COMMISSIONER OF INCOME TAX Vs. POPULAR BOREWELL SERVICE

JUDGEMENT

(1.) THESE tax case references are dealt with together, as common questions of law relating to the allowance of depreciation and grant of investment allowance on a certain type of machinery, viz., rig and compressor arise for consideration. However, it will be convenient, to refer to the facts and the question arising for decision in each of these references.

(2.) THE assessee in T. C. No. 242 of 1986 is a firm carrying on the business or drilling bore-wells. In the course of the assessment proceedings for the assessment year 1978-79, the assessee claimed depreciation at 30% on the rig and compressor under item No. III(ii) D(9) of part I of Appendix I to the Income-tax Rules, 1962 (hereinafter called "the Rules"), on the ground that they constituted an integral part of the lorry on which they were mounted and were also worked by the same engine which provided traction to the lorry. THE Income-tax Officer rejected the claim of the assessee for depreciation at 30% on the rig and compressor. On appeal by the assessee, the Appellate Assistant Commissioner, following the decision of the Income-tax Appellate Tribunal in the case of the assessee for the assessment year 1979-80 in I. T. A. No. 151/MDS of 1983, accepted the claim of the assessee and held that it was entitled to depreciation at 30% on the rig and compressor. Aggrieved by the order of the Appellate Assistant Commissioner, the Revenue filed and appeal before the Tribunal. THE Tribunal, by its order dated February 27, 1985, following its earlier order in I. T. A. No. 151/MDS of 1983, upheld the order of the Appellate Assistant Commissioner and dismissed the appeal. Aggrieved by the order of the Tribunal, the Revenue obtained a reference under section 256(1) of the Income-tax Act, 1961 (hereinafter referred to as "the Act"), to this court, on the following question of law, for its opinion :

(3.) THE assessee in T. C. No. 1796 of 1984 is a registered firm carrying on business as contractors for sinking bore-wells. THE machinery involved is rig and compressor mounted on a lorry used for drilling bore-wells. For the assessment year 1977-78, the assessee claimed that it is entitled to investment allowance under section 32A(2)(b) of the Act, as a small-scale industry engaged in the manufacture of production of an article or thing this was negatived by the Income-tax officer as well as the appellate authority on the ground that the assessee only burrowed a hole in the ground, which cannot be considered to be a thing. Against the order of the appellate authority, the assessee filed an appeal before the Tribunal, and the Tribunal found that the reasoning of the appellate authority for refusing investment allowance under section 32A(2)(b) of the Act is erroneous, because the assessee, according to the Tribunal, by sinking a bore-well, brought into existence a thing viz., a bore-well. THE Tribunal found that the assessee was engaged in the manufacture or production of a thing and was entitled to investment allowance under section 32A(2)(b) of the Act. In the above circumstances, at the instance of the Revenue, under section 256(2) of the Act, the following question of law has been referred to this court for its opinion :