INCOME TAX OFFICER v. SIVAM AND COMPANY
[Citation -1984-LL-0904-2]

Citation 1984-LL-0904-2
Appellant Name INCOME TAX OFFICER
Respondent Name SIVAM AND COMPANY
Court ITAT
Relevant Act Income-tax
Date of Order 04/09/1984
Assessment Year 1980-81
Judgment View Judgment
Keyword Tags manufacture or production • business of construction • depreciation allowance • industrial undertaking • investment allowance • higher depreciation • written down value • drilling borewells • transport vehicle • wealth-tax act • capital asset • new machinery • motor vehicle • diesel engine • raw material • motor car • plant
Bot Summary: The assessee offered an explanation stating therein that the assessee is entitled to depreciation and investment allowance and the same is to be allowed. The learned counsel for the assessee has not convinced us in rebutting the contention of the learned departmental representative referred to above as he merely relied on the decision of the Tribunal dated 21-7-1981 in IT Appeal No. 269 of 1980, where the Tribunal allowed section 32A relief to the assessee on the ground that drilling borewells fell within the terms of this section as the assessee itself has created a contradiction or anomaly in claiming depreciation on the drilling rigs and compressors on the basis of lorry. Their Lordships were of the view that the assessee should have exclusively and truly engaged by involvement in manufacture, production or processing of goods and where the assessee manufactures and produces goods of an outsider on contract basis or with charging wages or labour, then there is no manufacture, production or processing of goods. Regarding the first question whether the assessee's business amounts to manufacture or production of any article or thing within the meaning of section 32A(2), the Tribunal has held in IT Appeal No. 2068 of 1980, that the sinking of borewells amounts to 'production of a thing' noting the process involved that the assessee modifies a tube, fits it with a head and sinks it in the ground with capacity to provide water, the entire contraption, viz. ORDER UNDER SECTION 255(4) OF THE INCOME-TAX ACT, 1961 - Whereas we are unable to agree on the point set out below for the assessment year 1980-81, we refer the following point of difference of opinion to the President for reference to Third Member under section 255(4) of the Income-tax Act, 1961: Whether, on the facts and in the circumstances of the case, the assessee, is also entitled to investment allowance under section 32A(2)(b) in respect of the above items of machinery THIRD MEMBER ORDER Per Dr. V. Balasubramanian, Vice President - The assessee is a firm of five partners engaged in the business of drilling borewells. The learned Judicial and the Accountant Members wrote separate orders, the former holding that the assessee was not entitled to any investment allowance and the latter holding that the assessee was entitled to the same. For the assessee, it is pointed out that without movement and help of the lorry, the compressor and rig would be of no use in the context of the assessee's business.


revenue has preferred this appeal against order dated 18-10-1982 of Shri A.B. Menon, Commissioner (Appeals), who partly allowed appeal against order dated 25-5-1982 of Shri S. Bavi, ITO. 2. relevant facts, in brief, are that assessee is registered firm. business of assessee is that of drilling borewells. assessee filed return of income for assessment year 1980-81 relating to previous year ended 31-3-1980 and assessment was completed under section 143(1) of Income-tax Act, 1961 ('the Act'), on 25-7-1981. ITO allowed depreciation at rate of 20 per cent in respect of drilling rigs and compressors used for purpose of business and he also allowed investment allowance claimed by assessee under section 32A of Act. 3. However, ITO reopened assessment under section 143(3), read w i t h section 147, of Act. Consequently, ITO issued notice on assessee under section 148/147 of Act to show cause that why depreciation allowance on rigs and compressors should not be restricted to 10 per cent, while investment allowance originally granted should not be withdrawn. assessee offered explanation stating therein that assessee is entitled to depreciation and investment allowance and same is to be allowed. Reliance was placed on decision of Tribunal dated 21-7-1981 in IT Appeal No. 2068 (Mad.) of 1980 and, therefore, depreciation allowance is to be allowed at 30 per cent and also further investment allowance. ITO did not accept explanation of assessee on ground that department has not accepted decision of Tribunal and reference is there in High Court and, therefore, he allowed depreciation at 10 per cent. He also disallowed claim of assessee for investment allowance on ground that this allowance is admissible on machineries specified in sub-section (2) of section 32A and since sinking of borewells could not be connected with business of construction, manufacture or production of any article or thing, assessee is not entitled to benefit and investment allowance. 