ORDER
RAM BAHADUR, J.M
Both the appeals are directed against the order dt. 21st May, 1992 of CIT(A)XVI, New Delhi, for asst. yrs. 1989-90 and 1990-91.
2. As both the appeals are by Revenue and have common Grounds and points of law, hence are taken together, heard and disposed of by a consolidated common order.
3. Ground of appeal by Revenue are reproduced below:
” 1. On the facts and in the circumstances of the case, the learned CIT(A) has erred in:
(i) directing the AO to allow investment allowance under s. 32A holding that the assessee is an industrial company.
(ii) deleting the addition of Rs. 3,06,559 representing customs duty for the computers taken on hire despite the fact that the assessee was not owner and the hire charges were also high.
(iii) directing the AO to allow the depreciation @ 100 per cent on down hole equipments despite the fact that the assessee-company is not a mineral oil concern. ”
4. The brief facts of the case are that the respondent/assesee company is engaged 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 litho logy 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. We, first of all, taken up ground No. 1 which pertains to directing the AO by learned CIT(A) to allow investment allowance under s. 32A of IT Act, 1961 holding that the assessee is an industrial company. This ground requires our scrutiny on two points: (i) What is investment allowance under s. 32A? Does the assessee respondent fulfill the- necessary requirements to avail the benefit of the same?
7. The assessee has claimed investment allowance on new plant and machinery purchased and put to use during the previous year relevant to this assessment year. The total cost of new plant and machinery is Rs. 3,42,78,573 and he has claimed investment allowance at Rs. 48,55,715 being 25 per cent of the cost of its new machinery. Sec. 32A of IT Act, 1961, provides that deduction @ 25 per cent of the actual cost of plant and machinery owned and used by the assessee for the business would be allowed as investment allowance subject to certain conditions. Sub-s. (2) of s. 32A of IT Act, 1961, provides that the plant and machinery should be installed and put to use by an industrial undertaking for the purpose of business of construction, manufacture or production of articles or things other than those specified in the Eleventh Schedule of IT Act, 1961.
8. To get the claimed investment allowance, the assesee/respondent has to prove four things:
(i) It is an industrial undertaking.
(ii) It has installed plant and machinery.
(iii) It has put to use such plant and machinery.
(iv) The purpose of installing plant and machinery is for the purpose of business of construction, manufacture or production of article or things. In a very simple language, the assessee’s case is that this produces data and supply it to oil and ONGC for exploration of mineral oil. Learned AO has observed in this reference that neither the assesee/respondent is an industrial undertaking within the
meaning of s. 32A nor their work of data processing comes within the purview of “for the purpose of business of construction, manufacture or production or article or things. The learned AO has likened the activity of the assesee/respondent company to a typewriter print out letters on a sheet of paper, a rubber stamp giving impression on a sheet of paper. Learned AO has observed that manufacture is generally understood to mean as bringing into existence a new substance. According to him, assessee-company 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 assesee/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 assesee/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 datalogs. The assesee/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 Ser-Wces (P) ITD. (1990) 90 CTR (Cal) 73: (1990) 186 ITR 609 (Cal) and CIT(A) vs. Data Cons (P) ITD. (1985) 47 CTR (Kar) 162: (1985) 155 ITR 66 (Kar) that within the meaning of s. 2(7)(c) of Finance Act 1981, the assessee was industrial undertaking and was manufacturing within the meaning sub-cl. (2) of s. 32A of IT Act, 1961. Learned Departmental Representative Shri Dhamija on behalf of appellant/ Revenue has contended that assesee/respondent is not manufacturing anything but it is only showing to the world what is, where it exists. He has
also contended that processing and production are two different things and the assesee/respondent is at the most processing data which is not manufacturing. He has relied on Cold Storage case (sic) 161 ITR 646 (SB). Learned Departmental Representative has also contended that physical conversion cannot be applied to scientific data processing and learned CIT(A) has not gone in Eleventh Schedule.
11. Learned counsel for assessee has relied on the following judicial decisions of High Courts and the Supreme Court: (1) CIT vs. Chanda Diesels (1995) 216 ITR 639 (Bom); (2) CIT vs. Oswal Data Processors (1997) 223 ITR 735 (MP);
(3) CIT vs. Steel Tubes of India ITD. (1997) 228 ITR 38 (MP); and
(5) CIT vs. Upasana Hospital (1997) 139 CTR (Ker) 518 : (1996) 89 Taxman 526 (Ker).
