TMI Blog1998 (8) TMI 125X X X X Extracts X X X X X X X X Extracts X X X X ..... in carrying out full range of open hole and cased hole logging, perforation and other well-completion activities as well as formation evaluation and data processing services, etc. Wire logging operations are a high technology area in the mineral oil industry and form an essential tool of the work relating to oil exploration as by the wire-line logging operations, chemical parameters of the rocks concerning a well, that has been drilled are measured to assess the extent of oil reserves. Its depth is pinpointed and relevant information related lithology of the rocks is collected to formulate a plan for the development of oil reserves. 5. The output/product from electro-logging is a log which is a continuous record of the physical characteristics or the subterranean formations crossed by the well. The technical parameters measured include indicators related to porosity, resistivity, radio-activity, temperature, pressure, etc. The wire-line logging unit helps to measure such parameters in exploratory wells drilled for the purpose. These technical parameters later analysed and interpreted to provide information regarding the extent and the nature of the oil reserve in the area. 6. W ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y is just converting into data something which is already there i.e. geophysical properties of the earth crust which are already there. By observing as above, the claim of the assessee/respondent has been rejected by AO. He went in appeal before CIT(A) who allowed the claim, against which Revenue is in appeal before us. 9. Before CIT(A) the assessee/respondent furnished a detailed resume of its business and challenged the above finding of learned AO. He also furnished descriptive chart explaining the well-logging process of manufacturing data-logs. The assessee/respondent contended before CIT(A) that the data collected by operating the wire-line logging, equipment and tools, as processed by the computer and evaluated are recorded on magnetic tapes and printed on films which are provided by the company to ONGC and OIL. It was contended by the counsel for assessee-company that the company is engaged in the manufacture/production of article or things in the form of data produced which is essential for the mineral oil exploration. 10. It was held by CIT(A), relying on CIT vs. Pearless Consultancy Services (P) Ltd. (1990) 90 CTR (Cal) 73 : (1990) 186 ITR 609 (Cal) and CIT(A) vs. Dat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... development stage. The aforesaid perforating services are used at the development stage as an essential step in the actual recovery of oil specialised high technology electronic-cum-mechanic equipment is used for data collection. These specialised high-tech equipments termed as logging tools are sensitive sensor-electromechanical system working in hostile environment of extreme pressure and temperature. The data collected by these tools is transmitted uphole via an electromechanical cable. The data so processed on surface by an on-line computer which are recorded on digital mechanical tapes. After processing of the data, the computer gives an output termed as logs . These are ideal tools for detailed description of an oil reservoir in terms of petro-physical characteristics geometrical orientation and layering. It is with these petro-physical characteristics that a through description of a reservoir emerges and it is based on these pictures the geologists decide to test the well. Further, vital information are given to geologists for future exploration at the wells. We have further perused the wire-logging process as also the exact process of manufacturing log data logs placed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her noted by CIT(A) that part of the package bill and customs duty paid by the appellant company and debited to hire charge was for 48 months and pertains to the account years relevant to asst. yr. 1989-90 to 1993-94 i.e., four to five years. It was further noted that the appellant was paying a normal hire charges of Rs. 2,000 per month for costly computer and Rs. 7,664 p.m. was being adjusted out of the customs duty paid. 18. Learned Departmental Representative has argued that CIT(A) adjudicated only on industrial undertaking. As per memorandum of association cl. 3 at p. 1.5, assessee-company can hire plant, machinery, tools, utensils, equipment and other real and personal property. CIT(A) has held the hire-charges not exorbitant but nominal and customs duty is debitable from hire charges. It is wrong assertion of learned Departmental Representative that CIT(A) has adjudicated only as industrial undertaking. CIT(A) held that Rs. 9,664 paid for 48 months including the customs charges was not exorbitant. It was also noted by CIT(A) that what the assessee has claimed as deduction was only Rs. 61,312 for asst. yr. 1989-90 and Rs. 91,968 for asst. yr. 1990-91. In view of this, it is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to 33.33 per cent depreciation while in revised return he has taken a chance to claim 100 per cent depreciation. Learned Departmental Representative has heavily relied on Item-III(3), (IX) (a) and (b), in the schedule of rates of depreciation in Appendix I to the IT Rules 1962. Learned Departmental Representative has contended that these rules are mandatory. Concerned rule is reproduced below: Column 1 of the Table Column 2 of the Table "(IX) Mineral oil concerns (a) Plant used in field operations (above ground) distribution returnable packages. (b) Plant used in field operations (below ground) but not including perb side pumps including under-ground tanks and fittings used in field operations (distribution by mineral oil concerns) 100% 21. Learned Departmental Representative has argued that the words plant used in field operation (held on ground) qualify mineral oil concerns and the assessee/respondent is not mineral oil concern but it supplies the data to OIL and ONGC which are mineral oil concern. Hence, it is not entitled to 100 per cent depreciation. 22. CIT(A) has held that it is not necessar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecessarily be such as is used for mechanical operations or processes. 