4. In appeal, Commissioner (Appeals) accepted claim of assessee on ground that since drilling rigs and compressors used in business of drilling borewells were mounted on lorry chassis and powered by same diesel engine which powers lorry, they together with lorry constitute integral unit, in respect of which depreciation would be admissible at special rate of 30 per cent prescribed for motor lorries and that view had been upheld by Tribunal in its order dated 15-3-1982 in IT Appeal No. 935 (Mad.) of 1981. However, he restrained it at 20 per cent on ground that ITO was not entitled to make reassessment inconsistent with original assessment in respect of matters which were not subject-matters of reassessment proceedings. In deciding issue of investment claim under section 32A he, on, following decision of Tribunal dated 21-7-1981 in IT Appeal No. 2068 (Mad.) of 1980, accepted claim of assessee. revenue being aggrieved has preferred this appeal. 5. Shri C. S. Padmanabhan, learned departmental representative, contends that when depreciation at higher rate is allowable on taking drilling rigs and compressors as lorry then these rigs and compressors should not be taken judicially for deduction under section 32A as according to provisions of law and rules, lorry is not entitled to deduction under section 32A. Tribunal in deciding issue in case decided on 21-7-1981 has not considered matter from this angle and, therefore, order of Tribunal on this issue should not be followed. On other hand, Shri C. S. Padmanabhan contends that Tribunal should follow its order particularly when reference has been pending for disposal in High Court under section 256(1) of Act and case of department is that it has not accepted decision of Tribunal and, therefore, departmental representative cannot improve upon order of ITO in appeal of department. He relies on orders of Tribunal. 6. We have heard rival contentions and gone through records before us. It is clear from record that depreciation is allowed by Tribunal t rate of 30 per cent on taking drilling rigs and compressors as lorry. Therefore, for purpose of deduction under section 32A, drilling rigs and compressors should remain as lorry. Therefore, we find force in contention of learned departmental representative that drilling rigs and compressors for purpose of depreciation and deduction under section 32A are to be taken as lorry and relief under section 32A is to be determined and allowed, accordingly, and as such order of Tribunal for purpose of relief under section 32A should not be followed, being distinguishable. However, learned counsel for assessee has not convinced us in rebutting contention of learned departmental representative referred to above as he merely relied on decision of Tribunal dated 21-7-1981 in IT Appeal No. 269 (Mad.) of 1980, where Tribunal allowed section 32A relief to assessee on ground that drilling borewells fell within terms of this section as assessee itself has created contradiction or anomaly in claiming depreciation on drilling rigs and compressors on basis of lorry. lorry under Motor Vehicles Act, 1939, in common use or as popularly understood in India, is for purpose of carriage or transport of goods or passengers from one place to another. Therefore, no element of manufacture or processing is involved in plying of lorry or use of lorry in business. Therefore, business of assessee cannot be taken as industrial undertaking and if we do so, then it is not in interest o f justice. In doing justice, no party is to be allowed to blow hot and cold for achieving reliefs or making claims on contradictory basis, i.e., depreciation on basis of claiming drilling rigs and compressors as lorry; while investment allowance on basis of business of manufacture or processing of goods in boring wells by drilling rigs, hence, assessee is industrial undertaking as per provisions of Motor Vehicles Act, particularly when lorry in eyes of law, usage and common understanding is for purpose of transporting goods or passengers from one place to another in India. Since case relied upon by assessee and AAC has been distinguished by departmental representative by making arguments, as stated above, and same substantial question of law was not considered by Tribunal in providing relief under section 32A of Act, decision of Tribunal cannot be followed. Particularly, when it is not in assessee's