Citation Codes

Equivalent Citations

citation codes

Case Number

Income-tax Reference No. 241 of 1987

Judges

Ajit K. Sengupta
Shyamal Kumar Sen, JJ.

Acts

sections 37(3) and 37(2B) of the Income-tax Act.10.
sections 37(3) and 37(2B) of the Income-tax Act.
section 80-1 of the Income-tax Act, 1961,
rule 6D of the Income-tax Rules, 1962,

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Smart Summary

Structured Summary of the Opinion (Shyamal Kumar Sen, J.)

Factual and Procedural Background

The assessee is a limited company for the assessment year 1972–73 (previous year ended December 31, 1971). The Tribunal referred eight specific questions to this Court concerning (inter alia) disallowances under section 40A(5) of the Income-tax Act, 1961, deletions of disallowances under sections 37(3) and 37(2B), entitlement to relief under section 80-1 in respect of income from transporting O.N.G.C.'s crude, and entitlement to development rebate on drilling expenditure and whether oil wells constitute plant for that purpose.

Procedurally: The Income-tax Officer made several disallowances (including Rs. 1,84,127 relating to one month's non-user of executive bungalows, Rs. 12,294 of travelling expenses under section 37(3), and Rs. 20,608 of entertainment expenses under section 37(2B)). The Commissioner of Income-Tax (Appeals) upheld some disallowances. On further appeal, the Tribunal (a) held that 50% of Rs.1,84,127 should be excluded for purposes of section 40A(5) calculation (later the Tribunal allowed the full repairs and maintenance amount of Rs. 18,32,944 and that decision was not challenged by the Revenue), (b) deleted the disallowances under sections 37(3) and 37(2B) (holding the expenditure was incurred in the field and drilling was in schedule), (c) directed allowance of relief under section 80-1 in respect of the assessee's income from transporting ONGC crude (following the Tribunal's earlier decision for AY 1971–72), and (d) held that oil wells constituted plant and directed development rebate be allowed subject to conditions.

Legal Issues Presented

Whether the Tribunal had any material to hold that the bungalows allotted to the executives were partly used for the purposes of the business of the assessee-company during the period of one month when the concerned employees were on leave?
Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that 50 per cent. of Rs. 1,84,127 should be excluded for the purpose of computing the disallowance under section 40A(5) of the Income-tax Act, 1961?
Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in deleting the disallowance of Rs. 12,294 and Rs. 20,608 out of travelling and entertainment expenditure, respectively, under sections 37(3) and 37(2B) of the Income-tax Act, 1961?
Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the income earned by the assessee from transporting the crude belonging to the Oil and Natural Gas Commission along with its own crude was attributable to the business of production of mineral oil within the meaning of item 3 of the Sixth Schedule read with section 80B(7) and section 80-1?
Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the assessee was entitled to relief under section 80-1 on the income earned by the assessee from transportation of crude oil belonging to the Oil and Natural Gas Commission?
Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the oil wells constituted plant for the purpose of the allowance of development rebate?
Whether the assessee was entitled to development rebate at 25% on drilling expenditure of Rs. 2,72,94,678 even though the entire sum was allowed as revenue expenditure in assessment?

Arguments of the Parties

Assessee's Arguments

The assessee claimed that perquisites (rent-free bungalows and furniture) should be calculated as if available only for eleven months because executives were on leave for one month during the previous year; accordingly it deducted 8/12ths of maintenance and 1/12th of depreciation aggregating to Rs. 1,84,127.
Alternatively, the assessee argued that in any event Rs. 1,84,127 could not be included for the one-month period of non-user.
For travelling and entertainment disallowances, the assessee relied on clause 12 (in particular article 12(ii)) of the second supplemental agreement which treats exploration/prospecting/drilling expenditure as deductible business expenditure; it submitted the expenditures were incurred in the field while drilling was going on as per schedule.
The assessee claimed relief under section 80-1 for income from transporting ONGC crude, relying on the Tribunal's earlier decision in its own case for AY 1971–72.
The assessee contended oil wells are plant and relied on Departmental Circular No. 582-25/605 J.M dated January 23, 1926 and various authorities to support entitlement to development rebate.