12. CIT vs. Chanda Diesels case (supra) is not helpful to the assessee/ respondent because it was about s. 80HH deductions. CIT vs. Oswal Data Processors has been relied by the learned counsel for respondent, in which it has been held that data processing is an industrial activity and assessee is entitled to investment allowance on computers installed. In CIT vs. Shaan Finance (P) ITD. (supra), even an assessee doing business of leasing machinery to manufacture entitled to investment allowance under s. 32A of IT Act, 1961. In apex Court’s decision (supra), their Lordships have laid down three tests for
availing benefit of s. 32A. These are namely, (1) the machinery should be owned by assessee; (2) it should be wholly used for the purposes of business carried on by the assessee; (3) The machinery must come under any of the categories specified in s. 32A(2).
13. We heard the parties at length and have perused the paper book filed before us. We find that the assessee-company derives its income from wire-line logging and perforation activities for exploration of oil. Wire-line logging is the standard process used to evaluate oil wells both at exploratory and 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 up hole 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 the assessee in his paper books at p. 4.16 and at p. 4.17. In our considered opinion in such a situation it cannot be said that assessee is not an industrial undertaking. In view thereof, we find no infirmity either in CIT(A)’s findings or conclusion that assessee is an industrial undertaking. Hence, the Revenue fails and the CIT(A)’s order in directing AO to allow investment allowance on the plant and machinery used by it, is upheld.
14. Ground No. 2
In ground No. 2, Revenue being aggrieved has challenged a deletion of an addition of Rs. 3,06,559 representing customs duty for the computers taken on hire. It has been contended by Revenue that CIT(A) has erred in deleting a disallowance made by learned AO of a sum of Rs. 3,06,559 representing customs duty for the computer taken on hire by disregarding that the assessee was not the owner of the computers and further otherwise the hire charges paid to the owner of the computer was also very high. While framing the assessment learned AO noted that in the schedule filed by assessee-company, there is no computer owned by it and as such prima facie allowance could not be made in respect of an asset not owned by it. It was explained before the learned AO by the assesee/respondent that the expenditure had been incurred by way of payment of customs duty on a computer belonging to a non-resident Indian, who also owned the related software which is very hard to be found and is very expensive.
15. The company negotiated with NRI and a package deal was struck whereby the company agreed to bear the customs duty in addition to the payment of hire charges of the computer to be used for the period of four years.
16. The learned AO rejected the claim of the assessee and held that since the customs duty has been paid by the assessee On a computer not owned by it, the deduction of the expenditure incurred cannot be allowed. He further held that the assessee has paid exorbitant hire charges for the computer obtained by him on hire and, therefore, there is no justification to allow the deduction under s. 37(1) of IT Act, 1961.
17. On appeal the CIT(A) deleted the said disallowance and observed that the computer was taken on hire and part of package bill was with customs duty payable in India to be paid by the appellant company and adjusted against the hire charges for 48 months which was duration of hire. It was further 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 apparent that there was no justification for making disallowance. This ground, therefore, has no merit and is hereby rejected. We uphold the order of CIT(A) deleting the addition made of Rs. 3,06,559.
Ground No. 3:
19. The main questions in this ground of appeal are: (1) Whether the assessee is a mineral oil concern within the meaning of r. 5 of IT Rules, 1962, and II column of Table in Appendix I to these Rules– (2) whether the assessee company is entitled to 100 per cent depreciation even if it is not a mineral oil concern. Originally, assessee filed the return claiming depreciation at the rate of 33.33 per cent. Later on, it was revised by him for claiming 100 per cent depreciation on plant and machinery used below the surfaces of the earth at Rs. 1,82,59,545. The AO observed that in revised return, the assessee/ respondent claimed to be a mineral oil concern engaged in the production of logs and, therefore, entitled to 100 per cent depreciation on down hole equipments. Disagreeing with the contention of the assessee respondent, learned AO observed that “as per depreciation schedule, 100 per cent depreciation is admissible on plant used in field operation below ground by mineral oil concerns only. Learned AO disallowed 100 per cent depreciation holding that assessee itself is not producing any oil nor is engaged in the activity of oil drilling. It is only assisting the oil companies in exploration work. Being aggrieved from the order of AO, assesee/respondent went in appeal before CIT(A) who reversed the order of learned AO and held that the interdependency of the two wings of industry enables one to make bold to assert that the appellant company is also in the nature of a mineral oil concern. Its very existence is for providing the necessary data where the oil should be hunted for as to whether the exploration activities should be continued in a particular well or not. All this makes the appellant’s business enterprise a mineral oil concern closely connected with the oil production activities.
