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TMI Blog2016 (7) TMI 1328X X X X Extracts X X X X X X X X Extracts X X X X ..... T. A. No. 408/Ahd./2007 for the assessment year 1998-99 whereby the Tribunal reversed the findings of the Commissioner of Income-tax (Appeals) and confirmed the assessment order of the Assessing Officer. 2. While admitting the matter on January 11, 2010, the following substantial question of law was framed by the court for consideration : (i) Whether, in the facts and under the circumstances of the case the Income-tax Appellate Tribunal was right in law in treating the mineral oil wells as buildings for the purpose of applying rate of depreciation under section 32 of the Income-tax Act ? 3. Learned senior counsel for the appellant-assessee, Mr. S. N. Soparkar has submitted that the Tribunal has erred in restricting the alternate claim of depreciation made by the assessee without prejudice to its principal claim under section 42 of the Act. It is further submitted that the Tribunal has erred in restricting the claim of depreciation only at 10 per cent. against 100 per cent. allowed by the Commissioner of Income-tax (Appeals) by treating the oil wells as buildings. It is next contended that the Tribunal has erred in not appreciating that the mineral oil wells can never ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his stock-in-trade which he buys or makes for sale ; but all goods and chattels, fixed or movable, live or dead, which he keeps for permanent employment in his business.' In other words, plant would include any article or object fixed or movable, live or dead, used by a businessman for carrying on his business and it is not necessarily confined to an apparatus which is used for mechanical operations or processes or is employed in mechanical or industrial business. In order to qualify as plant, the article must have some degree of durability, as for instance, in Hinton (Inspector of Taxes) v. Maden and Ireland Ltd. [1960] 39 ITR 357 (HL), knives and lasts having an average life of three years used in manufacturing shoes were held to be plant. In CIT v. Taj Mahal Hotel [1971] 82 ITR 44 (SC), the respondent, which ran a hotel installed sanitary and pipeline fittings in one of its branches in respect whereof it claimed development rebate and the question was whether the sanitary and pipeline fittings installed fell within the definition of plant given in section 10(5) of the 1922 Act which was similar to the definition given in section 43(3) of the 1961 Act and this court aft ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ite decision in this context is that delivered by the Allahabad High Court in S. K. Tulsi and Sons v. CIT [1991] 187 ITR 685 (All). Reference was made to an earlier judgment, where also the functional test approved by this court in several decisions was applied. It was held that if it was found that the building or structure constituted an apparatus or a tool of the taxpayer by means of which business activities were carried on, it amounted to a 'plant' ; but where the structure played no part in the carrying on of these activities but merely constituted a place wherein they were carried on, the building could not be regarded as a plant. 3.4. In addition, learned senior counsel for the appellant has referred to the decision of the hon'ble Supreme Court in the case of Asst. CIT v. Victory Aqua Farm Ltd. reported in [2015] 379 ITR 335 (SC), wherein paragraphs 4 and 6 are reproduced hereunder (page 337) : It is not in dispute that if these ponds are 'plants', then they are eligible for depreciation at the rates applicable to plant and machinery and case would be covered by the provisions of section 32 of the Act. It is not even necessary to deal with this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... finding authority that the generating station building is an integral part of the assessee's generating system. Our attention has been drawn by the learned counsel for the Revenue to the judgment of this court in CIT v. Anand Theatres [2000] 244 ITR 192 (SC). He submits that, in that judgment, this court has held that, except in exceptional cases, the building in which the plant is situated must be distinguished from the plant and that, therefore, the assessee's generating station building was not to be treated as a plant for the purposes of investment allowance. It is difficult to read the judgment in the case of Anand Theatres (supra) so broadly. The question before the court was whether a building that was used as a hotel or a cinema theatre could be given depreciation on the basis that it was a plant and it was in relation to that question that the court considered a host of authorities of this country and England and came to the conclusion that a building which was used as a hotel or cinema theatre could not be given depreciation on the basis that it was a plant. We must add that the court said (page 225 of 244 ITR) : To differentiate a building for grant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and, therefore, the asses see was not entitled for development rebate. The Tribunal pointed out that oil well is an apparatus used by the assessee for the purpose of deriving income from crude oil after drilling the well. Under the circumstances, the well is a plant of the asses see used for its business of exploration of crude oil. In fact, the assessee relied upon the Circular of the Department being No. 582-25/605 J. M. dated January 23, 1926. The said circular categorically lays down that wells and pipes are plant. The Supreme Court decision in the case of Scientific Engineering House P. Ltd. v. CIT was relied upon by Dr. Pal. The Supreme Court, in the said judgment, has quoted with approval from the decision reported in Yarmouth v. France [1887] 19 QBD 647 that : 'there is no definition of plant in the Act : but in its ordinary sense, it includes whatever apparatus is used by a business man for carrying on his business,-not his stock-in-trade which he buys or makes for sale ; but all goods and chattels, fixed or movable, live or dead, which be keeps for permanent employment in his business.' The same view has been taken by the House of L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed in field operations (distribution) by mineral oil concerns. 100 The said entry of the Income-tax Rules reads as under : A perusal of above would reveal that entry (ix)(b) deals with plant used in field operation (distribution) by mineral oil concern. Thus, to qualify for this entry following conditions have to be satisfied. It should be a plant. It is used in field operation (below ground). It belongs to a mineral oil concern. It is necessary to understand the assessee's operation before deciding the depreciation rates for the wells used by the assessee. It is necessary to understand the process of drilling and exploration activities for a gas well. Before drilling a well, geographical and geo physical surveys are conducted and probable site for well is decided. At the time of drilling the well, drilling fluid or drilling mud is constantly circulated round the well board. When the drilling is completed, casing pipe is lowered in the well to ensure the safe control of production, to prevent water entering in wellbore and to keep rock formations from 'sloughing' into wellbore. Valves, chokes and fitt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) and based on the functional test ; (v) the decision of the Calcutta High Court in the case of Tribeni Tis sues Ltd. v. CIT [1991] 190 ITR 487 (Cal), holding that tube well is an apparatus with equipment necessary for drawing water from subterranean sources where water is used for production was a plant ; and (vi) CIT v. Warner Hindustan Ltd. [1979] 117 ITR 15 (AP) and CIT v. Warner Hindustan Ltd. [1979] 117 ITR 68 (AP), wherein a well even in a pharmaceutical factory was held to be in the nature of a plant and not a building. The decision of the Gujarat High Court in the case of Shree Digvijay Woollen Mills Ltd. v. CIT [1993] 204 ITR 398 (Guj) relied upon the learned Commissioner of Income-tax-Departmental representative was not whether tube well is a plant but it held that the expenditure on tube well is a capital expenditure. It held that even if it did not result in the creation of an asset, it would not cease to be an expenditure of the nature of capital. 65. The assessee dug the well and put steel pipes therein to reach the reservoirs of oil and natural gas. It is thus a passage created by the assessee to reach reservoir. The well is to protect, cover and put a structur ..... X X X X Extracts X X X X X X X X Extracts X X X X
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