Revenue / Income-tax Officer's Arguments

The Income-tax Officer disallowed the one-month deduction (Rs. 1,84,127) because there was no evidence that employees had vacated the bungalows with family and belongings or that bungalows were used for any purpose other than as residence.
The Income-tax Officer disallowed Rs. 12,294 (travelling) and Rs. 20,608 (entertainment) on statutory grounds; the Commissioner of Income-Tax (Appeals) held these disallowances were proper under rule 6D and section 37(2B) as no supporting details were furnished.
On development rebate, the Income-tax Officer refused the claim on the ground that the assessment had allowed the entire drilling expenditure as a deduction (under the second supplemental agreement), and therefore development rebate should not be separately granted.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
CIT v. Davidson of India Pvt. Ltd., [1984] 148 ITR 544 (Cal)	Relied upon by learned advocate (specific principle in the opinion not stated).	The opinion records reliance but does not elaborate a specific application of this decision to the reference.
Commissioner Of Income-Tax v. Motor Industries Co. Ltd., [1988] 173 ITR 374 (Kar)	Relied upon by learned advocate (specific principle in the opinion not stated).	The opinion records reliance but does not elaborate a specific application of this decision to the reference.
Commissioner Of Income-Tax v. Oil India Ltd., Income-tax Reference No. 387 of 1981, [1992] 196 ITR 366	Previously decided questions concerning attribution of income from transporting ONGC crude and entitlement under section 80-1.	The court followed that earlier Division Bench decision and answered questions Nos. 4 and 5 in the assessee's favour accordingly.
Scientific Engineering House (Pvt.) Ltd. v. CIT, [1986] 157 ITR 86 (SC)	Quoting and approving the definition of "plant" from Yarmouth v. France: plant includes apparatus used by a businessman for carrying on his business.	The court relied on the Supreme Court's exposition to support the view that oil wells may be plant for business purposes.
Yarmouth v. France, [1887] 19 QBD 647	Definition of "plant" in ordinary sense: apparatus used by a businessman for carrying on his business (as quoted in the Supreme Court decision).	Quoted with approval (via Scientific Engineering House) to support classification of wells as plant.
Hinton v. Maden and Ireland Ltd., [1959] 38 TC 391	House of Lords authority adopting same view on the meaning of "plant."	Cited to show consistent judicial authority for treating apparatus (such as wells) as plant.
Tribeni Tissues Ltd. v. CIT, Income-tax Reference No. 260 of 1987, [1991] 190 ITR 487 (Cal)	Held that a tube-well is a plant entitled to investment allowance.	Noted by the court as a local Division Bench authority supporting that wells are plant for tax allowances.
Commissioner Of Income-Tax, A.P. v. Warner Hindustan Ltd., [1979] 117 ITR 15 (AP) and [1979] 117 ITR 68 (AP)	Authorities noted in support of the proposition that wells dug for business are plant for purposes including depreciation and development rebate.	Cited by the court as supporting precedents for treating wells as plant and for allowing related tax reliefs.
Commissioner Of Income-Tax v. Hindusthan Motors Ltd., [1988] 170 ITR 431 (Cal)	Decision where expenditure was allowed under clause 12(ii) of a second supplemental agreement and not treated as revenue expenditure.	Noted by the court to support the approach that clause 12(ii) can render exploration/drilling expenditure deductible (rather than revenue) for tax purposes.

Court's Reasoning and Analysis

The court addressed each referred question by reference to the Tribunal's findings, the record of appeals, the second supplemental agreement (particularly article 12(ii)), and relevant authorities cited in the record.