20. Aggrieved by this order, Revenue is in appeal before us. Learned Departmental Representative Shri Dhamija relying on the order of AO has vehemently argued that assesee/respondent has to prove to take 100 per cent depreciation that it is a mineral oil concern. He has also contended that assessee has its own in its original return, shown to be entitled 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-HI(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 per 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 necessary for entitlement to 100 per cent depreciation in respect of plant and machinery used below ground in mineral oil concern and operated by its personnel in its employment. 23. In written submissions filed by assesee/respondent ‘s counsel at p. 4 para (ii), they have admitted that assessee is not a mineral oil concern. Since it is not producing any oil nor engaged in the activity of oil drilling even then it is lawfully entitled to depreciation allowance in respect of the plant and equipment owned and used by it in carrying out wire-line logging operation below the ground in the oil wells of mineral oil concerns at the rate of 100 per cent of the actual cost/within down value thereof as prescribed in item III(3)(ix)(b) of the table of rates of depreciation in Appendix-1 to the IT Rules, 1962 on the following grounds: (i) Sec. 32(1) of the Act provides for a deduction in the computation of business income, on account of depreciation of buildings, machinery, plant or furniture owned by the assessee and used for the purposes of the business or profession. The word “Plant” has not been fully defined in the Act but it has a very wide import as indicated by the provisions in cl. (3) of s. 43 of the Act according to which it includes, inter alia, books, scientific apparatus and surgical equipment used for the purposes of the business or professions. In the words of Hindely L.J. in the case of Yarmouth vs. France (1887) 192 BD 647 (DC) which arid the locus classic us for the definition of the term “Plant” which has been approved/ accepted by the Supreme Court of India in the case of CIT vs. Taj Mahal Hotel 1973 CTR (S0 480: (1971) 82 ITR 44 (SQ the word “plant” in its ordinary sense” 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 Column 2 of the Table and chattels, fixed or movable, live or dead which he keeps for permanent employment, in his business. The words ‘permanent employment’ signify some degree of durability. In elaboration of the aforesaid definition, it has been observed and held in Lyons & Co. ITD. (J) vs. Attorney General (1944) Ch. 281 (Ch.D.) that “Plant includes whatever apparatus or instruments are used by a businessman in carrying on his business, and that in order to qualify as a plant, the apparatus used by a businessman for carrying on his business need not necessarily 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 11 column of the table of rates of depreciation in Appendix I to the Rules, on the written down value of such block of assets as are used for the purpose of the business or profession of the assessee at any time during the previous year.
26. The table of rates of depreciation in Appendix I to the IT Rules specifies, in the first column, particular block of assets, and in the second column thereof, the depreciation allowance as percentage of written down value, of the book of assets. Thus, the function of the aforesaid schedule of rates of depreciation in Appendix I to the Rules is limited only to the prescription of the percentage rate at which depreciation is to be calculated on the written down value of the respective block of assets specified therein.
27. The rates of depreciation allowance as prescribed in the table of rates of depreciation in Appendix I to the Rules have statutory authority and are mandatory by virtue of the provision in cl. (d) of s. 295(1) of the Act which confer on the CBDT the authority to make rules containing provisions inter alia regarding “the percentage on the written down value which may be allowed as depreciation in respect of buildings, machinery, plant or furniture”. The quantum of the rates of depreciation allowance in respect of any block of assets specified in the table of rates of depreciation in Appendix I to the Rules, as applicable in the case of an assessee, cannot be varied by way of any IT authority or any appellate authority on any consideration such as the span of time during which a particular asset may remain serviceable or the number of times for which it is capable of being used, or has actually been used for the duration of such user.