24. Viewed in the light of the import of the terms Plant as stated above, the electrical-cum-mechanical cables and the various high-tech sensor tools and instruments, attached thereto which are released deep down into the earth through the boreholes in the oil fields of mineral oil concerns for carrying out wire-line logging operations in the course of business of company, clearly constitute a plant, used below the ground in the field operations of mineral concerns. 25. Under the provisions of cl. (ii) of s. 32(1) of the Act, deduction is allowable on account of depreciation in the case of any block of assets i.e., a group of assets falling within a class of assets being buildings, machinery, plant or furniture in respect of which the same percentage of depreciation has been prescribed as defined in s. 2(11) of the Act, at such percentage on the written down value thereof as may be prescribed in r. 5 of the IT Rules, 1962 provides that the depreciation allowable under s. 32(1)(ii) of the Act in respect of any block of assets shall be calculated at the percentages specified in the II column of the table of r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such contractor or, as the case may be, such lessees, shall be entitled to depreciation allowance under s. 32(1) of the Act in respect of such plant and equipment at the rate of depreciation prescribed in respect of the block of assets in which such plant and equipment falls. 29. Further, under the provisions of s. 56(2)(ii) read with the provisions of s. 57(ii) of the Act, a person who lets out any machinery, plant or furniture belonging to him and whose income from such letting is assessable under the head income from other sources is also entitled to the allowance for depreciation in respect of the assets so let out by him at the rate applicable to the block of assets comprising the assets so let out by him. 30. The table of rates of depreciation in Appendix I to the Rules prescribes a single rate of depreciation for the assets falling within a particular block of assets. It does not prescribe differential rates of depreciation with reference to the ownership of the asset which, as in the above example of a mineral oil concern, may belong to the mineral oil concern itself, or to a contractor whose services are engaged by it for carrying on certain operations or to a lesso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reads as follows: Column 1 of the Table Column 2 of the Table "IX Mineral oil concerns 100% (a) Plant used in field operations (above ground) distribution returnable packages. (b) Plant used in field operations (below ground, but not including underground tanks and fittings used in field operation (distribution) by mineral oil concerns. P 34. A mineral concern by itself is apparently not a block of assets. A plain reading of the language of the aforesaid item III(3)(ix)(a) and this shows that the expression mineral oil concerns used in the caption to the said item is meant only to classify the plant used in a mineral oil concern under two categories of (a) plant used above the grounds, and (b) plant of any description, whether fixed or movable, used below the ground in field operations, subject to the exclusions specified therein. On a plain textual interpretation of the language of the aforesaid item III(3)(x) of the table of rates of depreciation and having in view the object and purpose of the said table which is only to prescribe the rates of depreciation in respect of particular blocks of assets irre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant and equipment owned and operated by the assessee-company below the ground in the oil fields of the mineral oil concerns, OIL and ONGC squarely falls within the block of assets specified in item III(3)(ix)(b) of the schedule of rates of depreciation, such plant and equipment is wholly outside the ambit of the general rate of depreciation prescribed in item III, sub-cl. (1) of the schedule of rates of depreciation which is expressly applicable only to such plant or machinery as does not fall within a block of assets specified in item III, sub-items (1A), (2) or (3). 37. For the reasons stated above, the learned AO has erred in law grossly in denying depreciation allowance to the assessee-company in respect of the plant and equipment owned and operated by it in carrying on wire-line logging operations below the ground in the oil fields of the mineral oil concerns, OIL and ONGC at the rate of 100 per cent of the written down value of such plant and equipment as prescribed in item III(3)(ix)(b) of the schedule of rates of depreciation, and restricting the allowance of depreciation thereon to the general rate of depreciation as specified in item III, sub-item (1) of the said schedu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontractors or sub-contractors in the hole below the kelly bushing, due to any reason whatsoever unless due to wilful or gross negligence of the assessee. Oil India was at its option either to reimburse assessee for the replacement value CIF for such loss or damage less depreciation taken @ 10 per cent per year subject to a maximum of 50 per cent from the commencement date of this contract or pay all cost of repairing of said equipment including cost of parts replaced to the satisfaction of the assessee and any transportation expenses in connection therewith. 40. As per Annexure 3 to Exhibit D forming part of the agreement, all costs incurred for transportation of the tools associated equipment, spare parts, supplies and explosives for the service of Oil India Ltd. from point of origin to location and back to point of origin are to be borne by OIL. The transportation costs include all expenses for inland transport, sea freight for general purpose units, logging cables and heavy objects, air freight for other equipment and materials, etc. It is also seen that Oil India and Oil and Natural Gas Commission (ONGC) made another agreement for sharing of oil logging and perforation servic ..... X X X X Extracts X X X X X X X X Extracts X X X X
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