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M/s. John Energy Ltd Versus ACIT M/s. John Energy Ltd, M/s. John Oil & Gas Limited Versus DCIT

2015 (4) TMI 798 - ITAT AHMEDABAD

Claim of higher depreciation on drilling Rigs - Rig claimed as Heavy motor vehicle (Lorry) - In case of two conflicting views, favourable to the assessee to be adopted - Held that:- CIT(A) has applied the judgment of the Hon’ble Madras High Court rendered in the case of Popular Borewell Service [1991 (4) TMI 59 - MADRAS High Court].However, in our considered view, the CIT(A) was not justified in disallowing the claim by not following the judgment of Hon’ble Jurisdictional High Court in the case .....

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on the mobile crane.”

In the case in hand also, as per the photograph given by the assessee, it is observed that the workover/servicing mobile Rigs specifically designed for such purpose. Moreover, as per proforma invoice enclosed at Page Nos. 24-28, it is evident that it pertains to 100 ton workover/servicing mobile rig. Therefore, the contention that the workover rig remains static is not correct. It is also noteworthy that the assessee-company has raised invoices per kilometer in .....

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e is mobility from place to another and both are designed for rendering specific services. The fact that State Transport Authority has registered the workover/servicing mobile rig under the category Heavy Goods Vehicle Drilling Rig. The Hon’ble jurisdictional High Court in the case of Gujco Carriers (supra), after examining the functions etc., held that motor vehicles like fire trucks, fork lift trucks and crane trucks which are designed for special services fall within the category of “Motor Tr .....

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h is favourable to the assessee has to be adopted in view of the Judgment of the Hon’ble Supreme Court in the case of CIT vs. Vegetable Products Ltd. [1973 (1) TMI 1 - SUPREME Court]. Therefore, we are of the considered view that the ratio laid down by the Hon’ble Gujarat High Court in the case of Gujco Carriers is squarely applicable in the facts of the present case. Therefore, respectfully following the same we hereby direct the Assessing Officer to allow higher depreciation @ 40% on Rigs as c .....

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ncome-tax (Appeals)-III, Ahmedabad dated 12.10.2010 for Assessment Years 2002-03 to 2008-09, and dated 11.04.2012 for Assessment Year 2009-10; and the second bunch of appeals by M/s. John Oil & Gas Limited have been filed against the order of learned the Commissioner of Income-tax (Appeals)-III, Ahmedabad dated 12.10.2010 for Assessment Years 2002-03 to 2004-05. Since all these appeals involve common and identical issues, these were heard together and are being disposed of by this consolidat .....

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rigs claimed by the appellant as heavy motor vehicle (Lorry) is wholly illegal, unlawful and against the principles of natural justice. 1.2 The Ld. CIT (A) has grievously erred in not considering fully and properly the explanation furnished and evidence produced by the appellant with regard to the impugned disallowance. 2.1 The Ld. C1T(A) has erred in not considering the contention of the appellant that the notice U/S.153A and the proceedings initiated there under were wholly illegal, unlawful .....

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ing the features, functions and nature of the work-over rigs. 3.3 The Ld. CIT(A) has erred in holding that higher rate of deprecation was admissible only to those assesses who were engaged in the business of hiring of motor vehicles or motor lorries. The Ld. C1T (A) has failed to appreciate the features and functions work-over rigs and erred in relying upon the decision in the case of Popular Bore-Well Services and Super Drillers. 4.1 The Ld. C1T(A) has grievously erred in law and or on facts in .....

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the Act on 30.12.2009, whereby the Assessing Officer disallowed the claim of depreciation on drilling Rigs @ 40% and adopted 25% rate of depreciation and thereby the Assessing Officer made addition of ₹ 44,15,650/- for the Assessment Year 2002-03. The assessee, being aggrieved by the assessment order, preferred an appeal before the ld. CIT(A), who, after considering the submissions, dismissed the appeal of the assessee. Being aggrieved by the order of the CIT(A), the assessee is now in ap .....

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T, 256 ITR 50 (Guj.), has decided the issue in favour of the assessee. He further submitted that as per registration with the State Transport Authority, it is undisputed fact that the same is registered as Heavy Goods Vehicle. He drew our attention to the RTO Registration Certificate enclosed at page No.29-43 in the paper-book. He further submitted that the Hon ble Gujarat High Court in the case of Gujco Carriers (supra) has examined the law and allowed a higher depreciation to the crane. He fur .....

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atio laid down by the Hon ble Madras High Court, rendered in the case of CIT vs. Popular Borewell Service, [1992] 194 ITR 12 (Mad.), has been rightly applied by the ld. CIT(A). He submitted that the lorry and rig mounted on it are two different and separable unit. He submitted that the cost of Rig is higher than the lorry; therefore, he submitted that the assessee is not entitled for higher depreciation. 7. In rejoinder, ld. Counsel for the assessee submitted that there is no dispute with regard .....