28. The conditions for the entitlement of an assessee to the allowance of depreciation are laid down in s. 32(1) of the Act, namely ownership of the assets by the assessee and use thereof for the purpose of his business or profession. Where an assessee such as a mineral oil concern has to employ high-tech and high-cost plant and equipment in carrying on his/its business and engages the services of a contractor who owns and provides and operates such plant and equipment for the mineral oil concern or where the mineral oil concern takes the required plant or equipment, such as an oil drilling rig, on lease from such a lessor who owns and is engaged in the business of leasing such plant or equipment, 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 of concern itself, or to a contractor whose services are engaged by it for carrying on certain operations or to a lessor who owns and leases out the required plant and equipment in the course of the leasing business to the mineral oil concern, or to a person who owns and lets out to the mineral oil concern the required plant and equipment the income from which is assessable in the hands of such person as income from other sources.
31. In the table of rates of depreciation in Appendix I to the Rules, under the head ‘HI Machinery and Plant’ sub-item (i) prescribes a general rate of depreciation 33.33 per cent prior to 1st April, 1992 where after it was reduced to 25 per cent which is applicable to machinery and plant other than those by sub-items (1A), (2) and (3) below in which for the particular classes of assets specified therein, the rates of depreciation are lower or higher than the aforesaid general rate of depreciation. If any asset falls within a class of assets for which special rates of depreciation (i.e., rates of depreciation other than the aforesaid general rate of depreciation) have been prescribed in sub-items (1A), (2) or (3) of the main item M. Machinery and plant, depreciation is allowable in respect of such asset only at the special rate so prescribed.
32. The special rates of depreciation in respect of plant and machinery of the classes/categories specified in sub-item (1A), B and (3) of the main item “Machinery and Plant have been prescribed with reference to the nature of the particular asset and the character of its user including the types of business and the environmental conditions in which it is used, besides the socio-economic benefits to the country from the deployment of such assets. Thus, while under the aforesaid sub-item (1A) the rate of depreciation prescribed in respect of motor cars which are not used in a business of running on hire is 20 per cent, the rate of depreciation prescribed under sub-item 2(ii) in respect of motor taxies is 40 per cent. For air and water pollution control equipments [vide sub-item (2)(iv) and (v) respectively] and for energy saving devices [vide sub item (3) (iii), the rate of depreciation prescribed is 100 per cent irrespective of the time special user of the assets, as such plant and machinery involves large amounts of investment and the use thereof results in a socio-economic benefit to the country.
33. In item III-Machinery and plant, sub-item (3)(ix)(a) and (b), relating to ‘Mineral oil concerns’ 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.
34. A mineral concern by itself is apparently not a block of assets. A plain reading of the language of the aforesaid item M(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 (HQ)(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 irrespective of their ownership, there being no prescription in the said table of differential rates of depreciation for any asset with reference to the ownership thereof it is manifestly impermissible to read in the captioned words mineral oil concerns in the said item, any prescription that the plant used in a mineral oil concern above the ground or below the ground in field operations must be owned by it in order to be eligible for depreciation at the rate of 100 per cent of the written down value thereof. The plant and equipment used in a mineral oil concern in field operations above the ground or below the ground may be owned and operated by. it, or may be owned and operated by a contractor whose services have been engaged by it contractually for carrying out the required operations in its oil field below the ground as in the case under consideration, or it may take the required plant and equipment from the owner on lease and carry out the required operation itself. In either case, such plant and equipment falling in the item E1(3)(IX)(a) or (b) of the table of rates of depreciation will be eligible for depreciation allowance at the rate of 100 per cent under the provisions of s. 32(1)(ii)/57(ii) of the Act in the hands of the owner of such plant or machinery.
35. If the mineral oil concerns, namely the OIL and ONGC were the owners of and had operated the wire-line logging equipment in their oil fields below the ground, they would undoubtedly, have been entitled to allowance of depreciation thereon at the rath of 100 per cent of the written down value thereof under item M(3)(ix)(b) of the schedule of rates of depreciation in Appendix 1 to the Rules. The fact that in the case under consideration the wire line logging plant and equipment belongs to and was operated by the assessee-company below the ground in the oil fields of the said mineral oil concerns does not alter the position as to the applicability of the rates or depreciation at 100 per cent of the written down value thereof under item III(3)(IX)(b) of the schedule of rates of depreciation in the hands of the assessee-company, as the block of assets remains the same and a single rate of depreciation is prescribed for assets falling within a particular block of assets and no differential rates of depreciation are prescribed with reference to the ownership thereof.