Questions 1 & 2 (disallowance of one month's bungalow expenses—Rs. 1,84,127):

The Tribunal had initially held 50% of Rs.1,84,127 would be excluded for section 40A(5) purposes. However, subsequently the Tribunal deleted the entire sum of Rs. 18,32,944 (repairs and maintenance for the bungalows) and that deletion was not challenged by the Revenue.
Because the main decision favorable to the assessee (deletion of Rs.18,32,944) stands unchallenged, the issue of excluding one month's expenses (Rs.1,84,127) became academic: once the full 12-month expense was allowed, there was no point in adjudicating the narrower one-month reduction.
Therefore the court declined to answer Questions 1 and 2 as academic in view of the Tribunal's unchallenged allowance of the full repairs and maintenance sum.

Question 3 (deletion of disallowances under sections 37(3) and 37(2B)):

The Tribunal found as a factual matter (a finding not challenged before this court) that the assessee was doing exploration/prospecting/drilling in India, the expenditure was incurred in the field, and drilling was proceeding according to schedule.
The Tribunal relied on clause 12 (article 12(ii)) of the second supplemental agreement, which provides that expenditure on exploration/prospecting/drilling incurred by Oil India Ltd. subsequent to the effective date of grant of a mining lease is to be allowed as a deduction in the year incurred.
Given the unchallenged factual finding and the terms of article 12(ii), the court concluded that the disallowances under sections 37(3) and 37(2B) were not proper and answered Question 3 in the affirmative for the assessee.

Questions 4 & 5 (entitlement to relief under section 80-1 for income from transporting ONGC crude):

These questions were resolved by reference to an earlier Division Bench judgment in the same assessee's case (Income-tax Reference No. 387 of 1981 — Commissioner Of Income-Tax v. Oil India Ltd., [1992] 196 ITR 366).
Following that Division Bench decision, the court answered Questions 4 and 5 in the affirmative and in favour of the assessee.

Question 6 & 7 (whether oil wells constitute plant and entitlement to development rebate):

The Tribunal held the oil well to be an apparatus used by the assessee to derive income from crude oil after drilling, and therefore a plant used in the business of exploration.
The assessee relied on Departmental Circular No. 582-25/605 J.M dated January 23, 1926, which categorically states that wells and pipes are plant; the court noted this reliance.
The Supreme Court decision in Scientific Engineering House (Pvt.) Ltd. v. CIT (1986) was cited for the proposition (quoting Yarmouth v. France) that "plant" in its ordinary sense includes whatever apparatus is used by a businessman for carrying on his business (not stock-in-trade but chattels kept for permanent employment in business).
Additional authorities (including Hinton v. Maden and Ireland Ltd., Warner Hindustan Ltd., Tribeni Tissues Ltd., and Hindusthan Motors Ltd.) were noted by the court supporting the view that wells or tube-wells are plant for purposes such as depreciation, investment allowance, and development rebate.
The court explained that development rebate under section 33 is allowable over and above depreciation and is an incentive for industrial expansion; it is conceptually distinct from yearly depreciation.
On this basis, the court answered Question 6 (wells are plant) and Question 7 (entitlement to development rebate) in the affirmative and in favour of the assessee.

Other procedural/resultant notes:

The court recorded that there would be no order as to costs.
Judge Ajit Kumar Sengupta concurred with the judgment.

Holding and Implications

Holding:

Questions Nos. 1 and 2: The court declined to answer these questions as academic in view of the Tribunal's unchallenged allowance of the full repairs and maintenance sum of Rs. 18,32,944.
Question No. 3: Answered in the affirmative and in favour of the assessee — the Tribunal was justified in deleting the disallowances of Rs. 12,294 and Rs. 20,608 under sections 37(3) and 37(2B).
Questions Nos. 4 and 5: Answered in the affirmative and in favour of the assessee — the Tribunal's conclusion about entitlement under section 80-1 was affirmed following the earlier Division Bench decision in the assessee's case.
Question No. 6 and 7: Answered in the affirmative and in favour of the assessee — oil wells were held to constitute plant for purposes of development rebate and the assessee was entitled to development rebate on the drilling expenditure subject to satisfying other conditions.
There will be no order as to costs.

