1996 (8) TMI 76 - HC - Income Tax

Summary

Issues:
Interpretation of depreciation allowance for rigs used in drilling borewells.

Analysis:
The case involved a firm engaged in digging borewells claiming depreciation allowance at 30 per cent. on the rigs used for the activity. Initially, the Income-tax Officer allowed depreciation at 10 per cent., which was challenged by the firm. The Appellate Assistant Commissioner upheld the claim, leading to an appeal by the Revenue. The Income-tax Appellate Tribunal, relying on a previous decision, upheld the order of the Appellate Assistant Commissioner, prompting the reference to the High Court.

The main question referred to the court was whether the depreciation at 30 per cent. on the rigs used for drilling borewells was allowable. The firm relied on a previous decision by the Division Bench of the court in CIT v. Super Drillers [1988] 174 ITR 640, which held that the description in the Depreciation Schedule was illustrative, not exhaustive, allowing for 30 per cent. depreciation on drilling equipment.

The Revenue, however, argued based on the judgment of the Madras High Court in CIT v. Tamil Nadu Agro Industries Corporation [1991] 192 ITR 108, contending that drilling machinery did not qualify as "earthmoving machinery" under the relevant schedule. The court examined the relevant item in the Depreciation Schedule, which referred to earthmoving machinery employed in heavy construction works.

In a previous case, the Division Bench of the court had considered a similar question and concluded that the item in the schedule was illustrative, not exhaustive, allowing for a broader interpretation. The Madras High Court, on the other hand, had a different interpretation, focusing on the scale and quantity of earth excavation for classification.

Ultimately, the High Court, following its own precedent in CIT v. Super Drillers [1988] 174 ITR 640, held that the rigs used for drilling borewells did not fall under the general item for machinery and plant depreciation but qualified for the 30 per cent. allowance under the specific item for earthmoving machinery. The court ruled in favor of the assessee, rejecting the Revenue's contention and answering the question in the affirmative.

In conclusion, the court's decision was based on the interpretation of the Depreciation Schedule, precedent set by previous cases, and a distinction between general machinery depreciation and specific allowances for earthmoving equipment, ultimately favoring the firm claiming the higher depreciation rate for the rigs used in drilling borewells.