36. As the wire-line logging plant 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 HI(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 EI, 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 schedule of rates of depreciation which is wholly inapplicable in the instant case.
38. We agree with the arguments of the respondent assessee on the following grounds :
(a) It is admitted by both the parties that assessee’s plant is used in field operation (below ground) and it is under the heading “Machinery and plant, hence if assessee-company is not mineral oil concern, cannot be debarred from 100 per cent depreciation.
(b) Assessee-company is an agent/contractor of mineral oil concern (OIL, ONGC) hence if a principal can avail of 100 per cent depreciation, why not an agent specially when the assessee plant is used in field operations (below ground).
(c) A Mineral oil concern cannot produce oil if data is not supplied by the respondent/assessee.
(d) assesee/respondent ‘s plant is used in mineral oil concern.
(e) If the plant of assesee/respondent used in held operations (below ground) is denied 100 per cent depreciation and those owned by mineral concern, is allowed, it will be discriminatory.
(f) If it is the nature of the machinery that is mentioned in the table on which depreciation should be allowed and not that the depreciation should be denied to the owner of the machinery used in these concerns not belonging to the mineral oil concern.
(g) If assessee appellant had leased out the plant (used in field operation) below ground to mineral oil concerns, he would have been entitled for 100 per cent depreciation as lessor why then not as an owner?
39. We have carefully considered the rival submissions. Both the parties gave very detailed and elaborate arguments in support of their respective claims. However, certain facts in our view are required to be brought on record for coming to a proper decision. As rightly pointed out the business of the assessee for which the assessee entered into contract with OEL is the business of logging and perforation services, etc. The assessee entered into agreement on 4th May, 1988 on the basis of which the assessee was required to supply equipment, personnel, materials and services in regard to wire-line logging and perforation. The duration of the contract was for a period of two years initially which can be extended or terminated on notice as provided in the agreement. as per the agreement, Oil India assumed liability for loss or damage to assessees sub-surface equipment and the down-hole property of its contractors or sub-contractors in the hole below the kelley 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 ITD. 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 services provided by the assessee which contained similar arrangement.
41. From the above facts, it is seen that the normal depreciation available to the assessee is @ 10 per cent. It also appears that the assessee has to move from well to well as directed from time to time by OIL/ONGC and for such movement, the transportation charges are to be borne by the OILIONW. It is also seen that all the loss or damages are to be reimbursed to the assessee unless the same was due to wilful or gross negligence.
42. There appears to be good reason for the Parliament to classify depreciation table either on asset wise or on concern basis as per the extract given by the CIT(A) at para 18 of his order. In the case of mineral oil concerns, the plant used in field operations (above ground) distribution-returnable package and the plant used in field operations below ground are allowed 100 per cent depreciation. This appears to be due to the fact that the plants used in these operations remained permanently attached either over ground or below ground and there was no scope for removing the same. However, in the case of the assessee, equipments used in the business appears to be mobile and they are not stuck to the ground (either over or under ground). They are moved from place to place. It is not clear how long these equipments are in operation in a particular well. If the normal wear and tear is to the extent of 100 per cent, there is no reason for the assessee to indicate that the normal depreciation is 10 per cent as mentioned in the agreement. It is, however, not possible for us to ascertain the nature of operation and the actual use of the plants and equipments in the present case. It will, therefore, be fair and reasonable to find out these facts and determine whether these plants and equipments can be treated as in the nature of plants used in the mineral concerns. If they are one of the same nature, there is no reason not to allow the depreciation as in the case of mineral concerns as ‘the assessee is doing the same operations. If, however, the nature of the operation is basically distinguishable and the plants and equipments are used in a different manner and under different circumstances, then the normal depreciation has to be allowed. The AO is directed to re-examine this aspect and decide the claim in accordance with law, after giving full opportunity to the assessee to substantiate the claim. The order of the CIT(A) on this point is accordingly set aside.
43. In the result, the appeals are partly allowed.