Implications:

Direct effect: The court's answers operate to uphold the Tribunal's favourable findings for the assessee on deletions of disallowances under sections 37(3)/37(2B), on entitlement under section 80-1 for transportation income (following the earlier Division Bench), and on the characterization of oil wells as plant entitling the assessee to development rebate (subject to conditions). Questions concerning the one-month bungalow deduction were rendered academic by the unchallenged Tribunal allowance.
Broader precedent: The opinion relies on and follows existing authorities and a prior Division Bench decision in the assessee's own case; the opinion does not purport to establish a novel legal principle beyond applying those authorities to the facts of this case.

No other details (for example, specific calculations beyond those quoted in the opinion, or additional party submissions) were included in the provided text.

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Commissioner Of Income-Tax v. Oil India Ltd.

Shyamal Kumar Sen, J.:— The Tribunal has referred to this court the following questions for determination:

“(1) Whether the Tribunal had any material to hold that the bungalows allotted to the executives were partly used for the purposes of the business of the assessee-company during the period of one month when the concerned employees were on leave?

(2) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that 50 per cent. of Rs. 1,84,127 should be excluded for the purpose of computing the disallowance under section 40A(5) of the Income-tax Act, 1961?

(3) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in deleting the disallowance of Rs. 12,294 and Rs. 20,608 out of travelling and entertainment expenditure, respectively, under sections 37(3) and 37(2B) of the Income-tax Act, 1961?

(4) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the income earned by the assessee from transporting the crude belonging to the Oil and Natural Gas Commission along with its own crude was attributable to the business of production of mineral oil within the meaning of item 3 of the list of articles and things specified in the Sixth Schedule to the Income-tax Act, 1961, read with section 80B(7) and section 80-1 of the said Act?

(5) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the assessee was entitled to relief under section 80-1 of the Income-tax Act, 1961, on the income earned by the assessee from transportation of crude oil belonging to the Oil and Natural Gas Commission?

(6) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the assessee was entitled to relief under section 80-1 of the Income-tax Act, 1961, on the income earned by the assessee from transportation of crude oil belonging to the Oil and Natural Gas Commission?

(7) Whether the Tribunal was justified in holding that oil wells constituted plant for the purpose of the allowance of development rebate?

(8) Whether the Tribunal was justified in holding that the assessee was entitled to development rebate at 25 per cent. on drilling expenditure of Rs. 2,72,94,678 even though the entire sum was allowed as revenue expenditure in the assessment of the assessee-company?”