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r attention to the agreement entered into with ONGC which is enclosed at page No.9-13 of the paper-book. He also submitted that lorry and rig are inseparable because rig was an integral part of motor-lorry. As per contract, the assessee has to raise bill in respect of moving charges between locations including rig down and rig up. It is submitted by the ld. Counsel that the payment is made per kilometer. He drew our attention to page No.14 of the paper-book in this regard. 8. We have heard the r .....

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and gas exploration like drilling of Wells, conducting of seismic survey, of any oilfields including the activities like hiring of equipments and tools in project on turnkey basis. The higher rate of depreciation is allowed to only those assessees who are engaged in the business of hiring of motor vehicles or motor lorries. Undoubtedly, rigs are not motor lorries or motor vehicles. As stated by the AO in the assessment order that merely because a particular rig is mounted on a motor vehicle or .....

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s namely, Rig, compressor and lorry. The rig and compressor do not form an integral part of the motor lorry. Merely because the leak and compressor are mounted on a lorry to facilitate their easy and convenient transport from one place to another, it cannot be said that the rig and compressor either constitute integral parts of a lorry by themselves or can be appropriately, called or known as lorry. Therefore, the rig and compressor used for drilling bore well though mounted on a lorry, cannot b .....

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the case of super drillers 73 CTR 97. The decision of Andhra Pradesh High Court was relied upon by the appellant. In other words, as of now, there are two decisions of two different high courts namely Rajasthan High Court and Madras High Court in favour of the Department whereas there is not a single decision in favour of the appellant on this point directly. In the said decision of Popular Borewell, Hon'ble Madras High Court has held that: The rig and compressor mounted on a-lorry and used .....

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convenient transport from one place to another, it cannot be said that the rig and compressor either constitute integral parts of a lorry by themselves or can be appropriately called or known as a "lorry", as understood in common parlance. Therefore, the rig and compressor used for drilling bore-wells, though mounted on a lorry, cannot be held to fall under "motor lorry" occurring in entry- No. III(ii) D(9) of Part I of Appendix 1 to the Income-tax Rules, 1962. The assessee .....

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sed for carrying passengers or goods. The rig and compressor mounted on a lorry cannot be treated as a road transport vehicle because, the rig and compressor is mounted on a lorry only for the purpose of transporting the equipment fixed on the lorry for sinking of bore-wells and not for carrying passengers or loading or unloading of goods. Hence, the rig and compressor mounted on a lorry and used for drilling bore-wells could not be considered as "road transport vehicle". 5.4 The relia .....

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Rather, there are direct judgements of two high courts against the appellant. Therefore, in my considered view, the appellant is not entitled to higher rate of depreciation. As regards the contention of the appellant that since the lorries on which the rigs are mounted are registered with RIO as a f lorry, the rigs are themselves motor lorries and hence entitled to higher rate of depreciation , it may be stated that even though the lorries are registered as a motor vehicle with the RTO, a rig an .....

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lant that since in assessment year 2000-2001 and assessment year 2003-2004 the AO has allowed higher rate of depreciation in the order passed under section 143(3), he cannot take different view in subsequent assessment years, cannot be accepted because the AO has not referred to any of the above mentioned decisions of Hon'ble Madras High Court and Rajasthan High Court as discussed above. Further each assessment year is separate and if the AO has wrongly accepted the claim of the appellant in .....

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ed on or after the 1st day of April, 1998, owned, wholly or partly, by the assessee and used for the purposes of the business or profession, the following deductions shall be allowed-] [(i) in the case of assets of an undertaking engaged in generation or generation and distribution of power, such percentage on the actual cost thereof to the assessee as may be prescribed;] (ii) [in the case of any block of assets, such percentage on the written down value thereof as may be prescribed:] [***] [Pro .....

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years under an agreement entered into by the Central Government under section 42 :] [Provided further that where an asset referred to in clause (i) or clause (ii) 77[or clause (iia)], as the case may be, is acquired by the assessee during the previous year and is put to use for the purposes of business or profession for a period of less than one hundred and eighty days in that previous year, the deduction under this sub-section in respect of such asset shall be restricted to fifty per cent of t .....

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e thereof as may be prescribed. Explanation.-For the purposes of this proviso,- (a) the expression commercial vehicle means heavy goods vehicle , heavy passenger motor vehicle , light motor vehicle , medium goods vehicle and medium passenger motor vehicle but does not include maxi-cab , motor-cab , tractor and road-roller ; (b) the expressions heavy goods vehicle , heavy passenger motor vehicle , light motor vehicle , medium goods vehicle , medium passenger motor vehicle , maxi-cab , motor-cab , .....

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ibed under this Act immediately before the commencement of the Taxation Laws (Amendment) Act, 1991:] [Provided also that the aggregate deduction, in respect of depreciation of buildings, machinery, plant or furniture, being tangible assets or know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature, being intangible assets allowable to the predecessor and the successor in the case of succession referred to in [clause (xiii), cla .....

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he successor, or the amalgamating company and the amalgamated company, or the demerged company and the resulting company, as the case may be, in the ratio of the number of days for which the assets were used by them.] [Explanation 1.-Where the business or profession of the assessee is carried on in a building not owned by him but in respect of which the assessee holds a lease or other right of occupancy and any capital expenditure is incurred by the assessee for the purposes of the business or p .....

