1991 (3) TMI 81 - HC - Income Tax

Summary

Issues Involved:
1. Allowance of depreciation on drills and rigs.
2. Entitlement to depreciation on building and drilling machines.
3. Classification of drilling machines as "earth-moving machinery" for higher depreciation.

Summary:

Issue 1: Allowance of Depreciation on Drills and Rigs
The assessee, a company, claimed 30% depreciation on drills and rigs for the assessment years 1972-73 to 1974-75, which was initially allowed but later reduced to 10% by the Income-tax Officer upon reassessment. The Appellate Assistant Commissioner confirmed the 10% rate. The Tribunal, however, allowed 30% depreciation under item III-D(4) in Part I of Appendix I to the Income-tax Rules, 1962. The High Court was asked to opine on whether the Tribunal was right in allowing 30% depreciation.

Issue 2: Entitlement to Depreciation on Building and Drilling Machines
For the assessment year 1971-72, the Income-tax Officer initially allowed depreciation on building and drilling machines but later withdrew it upon reassessment, citing lack of title to the building and incorrect classification of the drilling machines. The Tribunal upheld the claim for depreciation on the building based on an earlier decision but allowed 30% depreciation on drilling machines, classifying them as "earth-moving machinery" under item III-D(4). The High Court was asked to opine on the correctness of these decisions.

Issue 3: Classification of Drilling Machines as "Earth-Moving Machinery"
The High Court examined whether the drilling machinery used by the assessee for agricultural purposes could be classified as "earth-moving machinery employed in heavy construction works, such as dams, tunnels, canals, etc." under item III-D(4). The Court concluded that the machinery must not only be "earth-moving" but also used in heavy construction works involving large-scale excavation. The drilling machinery used by the assessee did not meet this criterion, as it was used for drilling borewells, not heavy construction works.

Judgment:
1. Depreciation on Building: The High Court held that the assessee was not the legal owner of the building during the relevant accounting year and thus not entitled to depreciation. The first question in T.C. No. 1391 of 1980 was answered in the negative and in favor of the Revenue.

2. Depreciation on Drilling Machines: The High Court held that the drilling machinery did not qualify as "earth-moving machinery" used in heavy construction works as contemplated by item III-D(4). The common question in T.C. Nos. 1188 to 1190 of 1980 and the second question in T.C. No. 1391 of 1980 were answered in the negative and in favor of the Revenue.

The High Court emphasized that the classification under item III-D(4) requires machinery to be used in large-scale construction works, and the drilling machinery used by the assessee did not meet this requirement. The Tribunal's reasoning was found faulty, and the Court applied the principle of ejusdem generis to interpret the entry. The decision in CIT v. Super Drillers [1988] 174 ITR 640 (AP) was distinguished as it was approached as a question of fact. No order as to costs was made.