1991 (4) TMI 59 - HC - Income Tax

Summary

Issues Involved:
1. Entitlement to depreciation at the special rate of 30% for rig and compressor used for drilling bore-wells.
2. Entitlement to investment allowance u/s 32A(2) for rig and compressor used for drilling bore-wells.
3. Entitlement to depreciation at the special rate of 30% for drill, air-compressors, and jack-hammers used in construction of dams, tunnels, etc.

Summary:

Issue 1: Depreciation at 30% for Rig and Compressor (T.C. Nos. 242, 285, and 540 of 1986)
The assessees claimed depreciation at 30% on the rig and compressor u/r III(ii)D(9) of Part I of Appendix I to the Income-tax Rules, 1962, arguing they were integral parts of the lorry. The Income-tax Officer rejected this claim, but the Appellate Assistant Commissioner and the Tribunal upheld it. The High Court, however, concluded that the rig and compressor, though mounted on a lorry, do not constitute integral parts of a motor lorry and are not covered under the said rule. Therefore, the Tribunal's decision to allow depreciation at 30% was incorrect.

Issue 2: Investment Allowance u/s 32A(2) for Rig and Compressor (T.C. Nos. 1796 of 1984 and 539 of 1986)
The assessees claimed investment allowance u/s 32A(2)(b), asserting that sinking bore-wells amounts to the production of a "thing." The Tribunal agreed, stating that a bore-well is a tangible asset. The High Court upheld this view, stating that the drilling operations result in the production of a bore-well, which qualifies as a "thing" under the Act. Additionally, the rig and compressor mounted on a lorry do not qualify as "road transport vehicles" and are thus eligible for investment allowance.

Issue 3: Depreciation at 30% for Construction Equipment (T.C. No. 1446 of 1986)
The assessee, engaged in construction work, claimed 30% depreciation on drills, air-compressors, and jack-hammers. The Income-tax Officer allowed only 10%, but the Appellate Assistant Commissioner and the Tribunal recognized these items as "earth-moving machinery employed in heavy construction works" u/r III(ii)D(4). The High Court affirmed this, stating that the equipment used in constructing dams, tunnels, etc., qualifies for the special depreciation rate of 30%.

Conclusion:
- The question in T.C. Nos. 242, 285, and 540 of 1986 was answered in the negative, favoring the Revenue.
- The question in T.C. No. 1446 of 1986 was answered in the affirmative, against the Revenue.
- The questions in T.C. Nos. 1796 of 1984 and 539 of 1986 were answered in the affirmative, against the Revenue.

There will be no order as to costs.