2. The facts leading to this reference, inter alia, are that the assessee is a limited company and the assessment year involved is 1972–73 for which the previous year ended on December 31, 1971. The assessee had filed, along with the return of income, a statement showing the computation of disallowance under section 40A(5) of the Act. While computing the disallowance under section 40A(5), the assessee-company had deducted 8/12ths of the expenditure incurred on the maintenance of residential accommodation provided to the executives and 1/12th of depreciation in respect thereof aggregating to Rs. 1,84,127 on the ground of non-user by the employees during the leave period of one month. This claim of the assessee-company was disallowed by the Income-tax “Officer who pointed out that there was no evidence to show that each such employee left the bungalow or the accommodation with all family members with bag and baggage and that the bungalow was used for any purpose other than as residence of the employees of the company. Against this action of the Income-tax Officer, the assessee preferred an appeal to the Commissioner of Income-Tax (Appeals). It was contended before him that the perquisites of the executives in respect of rent-free bungalows, the bungalow, furniture, etc., should be calculated as if these were available to them only for a period of eleven months. It was stated that the executives were on leave for one month during the relevant previous year and, therefore, were not enjoying the perquisites for a month. This plea of the assessee was not found acceptable to the Commissioner of Income-Tax (Appeals). He disallowed the assessee's claim and upheld the Income-tax Officer's action. In further appeal, the Tribunal, after observing that the bungalows were partly used by the employees and partly used for the business of the assessee-company, held that 50 per cent, of the amount as referred to above should be taken into account for the purpose of computation of disallowance under section 40A(5) of the Act. The Income-tax Officer disallowed Rs. 12,294 out of travelling expenses under section 37(3) of the Act. On appeal, the Commissioner of Income-Tax (Appeals) held that the above sum was properly disallowable under rule 6D of the Income-tax Rules, 1962, and confirmed the disallowance made by the Income-tax Officer. The Income-tax Officer also disallowed Rs. 20,608 as entertainment expenses under section 37(2B) of the Act out of the total expenses of Rs. 61,825 claimed. The Commissioner of Income-Tax (Appeals) confirmed the disallowance after mentioning that no details had been furnished in support of the contention that the said sum of Rs. 61,825 did not include any entertainment expenses. On further appeal by the assessee-company, the Tribunal held that the expenditure was incurred by the assessee in the field. Drilling was going on as per schedule and, therefore, the dis allowance of the expenditure by the Income-tax Officer was not proper. The Tribunal, after taking note of clause 12 of the second supplemental agreement on which the assessee relied, deleted the disallowances under sections 37(3) and 37(2B) as sustained by the Commissioner of Income-. tax (Appeals). The assessee had claimed deduction under section 80-1 of the Act in respect of a sum of Rs. 42,64,311 which represents its income from transportation of crude oil belonging to the Oil and Natural Gas Commission. This claim of the assessee was negatived by the Income-tax Officer. On appeal, the Commissioner of Income-Tax (Appeals) upheld the order of the Income-tax Officer. On further appeal by the assessee, the Tribunal, following its decision in the assessee's own case for the assessment year 1971–72 in I.T.A No. 2707/(Cal) of 1979, directed the Income-tax Officer to allow the relief under section 80-1. The assessee showed, drilling expenditure of Rs. 2,72,94,678 and claimed development rebate at 25 per cent, of the said amount at Rs. 68,23,670 by filing the return on August 14, 1978. This claim of the assessee was refused by the Income-tax Officer on the ground that the assessment was not made in the ordinary way but in terms of the second supplemental agreement dated July 27, 1961, under which the entire drilling expenditure of Rs. 2,72,94,678 incurred in respect of the oil wells had been allowed as deduction. On appeal, the Commissioner of Income-Tax (Appeals) upheld the Income-tax Officer's action. He pointed out that the oil wells did not constitute plant in the assessee's business of production Of crude oils and, therefore, development rebate was not admissible. On further appeal, the Tribunal, after considering various case-laws and the circular relied on by the assessee, held that the oil well was the plant of the assessee which turned the output into money values which, in turn, became the income of the assessee and, therefore, the assessee was entitled to development rebate even though the whole of the expenditure was allowed as revenue expenditure. The Tribunal thus referred the matter back to the Income-tax Officer to allow development rebate provided the assessee satisfied the other conditions. So far as question No. 1 is concerned, it appears as already noted that the assessee had filed along with the return of income a statement showing the computation of disallowance under section 40A(5) of the Act.

3. While computing the disallowance under section 40A(5), the assessee-company had deducted 8/12ths of the expenditure incurred on the maintenance of residential accommodation provided to executives and 1/12th of depreciation in respect thereof aggregating to Rs. 1,84,127 on the ground of non-user by the employees during the leave period of one month. This claim of the assessee-company was disallowed by the Income-tax Officer since there was no evidence to show that each such employee left the bungalow or the accommodation with all his family members and bag and baggage and that the bungalow was used for any purpose other than for the residence of the employees of the company. The assessee preferred an appeal to the Commissioner of Income-Tax (Appeals). It was contended on behalf of the assessee that perquisites of the executives in respect of the rent-free bungalows, the bungalow furniture should be calculated as if these were available to them only for a period of eleven months, and it was urged that the executives were on leave for one month during the relevant previous year and, therefore, were not enjoying the perquisites for one month. This plea of the assessee was not accepted by the Commissioner of Income-Tax (Appeals). In further appeal to the Tribunal, it was observed that the bungalows were partly used by the employees and partly used for the business of the assessee-company. It was held that 50 per cent. of the amount as referred to above should be taken into account for the purpose of computation of disallowance under section 40A(5) of the Act.

