Commissioner of Income Tax vs Sivam and Co.

N.V. Balasubramanian, J.—At the instance of the Department, the Income Tax Appellate Tribunal has referred the following two questions

of , law u/s 256(1) of the Income Tax Act, 1961 (hereinafter referred to as the ""Act"") for our consideration :

Whether, on the facts and in the circumstances of the case, the Appellate 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. ?

Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is right in granting the investment allowance u/s 32A(2)(b) on

the rigs and compressors ?

The assesses 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 assessment year 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 u/s 32A of the Act. The Income Tax Officer rejected both the claims preferred by the assessee and completed the assessment. The

assessee preferred an appeal to the Commissioner of Income Tax (Appeals). The Commissioner of Income Tax (Appeals), following the order of

the Appellate Tribunal in the assessee''s own case for the assessment year 1980-81, accepted the claims of the assessee and allowed the appeal

preferred by the assessee.

The Department preferred an appeal before the Income Tax Appellate Tribunal and the Appellate Tribunal following its order in the case of

Popular Borewell Service [1986] 15 ITD 240, and the assessee''s own case for the assessment year 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 u/s 32A(2)(b) of the Act.

The Revenue obtained a reference on the questions of law set out earlier.

In so far as the first question of law referred to us in concerned, the issue raised in the question is covered against the assessee by a decision of

this court in the case of Commissioner of Income Tax Vs. Popular Borewell Service and others, . It is also relevant to notice that the assessee''s

own case was also the subject-matter for consideration by this court in Commissioner of Income Tax Vs. Popular Borewell Service and others,

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 Commissioner of Income Tax Vs. Popular

Borewell Service and others, , 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 u/s 32A of the

Act.

Mr. C. V. Rajan, learned counsel for the Revenue, submitted that the decision of this court in Commissioner of Income Tax Vs. Popular

Borewell Service and others, , is no longer good law in view of the decision of the Supreme Court in Commissioner of Income Tax, Orissa and

Others Vs. N.C. Budharaja and Company and Others, . He brought to our notice the decision of the Supreme Court against the judgment of the

Karnataka High Court extending the benefit of Section 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 Appellate Tribunal.

We have carefully considered the submissions of learned counsel for the parties.

In Commissioner of Income Tax, Orissa and Others Vs. N.C. Budharaja and Company and Others, , 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 Commissioner of Income Tax Vs. Super Drillers, , 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 Sections 80J and 80HH/80HHA of the Income Tax Act, 1961. The Andhra Pradesh High Court noticed the

decision of the Supreme Court in Commissioner of Income Tax, Orissa and Others Vs. N.C. Budharaja and Company and Others, 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 Commissioner of

Income Tax, Orissa and Others Vs. N.C. Budharaja and Company and Others, , we are of the view that the earlier decision of this court in

Commissioner of Income Tax Vs. Popular Borewell Service and others, , 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 Commissioner of Income Tax Vs. Popular Borewell

Service and others, , holding that the assessee was entitled to investment allowance in respect of the machinery employed in digging borewells is no

longer good 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.