TMI Blog1994 (7) TMI 305X X X X Extracts X X X X X X X X Extracts X X X X ..... ning it, it could not be said that the assessee was engaged in any construction/manufacture or production activity. The Bombay Bench further held that the Schedule of depreciation contained in the Income-tax Rules, 1962, would also not help the assessee as only those dredgers, tugs, barges, etc., which are mainly used for dredging purposes and fishing vessels would qualify to be ships. The Bombay Bench also held that the dredger was not used for dredging sea/river bed but was mainly used for lifting out sand from the sea/river bed. Therefore, the assessee was not entitled to investment allowance under section 32A as claimed by it. Shri Gupta urged that the issue involved in this appeal is clearly covered by the order of the Bombay Bench 'B' of the Tribunal and in this view of matter, the order of the Commissioner of Income-tax (Appeals) should be reversed and that of the Income-tax Officer restored. Learned counsel for the assessee, Shri Y. P. Trivedi, argued at length. He has propounded certain propositions. He has distinguished the decision of the Bombay Bench 'B' of the Tribunal ( Thane Reti Vita Utpadak Sahakari Society Ltd. v. ITO [1991] 39 ITD 163 (Bom) ). He has also cited ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ps is made applicable to the dredgers from April 1, 1985. As the assessment year involved herein is the assessment year 1985-86, the amended depreciation Schedule is applicable to dredgers for the assessment year under appeal. In this view of the matter, the question that has arisen for our consideration is whether the depreciation rate applicable to ships is also to be taken as the depreciation rate applicable to dredgers for the assessment year 1985-86. Undoubtedly, the assessment year being different from that in the case of Thane Reti Vita Utpadak Sahakari Society Ltd. v. ITO [1991] 39 ITD 163 (Bom), it cannot be discarded without considering the date of amendment to the depreciation Schedule with effect from April 1, 1985, in which dredgers are included. Mr. Trivedi relied upon the decision of the Andhra Pradesh High Court in the case of CIT v. Super Drillers [1988] 174 ITR 640. This decision was not cited before the Bombay Bench 'B' of the Tribunal in the case of Thane Reti Vita Utpadak Sahakari Society Ltd. v. ITO [1991] 39 ITD 163. It is in connection with investment allowance. The assessee-firm in that case carried on business in drilling borewells. The assessee purc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Income-tax Act, 1961, and a small-scale industry engaged in the sinking of borewells is entitled to investment allowance in respect of rigs and compressors. It also held that the rig and compressor mounted on a lorry and used for drilling borewells could not be considered as a "road transport vehicle" and, therefore, the rig and compressor are eligible for investment allowance. Mr. Trivedi pointed out and relied on the decision of the Karnataka High Court in the case of CIT v. General Research and Development Corporation [1992] 194 ITR 120. The Karnataka High Court took the view in that case that the assessee which was a small-scale industry carrying on the business of prospecting and drilling for the purpose of rendering consultancy services was engaged in the production of a thing. The activity of the assessee would be an activity entitling it to the status of an industry. The income derived by the assessee could not have been earned without using these machineries to unearth ore and the machineries were not used elsewhere. The assessee was entitled to investment allowance. Mr. Trivedi urged that the analogy of the above-referred decisions is fully applicable to the activity ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the same manner as brought into existence, after taking it through a manufacturing process. At page 5 of the paper compilation, a copy of the no objection certificate for dredging the sand for the year 1984-85 is brought on record. This is dated March 29, 1984. It is issued by the Port Officer in the name of the assessee. Page 7 of the paper compilation contains another copy of the no objection certificate for dredging the sand up to March 31, 1983. Page 10 of the paper compilation is a copy of the certificate of registration under section 22 of the Bombay Sales Tax Act, 1959, for carrying on manufacturing activity and selling of sand and building materials. According to Mr. Trivedi, all these documents support the assessee's manufacturing activity. Mr. Trivedi has also brought on record 18 photographs. Photograph No. 1 is of the picture of a dredger. Photographs Nos. 2 and 3 are in respect of dredger machinery. Photographs Nos. 4 and 5 are elevators for lifting machinery. Photograph No. 6 shows the elevator with loaded buckets. Photograph No. 7 is the elevator with cutter. Photograph No. 8 is a loaded bucket with cutter. Photographs Nos. 9 and 10 show silt and soil brought