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Issues Involved:
1. Depreciation Rate on Drilling Rigs and Compressors 2. Eligibility for Investment Allowance under Section 32A Detailed Analysis: 1. Depreciation Rate on Drilling Rigs and Compressors: The primary issue was the appropriate rate of depreciation for drilling rigs and compressors used by the assessee, a firm engaged in drilling borewells. Initially, the Income Tax Officer (ITO) allowed a 20% depreciation rate, which was later reduced to 10% upon reassessment. The Commissioner (Appeals) increased this rate to 30%, treating the rigs and compressors as part of a motor lorry, following a Tribunal decision dated 15-3-1982 in IT Appeal No. 935 (Mad.) of 1981. The Tribunal supported this view, stating that since the rigs and compressors were mounted on a lorry chassis and powered by the same diesel engine, they constituted an integral unit deserving the special depreciation rate of 30%. 2. Eligibility for Investment Allowance under Section 32A: The second issue was whether the assessee was entitled to an investment allowance under Section 32A of the Income-tax Act, 1961. The ITO initially granted this allowance but later withdrew it, arguing that the sinking of borewells did not qualify as the business of construction, manufacture, or production of any article or thing. The Commissioner (Appeals) reversed this decision, citing a Tribunal ruling that considered the sinking of borewells as production of a thing, thus qualifying for investment allowance. The revenue contested this, arguing that if the rigs and compressors were treated as part of a lorry for depreciation purposes, they should not qualify for investment allowance under Section 32A. The Tribunal, however, found that the rigs and compressors, though mounted on a lorry, should not be considered road transport vehicles. Therefore, they were eligible for investment allowance as they were integral to the business of drilling borewells, which was deemed as production of a thing. Separate Judgments: Judicial Member's View: The Judicial Member held that the assessee was not entitled to investment allowance under Section 32A. He argued that the assessee could not claim depreciation by treating the rigs and compressors as lorries while simultaneously claiming investment allowance on the basis of these being part of an industrial undertaking. He emphasized that the business of drilling borewells did not involve the manufacture, production, or processing of goods, as required under Section 32A. He cited the Madras High Court's distinction between 'engaged in business of manufacturing or processing goods' and 'engaged in manufacture, production, and processing of goods,' concluding that the assessee did not meet the criteria for an industrial undertaking. Accountant Member's View: The Accountant Member disagreed, asserting that the assessee was entitled to investment allowance. He argued that the sinking of borewells amounted to the production of a thing, as per the Tribunal's earlier decision. He reasoned that the rigs and compressors, though mounted on a lorry, were not road transport vehicles and thus did not fall under the exclusion for investment allowance. He further noted that the term 'road transport vehicle' was not defined in the Income-tax Act but was understood under the Motor Vehicles Act as vehicles used for carrying passengers or goods, which did not apply to the rigs and compressors in question. Third Member's Resolution: The Third Member resolved the difference by analyzing the nature of the assets. He concluded that the rigs and compressors were independent items of machinery and not inherently part of a lorry. He suggested separating the value of the lorry from the rigs and compressors, allowing investment allowance on the latter. This approach recognized that while the rigs and compressors were mounted on a lorry for operational purposes, they were distinct assets eligible for investment allowance. Conclusion: The Tribunal ultimately directed that the actual value of the rigs and compressors be separately worked out from the lorry, allowing investment allowance on the rigs and compressors while denying it for the lorry. This decision balanced the need for consistency in applying depreciation rates and the eligibility criteria for investment allowance under Section 32A.
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