1. Heard. The following substantial question of law is involved in this appeal :
'Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in holding that the drilling machines used by the assessee should be treated as earth-moving machinery, falling under entry (4)of item No. III-D of Part I of Appendix I to the Income-tax Rules, 1962, and, therefore, entitled to depreciation at 30 per cent. ?'
2. Admit.
3. On the request of learned counsel for the parties, we have taken this matter for final disposal.
4. This appeal under Section 260A of the Income-tax Act, 1961, is directed against the order dated October 26, 1998, passed by the Income-tax Appellate Tribunal, Jaipur Bench. The respondent-assessee is the proprietor of Mewar Trading Company, Udaipur. He filed a return declaring a loss of Rs. 7,41,062. The Assessing Officer completed the assessment on March 30, 1987, on loss of Rs. 3,23,531. It was observed that an investment allowance shall be allowed next year if there is positive income. Subsequently, notice under Section 148 was served on the assessee. The assessee claimed depreciation on the rig at 30 per cent. instead of 15 per cent. It was contended that 30 per cent. depreciation is to be allowed on machinery involved in heavy construction. On the basis of material available on the record the Assessing Officer arrived at the conclusion that the work done with the rig by the assessee during 11 years could not be categorised as heavy construction, accordingly, in his opinion, the assessee could not claim depreciation at 30 per cent. The Commissioner of Income-tax (Appeals) found that the drilling operations had resulted in the production of underground water for use on the surface of the ground and in these circumstances it must be held that the assessee is an industrial undertaking for the purpose of production of underground water for use on the surface of the ground. Thus, in the opinion of the Commissioner of Income-tax (Appeals), the required conditions under Section 32A(2)(b)(iii) were fully satisfied, as such the assessee was entitled to claim deduction on account of the investment allowance. The Commissioner of Income-tax (Appeals) allowed the appeal and directed the Assessing Officer to allow the depreciation at 30 per cent. and investment allowance on the cost of rig machine. The views of the Commissioner of Income-tax (Appeals) were confirmed by the Income-tax Appellate Tribunal, Jaipur Bench.
5. It is contended by learned counsel for the Revenue that the Tribunal has committed an error in allowing depreciation on rig machine at 30 per cent. for the reason that machinery is involved in the heavy construction. It is submitted that the basic condition for allowing the claim of investment allowance is manufacturing, production or construction of article or thing. It is further submitted that the assessee is a contractor for drilling tubewells and installing handpumps for PHED and the assessee does not fulfil the basic condition provided under Section 32A of the Act, i.e., manufacturing, production or construction of article or thing. Learned counsel has placed reliance on a reported decision of this court, dated May 11, 2002, rendered in CIT v. Bhola Ram , wherein this court has held that rig and compressorsmounted on a lorry used for drilling do not fall in the category of heavy machinery or motor lorry under item No. III(ii)D(4) of Part I to the Income-tax Rules, 1962. The court further held that in such circumstances, the claim of depreciation at the special rate of 30 per cent cannot be allowed in respect of such rig and compressors. In our view, the instant case is squarely covered by the judgment of this court referred to above.
6. Consequently, this appeal is allowed and the order of the Income-tax Appellate Tribunal, dated February 26, 1998, and that of the Commissioner of Income-tax (Appeals), dated January 27, 1992, are set aside. The order of the Assessing Officer, dated January 27, 1992, is restored.