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1998 DIGILAW 78 (MAD)

Commissioner of Income Tax v. Sivam and Company

1998-01-28

A.SUBBULAKSHMY, N.V.BALASUBRAMANIAN

body1998
Judgment :- N. V. BALASUBRAMANIAN, J. At the instance of the Department, the Tribunal has referred the following two questions of law under s. 256(1) of the IT Act, 1961 (hereinafter referred to as the "Act") for our consideration : "1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the rigs and compressors mounted on a lorry used for drilling borewells are entitled for special depreciation at 30 per cent ? 2. Whether, on the facts and in the circumstances of the case, the Tribunal is right in granting the investment allowance under s. 32A(2)(b) on the rigs and compressors ?" The assessee is a registered firm and the assessee carries on business in drilling borewells with the help of rigs and compressors mounted on a lorry. The assessee during the course of the assessment proceedings for the asst. yr. 1982-83 claimed depreciation at 30 per cent on rigs and compressors on the ground that they constitute an integral part of the lorry. The assessee has also claimed investment allowance on rigs and compressors under s. 32A of the Act. The ITO rejected both the claims preferred by the assessee and completed the assessment. The assessee preferred an appeal to the CIT(A). The CIT(A), following the order of the Tribunal in the assessee's own case for the asst. yr. 1980-81, accepted the claims of the assessee and allowed the appeal preferred by the assessee. The Department preferred an appeal before the Tribunal and the Tribunal following its order in the case of ITO vs. Popular Borewell Service 1986 15 ITD 420 (Mad), and the assessee' own case for the asst. yr. 1980-81, held that the assessee was entitled to depreciation on rigs and compressors at 30 per cent and investment allowance on the rigs and compressors under s. 32A(2)(b) of the Act.The Revenue obtained a reference on the question of law set out earlier. In so far as the first question of law referred to us is concerned, the issue raised in the question is covered against the assessee by a decision of this Court in the case of CIT vs. Popular Borewell Service 1991 Indlaw MAD 252 : 1991 Indlaw MAD 252 (Mad) : TC 27R.434. In so far as the first question of law referred to us is concerned, the issue raised in the question is covered against the assessee by a decision of this Court in the case of CIT vs. Popular Borewell Service 1991 Indlaw MAD 252 : 1991 Indlaw MAD 252 (Mad) : TC 27R.434. It is also relevant to notice that the assessee's own case was also the subject-matter for consideration by this Court in CIT vs. Popular Borewell Service (supra) and this Court in T.C. Nos. 539 and 540 of 1986 held that the assessee is not entitled to depreciation at the special rate of 30 per cent in respect of rigs and compressors mounted on a lorry. So far as the second question of law that is referred to us is concerned, no doubt, this Court in CIT vs. Popular Borewell Services (supra), held that the assessee would be entitled to investment allowance on the ground that drilling operation would result in the production of a thing and the thing produced being a borewell. In this view of the matter, this Court held in the decision cited supra that the assessee would be entitled to investment allowance under s. 32A of the Act. Mr. C. V. Rajan, learned counsel for the Revenue, submitted that the decision of this Court in CIT vs. Popular Borewell Service (supra), is no longer good law in view of the decision of the Supreme Court in CIT vs. N. C. Budharaja & Co. 1993 Indlaw SC 1439 : 1993 Indlaw SC 1439 (Mad) : TC 28R.233. He brought to our notice the decision of the Supreme Court against the judgment of the Karnataka High Court extending the benefit of s. 32A of the Act to new machinery employed in digging borewells and the Supreme Court held that investment allowance is not admissible to machinery installed for the business of digging borewells. He, therefore, submitted that in view of the decision of the Supreme Court, the earlier decision of this Court requires reconsideration.Mr. C. Chinnaswamy, learned senior counsel appearing for the assessee supported the order of the Tribunal. We have carefully considered the submissions of learned counsel for the parties. In CIT vs. N. C. Budharaja & Co. He, therefore, submitted that in view of the decision of the Supreme Court, the earlier decision of this Court requires reconsideration.Mr. C. Chinnaswamy, learned senior counsel appearing for the assessee supported the order of the Tribunal. We have carefully considered the submissions of learned counsel for the parties. In CIT vs. N. C. Budharaja & Co. (supra), the Supreme Court held that the expressions "manufacture" and "produce" are normally associated with movables like articles and goods, big and small but, they are never employed to denote construction activity of the nature involved in construction of a dam or a building. The decision of the Supreme Court makes it clear that the benefit of investment allowance is admissible only where the machinery was installed for the manufacture of certain movable articles and goods and not for construction of an immovable property. It is also relevant to notice that the Supreme Court considered an appeal against the decision of the Karnataka High Court wherein the Karnataka High Court extended the benefit of investment allowance to new machinery employed in digging borewells. The Supreme Court held that the investment allowance was not admissible in respect of the new machinery employed in digging borewells. The Andhra Pradesh High Court in CIT vs. Super Drillers 1995 Indlaw AP 191 : 1995 Indlaw AP 191 (AP) : TC S25.2560, considered the case of an assessee which carried on the business of drilling borewells and held that the assessee was not an industrial undertaking engaged in manufacturing or producing articles or things and was not entitled to relief under ss. 80J , 80HH / 80HHA of the IT Act, 1961. The Andhra Pradesh High Court noticed the decision of the Supreme Court in CIT vs. N. C. Budharaja & Co. (supra) and held that the business of drilling borewells cannot be regarded as an industrial undertaking. In view of the decision of the Supreme Court in CIT vs. N. C. Budharaja & Co. (supra), we are of the view that the earlier decision of this Court in CIT vs. Popular Borewell Service (supra), holding that the assessee would be entitled to investment allowance on the rigs and compressors employed in drilling operations is no longer good law. (supra), we are of the view that the earlier decision of this Court in CIT vs. Popular Borewell Service (supra), holding that the assessee would be entitled to investment allowance on the rigs and compressors employed in drilling operations is no longer good law. Since the decision of this court is in direct conflict with the decision of the Supreme Court, we are of the view that it is not necessary to refer the matter to the Full Bench to decide the question as the matter is concluded by the decision of the Supreme Court. Accordingly, we hold the earlier decision in CIT vs. Popular Borewell Service (supra), holding that the assessee was entitled to investment allowance in respect of the machinery employed in digging borewells is no longer goods law. Accordingly, we are of the opinion that the second question is liable to be answered in favour of the Revenue. Accordingly, we answer the first question in the negative and in favour of the Revenue and the second question in the negative and in favour of the Revenue. No costs.