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of this sub-section, 86[the expression assets ] shall mean- (a) tangible assets, being buildings, machinery, plant or furniture; (b) intangible assets, being know-how, patents, copyrights, trade marks, licences, franchises or any other business or commercial rights of similar nature87. Explanation 4.-For the purposes of this sub-section, the expression know-how means any industrial information or technique likely to assist in the manufacture or processing87 of goods or in the working of a mine, .....

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31st day of March, 2005, by an assessee engaged in the business of manufacture or production of any article or thing [or in the business of generation or generation and distribution of power], a further sum equal to twenty per cent of the actual cost of such machinery or plant shall be allowed as deduction under clause (ii) : Provided that no deduction shall be allowed in respect of- (A) any machinery or plant which, before its installation by the assessee, was used either within or outside Indi .....

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) in the case of any building, machinery, plant or furniture in respect of which depreciation is claimed and allowed under clause (i) and which is sold, discarded, demolished or destroyed in the previous year (other than the previous year in which it is first brought into use), the amount by which the moneys payable in respect of such building, machinery, plant or furniture, together with the amount of scrap value, if any, fall short of the written down value thereof : Provided that such deficie .....

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ty-five thousand rupees, the moneys payable in respect of such motor car shall be taken to be a sum which bears to the amount for which the motor car is sold or, as the case may be, the amount of any insurance, salvage or compensation moneys payable in respect thereof (including the amount of scrap value, if any) the same proportion as the amount of twenty-five thousand rupees bears to the actual cost of the motor car to the assessee as it would have been computed before applying the said provis .....

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ion (15) of section 45 of the said Act, sanctioned and brought into force by the Central Government under sub-section (7) of section 45 of that Act, of any asset by the banking company to the banking institution.]] (iv) [***] (v) [***] (vi) [***] (1A) [***] [(2) Where, in the assessment of the assessee, full effect cannot be given to any allowance under sub-section (1) in any previous year, owing to there being no profits or gains chargeable for that previous year, or owing to the profits or gai .....

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for the succeeding previous years.] 10. From the above, it is evident that as per Explanation (b) to the proviso to Section 32, the expression heavy goods vehicle , heavy passenger motor vehicle , light motor vehicle , medium goods vehicle , medium passenger motor vehicle , maxi-cab , motor- cab , tractor and roadroller shall have the meanings respectively as assigned to them in Section 2 of the Motor Vehicles Act, 1988. It is not disputed that Rig, as per Motor Vehicle Act, falls under the cate .....

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ean not only any motor vehicle designed to carry freight or goods but also to perform special services like fire fighting. Fire engine also called fire truck is a self-propelled mobile piece of equipment used in fire fighting. The Hon ble Court noted in the above case that the assessee had claimed depreciation at 40 per cent, on the crane registered by it with the RTO as a heavy goods vehicle. It was a mobile crane and according to the assessee, it was given on hire. These facts were mentioned i .....

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nown as a "truck crane" which is adapted for use upon roads for special services. The truck on which the crane is mounted is constructed and adapted specially to carry the crane. It is further observed that there can be other special services to be performed by motor vehicles designed for such services. Thus, a lorry, i.e., truck adapted or designed to carry a crane is meant for special services of lifting load, moving it side by side, rotating it or moving it horizontally. Most indust .....

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e trucks, fork lift trucks and crane trucks which are designed for special services fall within the category of "motor trucks". The Hon ble Court, after examining the factual and legal position, came to the conclusion that the assessee was entitled for higher rate of depreciation. 11. We find that ld. CIT(A) has applied the judgment of the Hon ble Madras High Court rendered in the case of CIT vs. Popular Borewell Service, [1992] 194 ITR 12 (Mad.). However, in our considered view, the C .....

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since it was used by the assessee in its business of running the crane on hire. The assessee was entitled to depreciation at the rate of 40 per cent on the mobile crane. In the case in hand also, as per the photograph given by the assessee, it is observed that the workover/servicing mobile Rigs specifically designed for such purpose. Moreover, as per proforma invoice enclosed at Page Nos. 24-28, it is evident that it pertains to 100 ton workover/servicing mobile rig. Therefore, the contention t .....

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not be available to workover mobile rig. We are unable to accept this reasoning as in both the cases there is mobility from place to another and both are designed for rendering specific services. The fact that State Transport Authority has registered the workover/servicing mobile rig under the category Heavy Goods Vehicle Drilling Rig. The Hon ble jurisdictional High Court in the case of Gujco Carriers (supra), after examining the functions etc., held that motor vehicles like fire trucks, fork .....

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efore, two views are possible; hence the view which is favourable to the assessee has to be adopted in view of the Judgment of the Hon ble Supreme Court in the case of CIT vs. Vegetable Products Ltd., reported in 88 ITR 192. Therefore, we are of the considered view that the ratio laid down by the Hon ble Gujarat High Court in the case of Gujco Carriers (supra) is squarely applicable in the facts of the present case. Therefore, respectfully following the same we hereby direct the Assessing Office .....

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