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and compressors should not be restricted to 10 per cent, while investment allowance originally granted should not be withdrawn.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