own case, nor assessee claimed and proved itself as industrial undertaking. ITO has held it otherwise (non-industrial undertaking) on assigning cogent reasons with which we agree. Further, Hon'ble Madras High Court in case of CWT v. K. Lakshmi [1983] 142 ITR 656 has made distinction between terms 'engaged in business of manufacturing or processing goods', and 'engaged in manufacture, production and processing of goods'. For purpose of relief under section 32A, engagement in manufacture or processing or production of goods is must and not engagement in business of manufacturing, etc., of goods. Their Lordships were of view that assessee should have exclusively and truly engaged by involvement in manufacture, production or processing of goods and where assessee manufactures and produces goods of outsider on contract basis or with charging wages or labour, then there is no manufacture, production or processing of goods. Thus, for manufacture, production or processing of goods, assessee should be owner of machinery, plant and material used for manufacture of articles or goods, since it postulates direct involvement in manufacture, production or processing of goods. Hence, term 'engaged in manufacture, production or processing of goods' is not synonymous with that of term 'engaged in business of manufacture, production or processing of goods'. Therefore, it will not include claim where assessee gets goods manufactured, processed or produced by any outside agency or manufactures or processes for any outside agency on contract basis or charges for work on its part. In other words, assessee to be industrial undertaking, it, he or she should be owner of machinery, plant, raw material used in manufacture, production or processing of goods or articles. Moreover, assessee should also deal in such articles or goods manufactured or produced. Therefore, on these reasons, we hold that case relied on by Commissioner (Appeals), decided by Tribunal referred to above, is distinguishable and departmental representative has distinguished it and, therefore, we are unable to follow it in case of assessee. Accordingly, we further hold that assessee is not entitled to relief under section 32A on totality of facts of case. Therefore, we set aside his order on this issue and restore that of ITO as his order is justified and reasons for his conclusion of issue are pragmatic, with which we also agree. In view of this, appeal is partly allowed. Per Shri C.R. Nair, Accountant Member -- I have perused order of my learned brother. With great respect, I wish to dispose of appeal differently. 2. None appeared before us on assessee's behalf and appeal is d e c i d e d ex parte on merits, after hearing learned departmental d e c i d e d ex parte on merits, after hearing learned departmental representative and perusing material on record. assessee-firm is firm of five partners engaged in business of drilling borewells. department's first contention is that Commissioner (Appeals) erred in holding that rigs and compressors used in business of drilling borewells are entitled to depreciation at special rate of 30 per cent prescribed for motor lorries. In original assessment, ITO had allowed depreciation at rate of 20 per cent i n respect of drilling rigs and compressors. In reassessment made by him, ITO allowed depreciation on above items only at rate of 10 per cent. I n assessee's appeal regarding depreciation rate to be applied on rigs and compressors, Commissioner (Appeals) has held that drilling rigs and compressors in question being mounted on lorry chassis and powered by same diesel engine which powers lorry, they together with lorry constitute integral unit in respect of which depreciation is admissible at special rate of 30 per cent prescribed for motor lorries, following decision of Tribunal dated 15-3-1982 in IT Appeal No. 935 (Mad.) of 1981. However, Commissioner (Appeals) held that original allowance of 20 per cent in assessment could not be enhanced to 30 per cent in reassessment as claimed by assessee. department is in appeal on this point to keep m t t e r alive as they have not accepted Tribunal's decision. Commissioner (Appeals)'s view is to be upheld, adopting reasoning and conclusion in aforesaid order, which was also supported by number of other decisions of Madras Benches of Tribunal, e.g., 'B'-Bench's order dated 30-3-1982 in case of O. Palaniappan [IT Appeal No. 1092 (Mad.) of 1981]. 