4. Before the Tribunal, the question was raised by the assessee that the sum of Rs. 18,32,944 should not have been disallowed under section 40A(5) of the Act. The disallowance was made by the Income-tax Officer for repairs and maintenance, depreciation and wages for bungalows occupied by the employees. The Tribunal accepted the contention of the assessee and held that the maintenance as well as depreciation of the bungalows cannot be taken into consideration and, accordingly, the said sum of Rs. 18,32,944 was deleted. The Revenue had not come up in reference against the said decision of the Tribunal. Therefore, the entire amount of Rs. 18,32,944 representing repairs and maintenance of bungalows occupied by the employees has been held to be not disallowable under section 40A(5) of the Act.

5. Learned advocate has relied upon the following decisions:

(1) CIT v. Davidson of India Pvt. Ltd., [1984] 148 ITR 544 (Cal).

(2) Commissioner Of Income-Tax v. Motor Industries Co. Ltd., [1988] 173 ITR 374 (Kar).

6. The assessee made an alternative contention that, in any event, Rs. 1,84,127 could not be included by the Income-tax Officer for the maintenance of the bungalows and depreciation for the period of one month during which the employees are on leave. The Tribunal allowed 50 per cent, of the said disallowance, under section 40A(5) of the Act.

7. In our opinion, both the said questions Nos. 1 and 2 have become academic in view of the fact that the Tribunal has allowed the whole of the amount of Rs. 18,32,944 representing the expenses for the repair and maintenance of the bungalows occupied by the employees for the entire 12 months. Having allowed the entire expenses for the 12 months, the question of not allowing one month's expenses representing Rs. 1,84,127 does not arise. Therefore, the said questions are now academic as the Department has not challenged the decision of the Tribunal on the main issue, viz., the repairs and maintenance expenses amounting to Rs. 18,32,944 should not be disallowed under section 40A(5) of the Act.

8. Accordingly, we decline to answer both questions Nos. 1 and 2.

9. Question No. 3 is whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in deleting the disallowance of Rs. 12,294 and Rs. 20,608 out of travelling and entertainment expenditure, respectively, under sections 37(3) and 37(2B) of the Income-tax Act.

10. It has been submitted that clause 12 of the second supplemental agreement indicated that the expenditure incurred by the assessee for the exploration or on prospecting and drilling for crude oil in India were to be treated as business expenditure. The assessee was entitled to deduction under sections 37(3) and 37(2B) of the Income-tax Act.

11. It may be noted that the Tribunal has found that the assessee was doing exploration and prospecting and drilling for crude oil in India. The expenditure was incurred by the assessee in the field. The drilling was going on as per schedule and, therefore, the disallowance of the expenditure by the Income-tax Officer under sections 37(3) and 37(2B) of the Act was not proper in view of article 12(ii) of the second supplemental agreement which provides, inter alia, that all expenditure on exploration/prospecting/drilling which is incurred by Oil India Ltd. subsequent to the effective date of the grant of any mining lease is to be allowed as a deduction for tax purposes in the year in which the expenditure is incurred. The Tribunal has categorically found that the said expenditure was incurred by the assessee in the field and such drilling was going on as per schedule.

12. This finding is a finding of fact and has not been challenged. Therefore, all the expenditure which have been incurred were expenditure on exploration and/or prospecting and/or drilling and should be allowed in view of article 12(ii) of the second supplemental agreement.