out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the higher rate applicable to the ships. The dredgers are included in the definition of ships with effect from April 1, 1985. The assessment year involved in the case before the Bombay Bench 'B' of the Tribunal was 1983-84 for which the dredgers were not included in the depreciation Schedule. The assessment year involved in this appeal is assessment year 1985-86 and the dredgers are included in the depreciation Schedule with effect from April 1, 1985, relevant to the assessment year under appeal should be considered on a different footing. If depreciation at a rate applicable to ships is allowable to the dredgers also in the same manner, the rate of investment allowance allowable to ships is also allowable to dredgers. This amendment and the three decisions now cited before us which were not cited before the Bombay Bench 'B' of the Tribunal are distinguishing factors than in the case before the Bombay Bench 'B' of the Tribunal. These distinguishing factors read with the activity carried on by the assessee and the photographs of the various machinery used in carrying on such business compel us to take a different view on the basis of new evidence and facts brought before us, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITR 120 was concerned with a small-scale industry carrying on the business of prospecting and drilling iron ore. The Madras High Court in CIT v. Popular Borewell Service [1992] 194 ITR 12 and also the Andhra Pradesh High Court in CIT v. Super Drillers [1988] 174 ITR 640 were concerned with the claim of investment allowance on drilling equipment used in the production of underground water. These cases were not concerned with the claim of investment allowance on dredgers. The case decided by the Tribunal in Thane Reti Vita Utpadak Sahakari Society Ltd. v. ITO [1991] 39 ITD 163 (Bom) is directly concerned with the investment allowance on the dredger. The Tribunal should be very slow in departing from the decisions already taken on the same set of facts. For these reasons, I am of the view that the assessee is not entitled to investment allowance on the dredger. In the result, the appeal of the Revenue is allowed. Order of Reference to Third Member As there is a difference of opinion between the Members of this Bench, the following point of difference is referred to the President, Incometax Appellate Tribunal : " Whether, on the facts and in the circumstances of the case, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sioner of Income-tax (Appeals) reversed the view of the Income-tax Officer and allowed the claim of the assessee. He followed an order of the Tribunal in the case of ITO (First) v. Kolhapur Oxygen and Acetylene Pvt. Ltd. (Income-tax Appeals Nos. 254 and 283/(Pn) of 1986) [1987] 22 ITD 20 (Bom), where it was held that depreciation and investment allowance was available on barges which were hired to others who are in the business of ship owners and carriers. According to the Commissioner of Incometax, barges and dredgers were one and the same because they were all classified for the purpose of depreciation as ships. He, therefore, considered dredgers as ships for the purpose of allowance of investment allowance. He also found as a fact that the assessee was operating its dredgers not only for itself but also on hire for others and, therefore, it could be said that the assessee was engaged in the business of operation of ships which in this case is a dredger. In other words, he mainly relied upon the aforesaid rules whereunder dredgers were treated as ships for the purpose of allowance of depreciation and he saw no reason to take a different view when it came to the question of allowa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e purpose of rendering consultancy services was engaged in the production of a thing. He held that on the same analogy, the dredgers also could be said to be engaged in the manufacture and production of sand from the sea bed. He referred in extenso to the manufacturing process involved and held that the end-product, namely, sand being a commercial commodity, it could be said that the dredgers were engaged in producing that commercial commodity and, therefore, eligible for investment allowance. He also placed reliance upon a decision of the Andhra Pradesh High Court in the case of CIT v. Super Drillers [1988] 174 ITR 640. In this case, the High Court held that drilling of borewells amounts to manufacturing or production activity because by drilling borewells, what is brought out was underground water to the surface and that amounted to producing an article. Thus, placing reliance upon these three decisions of the High Courts which were not cited before the Bombay Bench 'B', the learned Judicial Member opined that the decision of the Bombay Bench 'B' was distinguishable and, therefore, the claim of the assessee was admissible. But the learned Accountant Member was not able to agree w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the learned