3. revenue's second contention is that assessee is not entitled to benefit of investment allowance which is admissible only in respect of machineries specified in section 32A(2) and not for any other machineries. ITO had withdrawn investment allowance in reassessment under present appeal on ground that 'sinking of borewells could not be equated with business of construction, manufacture or production of any article or thing', stating that Tribunal's decision on this point in IT Appeal No. 2068 (Mad.) of 1980 dated 21-7-1981 has not been accepted by department. Before Commissioner (Appeals) in appeal, assessee's ground was that it is small- scale industrial undertaking only and it was engaged in production of thing under section 32A(2)(b). Commissioner (Appeals) in appeal held that assessee is entitled to investment allowance, following decision of Tribunal dated 21-7-1981 in IT Appeal No. 2068 (Mad.) of 1980. department's submissions before us against Commissioner (Appeals)'s order are twofold viz., (i) that Tribunal's decision has not been accepted and that assessee is not entitled to investment allowance, and (ii) if assets in question are granted depreciation at rate of 30 per cent prescribed for lorries, assessee would, consequently, not be entitled to investment allowance, since such asset would be of category of 'road transport vehicle', which is not eligible for investment allowance under relevant provision. My learned brother has, for reasons given by him, held that assessee is not entitled to relief under section 32A. With respect, I am unable to agree. Regarding first question whether assessee's business amounts to manufacture or production of any article or thing within meaning of section 32A(2), Tribunal has held in IT Appeal No. 2068 (Mad.) of 1980, that sinking of borewells amounts to 'production of thing' noting process involved that assessee modifies tube, fits it with head and sinks it in ground with capacity to provide water, entire contraption, viz., deep borewell is left in ground after operations, and it is in effect 'thing' or 'article' which could be factually recognised; also that in case of customer for whom borewell is sunk for purpose of business, it would be treated as capital asset as judicially recognised to be plant. Section 32A(2) reads as under: "(2) ship or aircraft or machinery or plant referred to in sub-section (1) [entitled to investment allowance] shall be following, namely:-- (b) any new machinery or plant installed after 31st day of March, 1976, (ii) in small-scale industrial undertaking for purposes of business of manufacture or production of any article or thing; or (iii) in any other industrial undertaking for purposes of business of construction, manufacture or production of any article or thing, not being article or thing specified in list in Eleventh Schedule." Thus, requirement of provision is that there should, inter alia, be 'manufacture or production of any article or thing'. Tribunal has held in aforesaid order that sinking of borewell amounts to production of any article or thing under section 32A(2)(b). Madras High Court decision in case of K. Lakshmi, referred to in my learned brother J.M's order, was concerned with different point, namely, meaning of term 'industrial undertaking' in Explanation to section 5(1)(xxxii) of Wealth-tax Act, 1957, containing phrase 'Manufacturing or processing of goods'. It may be noted that in section 32A(2)(b) (with which we are concerned in present appeal), term 'industrial undertaking' (both small-scale and non-small-scale) takes into its ambit 'production of any article or thing', term not being separately defined. Thus, in present case, we are concerned with production of any article or thing, and not manufacturing or processing of goods. I am, hence, of view, with great respect, that K. Lakshmi's case has no application to present case. Following Tribunal's order in IT Appeal No. 2068 (Mad.) of 1980, I should hold that assessee is entitled to investment allowance in present case. 4. further interesting point raised by department for consideration is that rig and compressor fitted on chassis being treated as lorry for purpose of depreciation, it should be treated as 'road transport vehicle' and, hence, assessee is not entitled to investment allowance in view of prohibition regarding road transport vehicle in provisions of section 32A(2)(b). I am unable to accept department's contention on this point. rig and compressor together with chassis forming integrated unit cannot be treated as road transport vehicle. It may be noted that term 'road transport vehicle' is not defined in Act. It will be seen that under Motor Vehicles Act, section 2(33) defines 'transport vehicle' as public service vehicle or goods vehicle. road transport vehicle would, hence, be public service vehicle or goods vehicle plying on road. Further, section 2(25) of Motor Vehicles Act defines 'public service vehicle' as any motor vehicle used or adapted to be used for carriage of passengers for hire or