13. Accordingly, we answer question No. 3 in the affirmative and in favour of the assessee.

14. Questions Nos. 4 and 5 are covered by the judgment of this court in the case of the same assessee in Income-tax Reference No. 387 of 1981 — Commissioner Of Income-Tax v. Oil India Ltd., [1992] 196 ITR 366. The said reference was disposed of on July 4, 1989, by Ajit Kumar Sengupta and B.P Banerjee JJ. Following the decision of the Division Bench on the said question, we answer questions Nos. 4 and 5 in the affirmative and in favour of the assessee.

15. Question No. 6 is whether the Tribunal was justified in holding that the oil wells constituted plant for the purpose of the allowance of development rebate. The Tribunal has found that the assessee claimed drilling expenditure of Rs. 2,72,94,678 and claimed development rebate at 25 per cent, of the said amount at Rs. 68,83,670. The Income-tax Officer did not allow the claim on the ground that the whole of the expenditure claimed by the assessee has been allowed to it. The Commissioner of Income-Tax (Appeals), relying on several decisions, stated that the well was not plant and, therefore, the assessee was not entitled for development rebate.

16. The Tribunal pointed out that oil well is an apparatus used by the assessee for the purpose of deriving income from crude oil after drilling the well. Under the circumstances, the well is a plant of the assessee used for its business of exploration of crude oil.

17. In fact, the assessee relied upon the Circular of the Department being No. 582-25/605 J.M dated January 23, 1926. The said circular categorically lays down that wells and pipes are plant.

18. The Supreme Court decision in the case of Scientific Engineering House (Pvt.) Ltd. v. Commissioner Of Income-Tax., [1986] 157 ITR 86, 96 (SC) was relied upon by Dr. Pal.

19. The Supreme Court, in the said judgment, has quoted with approval from the decision reported in Yarmouth v. France, [1887] 19 QBD 647 that “there is no definition of plant in the Act: but in its ordinary sense, it includes whatever apparatus is used by a businessman for carrying on his business,—not his stock-in-trade which he buys or makes for sale; but all goods and chattels, fixed or movable, live or dead, which he keeps for permanent employment in his business”.

20. The same view has been taken by the House of Lords in Hinton v. Maden and Ireland Ltd., [1959] 38 TC 391, 417 and 424.

21. In Income-tax Reference No. 260 of 1987 (Tribeni Tissues Ltd. v. Commissioner Of Income-Tax., [1991] 190 ITR 487 (Cal), the Division Bench of this court presided over by Ajit Kumar Sengupta J., held that tube-well is a plant entitled to invest ment allowance.

22. It has been further decided that a well dug for the purpose of carrying on business is a plant both for the purposes of depreciation and for development rebate. In this connection, we take note of the following decisions:

(1) Commissioner Of Income-Tax, A.P v. Warner Hindustan Ltd., [1979] 117 ITR 15 (AP).

(2) Commissioner Of Income-Tax, A.P v. Warner Hindustan Ltd., [1979] 117 ITR 68 (AP).

23. In the case of Commissioner Of Income-Tax v. Hindusthan Motors Ltd., [1988] 170 ITR 431 (Cal), the expenditure was allowed under clause 12(ii) of the second supplemental agreement and not as a revenue expenditure.

24. Development rebate is allowable under section 33 of the Act over and above the recoupment of the total cost of machinery by way of depreciation allowance. The allowance under section 33 of the Act is obviously given to provide an incentive for industrial expansion. It has no connection with depreciation allowance, which is an yearly feature.

25. Accordingly, question No. 6 is answered in the affirmative and in favour of the assessee. Question No. 7 is also answered in the affirmative and in favour of the assessee.

26. There will be no order as to costs.

Ajit Kumar Sengupta, J.:— I agree.

Commissioner Of Income-Tax v. Oil India Ltd.

Structured Summary of the Opinion (Shyamal Kumar Sen, J.)

Factual and Procedural Background

Legal Issues Presented

Arguments of the Parties

Assessee's Arguments

Revenue / Income-tax Officer's Arguments

Table of Precedents Cited

Court's Reasoning and Analysis

Holding and Implications

Commissioner Of Income-Tax v. Oil India Ltd.

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