and compressors mounted on a lorry. This decision was based on the nature of the assets and their integration with the lorry, leading to a negative answer in favor of the Revenue.

On the second issue of investment allowance, the court discussed the Supreme Court's ruling in a similar case, emphasizing that investment allowance is admissible only for machinery used in manufacturing movable articles and goods, not for construction of immovable property like borewells. Citing precedents and the Supreme Court's decision, the court concluded that the assessee was not entitled to investment allowance on the rigs and compressors used in drilling operations. The court held that its earlier decision in favor of the assessee was no longer valid law due to the conflict with the Supreme Court's decision, ultimately ruling in favor of the Revenue on both questions.

In conclusion, the court decided against the assessee on both issues, denying the special depreciation at 30% for rigs and compressors mounted on a lorry and rejecting the entitlement to investment allowance under section 32A(2)(b) for the same assets used in drilling borewells. The court highlighted the precedence set by the Supreme Court's decision, leading to a final judgment in favor of the Revenue without awarding costs to any party.