reward, and includes motor car, contract carriage, and stage carriage. Section 2(8) defines 'goods vehicle' as any motor vehicle constructed or adapted for carriage of 'goods vehicle' as any motor vehicle constructed or adapted for carriage of goods. Under section 2(7) 'goods' includes livestock, and anything (other than equipment ordinarily used with vehicle) carried by vehicle except living persons. expression 'road transport vehicle' would, therefore, mean that transport vehicle should be used for public service or goods, i.e., for carrying passengers or regular goods. Rig and compressor are not goods but only equipments used with moving chassis on which it is fitted. rig and compressor along with chassis form integrated unit which is moved from place to place for exclusive purpose of sinking tube wells and it does not carry passengers or goods but only driver and/or other borewell workers. Hence, above unit does not come under 'road transport vehicle' and there is no bar, in my view, to investment allowance being allowed thereon. In result, I would dismiss departmental appeal, subject to verification of department's plea that even according to Commissioner (Appeals)'s order, quantum of relief is not Rs. 1,34,474 but only Rs. 1,19,355 (disallowed in reassessment by ITO). ORDER UNDER SECTION 255(4) OF INCOME-TAX ACT, 1961 -- Whereas we are unable to agree on point set out below for assessment year 1980-81, we refer following point of difference of opinion to President for reference to Third Member under section 255(4) of Income-tax Act, 1961: "Whether, on facts and in circumstances of case, assessee (being held to be entitled to depreciation at special rate of 30 per cent prescribed for motor lorries on drilling rigs and compressors used in assessee's business of sinking borewells), is also entitled to investment allowance under section 32A(2)(b) in respect of above items of machinery?" THIRD MEMBER ORDER Per Dr. V. Balasubramanian, Vice President -- assessee is firm of five partners engaged in business of drilling borewells. Amongst assets used for his business and in respect of which depreciation and other allowances were claimed, were two items: compressors with written down value as on 1- 4-1979 of Rs. 1,09,272 and rigs with written down value on 1-4-1979 of Rs. 1,40,020. In respect of first item, addition to extent of Rs. 2,69,789 was made, making total of Rs. 3,03,249. Depreciation was granted on above item at rates of 10 and 20 per cent, respectively, by ITO. claim for investment allowance in respect of compressors and rigs was, however, not entertained, by ITO. On appeal, assessee claimed depreciation in respect of these items at same rate as that granted to motor vehicles, lorries, etc. On appeal, this seems to have been granted. On question of investment allowance, following decision of Tribunal in IT Appeal No. 2068 (Mad.) of 1980 dated 21-7-1981, Commissioner (Appeals) directed its grant. department challenged this decision of Commissioner (Appeals). learned Judicial and Accountant Members wrote separate orders, former holding that assessee was not entitled to any investment allowance and latter holding that assessee was entitled to same. It is true that matter has been referred to me as Third Member to resolve point of difference drawn out as under: "Whether, on facts and in circumstances of case, assessee (being held to be entitled to depreciation at special rate of 30 per cent prescribed for motor lorries, on drilling rigs and compressors used in assessee's business of sinking borewells) is also entitled to investment allowance under section 32A(2)(b) in respect of above items of machinery?" 2. learned counsel for department pointed out that compressors and rigs have been classed with motor lorries. assessee claimed and has been allowed depreciation at rates permissible to motor lorries. Prima facie, therefore, it is incorrect to claim investment allowance on these items. There is substantive bar against grant of investment allowance to motor vehicles. As matter of fact, these items of machinery are attached to motor lorries and are taken from place to place, lorry moving in same manner as any other motor vehicle. very inconsistent demand made by assessee makes claim unacceptable. 