Judicial Member, the difference of opinion is : " Whether, on the facts and in the circumstances of the case, the investment allowance on the dredger under section 32A is allowable for the assessment year 1985-86 for using it for the business of the assessee as it is included in the definition of 'ships' with effect from April 1, 1985, for allowing depreciation ?" But according to the learned Accountant Member, the difference of opinion should be : " Whether, on the facts and in the circumstances of the case, the assessee is entitled to investment allowance on the dredger for the assessment year 1985-86 ? " After hearing the learned advocate for the assessee, Shri V. P. Trivedi, and Shri Tilak Chand, on behalf of the Department, and after perusing the orders passed by the Income-tax Officer, the Commissioner of Incometax (Appeals) and my learned Brothers, my first impression is that there is not much of a difference between the different differences of opinion recorded by my Members. Both of them converge on the point whether the assessee is entitled to the investment allowance on the dredger. While the learned Judicial Member has laid emphasis upon the defin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... we will have to consider whether the plant and machinery installed was in an industrial undertaking for the purpose of business of construction, manufacture or production of any article or thing not being an article or thing excluded. The Commissioner of Income-tax gave a finding in categorical terms that the assessee was using the dredger not only for its own purpose but for others also and running it on hire. The finding of the Commissioner in this regard is at page 3 of his order : " I have considered the arguments given by the appellant and the Tribunal decision quoted. In view of the inclusion of the dredgers and barges, etc., in the category of ships in the Income-tax Rules for depreciation purpose with effect from 1985-86, I agree with the appellant that for consistency, the dredger should be considered as ship for the purpose of investment allowance. Secondly, since the appellant is using and operating its dredgers for self and others, it can be stated to be engaged in the business of operation of ships which in this case is dredger. " This finding was not disputed by the Revenue before me or before the Members who heard the appeal. There is no difference of opinion on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d reason is that in item (iii) other ships were used without mentioning anything by way of explanation, elucidation or description. If dredgers, tugs, barges, survey launches were not to be regarded as oceangoing ships, there was no reason to bring this amendment, with effect from April 1, 1985. This amendment was brought as a result of representations made to the Government that dredgers, etc., must also be considered as ships for the purpose of allowance of depreciation. When the depreciation rules provide that dredgers, etc., are to be treated on par with ocean-going ships for the purpose of allowing depreciation, it must be considered that this is internal evidence in the scheme of the Incometax Act itself that dredgers are to be regarded as ocean-going ships. If such dredgers which are to be treated on par with ocean-going ships satisfied the other conditions mentioned in section 32A of the Income-tax Act, it will certainly be entitled to investment allowance. But if these dredgers as provided for in clause (2)(a) are operated by the assessee in its business of operation in addition to using it for personal purposes then it is doubtful whether one should go to clause (b) at al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gather, explore, or deepen with a dredge". It will be seen from the above meaning that dragging along the bottom of a sea to take out mud, to take oysters, biological specimens is also a dredging operation, along with the operation of deepening a harbour, canal, river, etc., for excavating under water or on land, and washing them for minerals. In this case, as given from the photographs included in the paper book, the operations carried on by the assessee were nothing but the dredging operations of collecting sand covered by all impurities as explained above. The entire operations are described in a Note given before the Bench which says : " The dredger is almost 80 to 100 ft. in length and 30 to 40 ft. in width. On the dredger various machineries are installed such as chain of buckets which rotates with the help of elevator, washing plant, screening plant, engine room, etc., etc. With the use of the dredgers the soil/silt is removed from the sea bed after drilling, digging and cutting the sea bed. The soil/silt extracted from the sea bed is not at all usable in the same condition. The silt removed from the sea bed contains broken iron, wooden particles, stones, mud, shells, etc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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