3. For assessee, it is pointed out that without movement and help of lorry, compressor and rig would be of no use in context of assessee's business. This point has been appreciated by appellate authority who granted depreciation at rates applicable to motor lorries. All same, rigs and compressors are not motor lorries. There, is prohibition against grant of investment allowance only to motor lorries and not to other machineries attached to them like rigs, compressors or any others. There is no inconsistency, therefore, in claim. Tribunal's decision referred to clearly permits grant of investment allowance in assessee's case. 4. Tribunal's decision referred to by both members and parties before me justifies grant of investment allowance to assessee engaged in his particular line of business. grant of investment allowance, therefore, by itself is not in question. What is in dispute is nature of asset for which allowance is claimed. two learned members have differed on this rather than as to grant of allowance itself. 5. In my view, apparently, there is no conflict between views of two different members nor between view of department and assessee as t o grant of investment allowance on particular items. That investment allowance cannot be granted to motor lorries is clear. It is equally clear that allowance should be granted to other items of machinery. What seems to have been assumed is that rigs and compressors in question. In present case, should definitely be brought within straitjacket of two categories mentioned: motor lorries and others. I do not see why this should be so. Neither order of ITO, Commissioner (Appeals) nor differing orders of two learned Members bring out exact description of assets in question. From description given and gaps filled in by details given by parties before me, exact nature of these assets could, however, be made out. drilling rigs and compressors are independent items of machinery. rig can exist without being placed on lorry. It can for instance be placed on ground. same is true of compressor also. It is not necessary, therefore, to think of rig or compressor only in context of lorry. Both rig and compressor can be utilised in particular place. In particular instance of assessee's business, it may be necessary to take these assets to different places for performing necessary functions. It is for this reason that rigs and compressors are mounted on lorry. If assessee, had only two places of activities, perhaps mounted rigs and compressors could be places of activities, perhaps mounted rigs and compressors could be dismounted at second place and lorry could be dispensed with. It is mere fact of activity at different places that makes particular functioning of this item tied up to lorry. What I want to stress is that neither rig nor compressor is item, which can be utilised or can be thought of only in terms of its assembly on lorry. It is equally true that lorry could be utilised without rig or compressor. 6. Neither authorities below nor learned Members seem to have thought of possibility of considering these items as partly constituting motor lorries and partly other items of machinery mounted on them. In fact, assessee himself might have purchased motor lorry in first instance. He would have then purchased rig or compressor. These would have been thereafter mounted on lorry. There are thus three distinct items, rigs, compressors and lorry. Unambiguously, it can be stated that first two items are not 'lorry', whereas last item is only 'a lorry'. It would be proper, therefore, if depreciation is granted only on last item as lorry and at general rate on other two items. On lorry, investment allowance would not be allowable. On other two items, investment allowance would be allowed. Be that as it may, for year under appeal, depreciation has been granted at higher rate allowable to motor lorries on all three items. There is no contest about this before Tribunal. question, therefore, of altering computation or withdrawing higher depreciation granted does not arise. With regard to grant of investment allowance, however, which is disputed before Tribunal, it could certainly be found out as to how much, out of figures of Rs. 3,79,062 and Rs. 1,40,020, pertains to lorry part of item and how much by way of balance pertains to rig and compressor part. On latter part, investment allowance should be allowed, whereas on former it should not be allowed. 7. When nature of asset is thus properly analysed, there seems to be really no difference of opinion between two Members. It is not necessary to treat combined item of lorries and rigs as single one which can be fitted into one of stated items--motor lorry and others. Since all three items are separately available in market and could be used and perhaps assessee himself has acquired them separately, I would direct that actual value of each of these items be separately worked out and investment allowance be allowed for part representing rigs and compressors. 8. question referred to me is answered as above. matter will now g o back to Bench which originally heard appeal for proper disposal according to law. *** INCOME TAX OFFICER v. SIVAM AND COMPANY
Report Error