COMMISSIONER OF INCOME TAX (INTERNATIONAL TAXATION AND TRANSFER PRICING) vs. JOSHI TECHNOLOGIES INTERNATIONAL INC

This Tax Appeal under Section 260A of the Income Tax Act, 1961 is directed against the judgment and order dated 25.10.2021 of the Income Tax Appellate Tribunal, Ahmedabad in ITA No. 2389/2015 in respect of Assessment Year 2006-07. The appellant Revenue seeks to raise following substantial question of law, Whether in the facts and circumstances of the case, the learned ITAT has erred in law and on facts in allowing the depreciation on oil wells treating the same as Plant and Machinery?

The respondent assessee Company is engaged in exploration of crude oil from Dholka and Wavel oil fields. The crude is transported to Oil & Natural Gas Corporation central storage for its further process.

1 The company filed its income tax return on 02.01.2007 in respect of the order in consideration declaring loss of Rs.3,92,94,965/-. The case was selected for scrutiny and notice under Section 143(2) was issued by the Income Tax Officer.

2 In the income tax return, one of the claim regarding deduction by the assessee was the alternative claim for depreciation under Section 42 of the Income Tax Act. It was the say of the Company that it claimed deduction under Section 42 of the Income Tax Act, therefore, it was not claiming depreciation, which was otherwise allowable under Section 32 of the Act.

It was submitted to the assessing officer that the Company had purchased Plant & Machinery for the purpose of business of prospecting or extracting mineral oils. Definition of Plant under Section 43(3) of the Act was relied on and it was submitted that it had wide import. The claim of depreciation was in respect of plant by contending that oil well was part of the plant. The assessing officer discussed the issue in its assessment order to conclude that the well drilled for exploration of oil was not a Plant. The claim of the assessee was disallowed.

1 When the Company preferred an appeal before the Commissioner of Income Tax (Appeals) the appellate authority dealt with the said Ground No. 4 in its order dated 29.05.2016. It was held that the assessing officer had committed an error in holding that oil well was not an industrial undertaking.

2 The appellant authority observed, I have carefully examined the submissions of the appellant and also considered the reasoning given by the Assessing Officer in his order. The jurisdictional ITAT in Niko Resources Ltd. [2009| 123 TTJ 210 has after considering all the judicial pronouncements in this regard as to a tube well constitute a plant or otherwise held as under vide para 65: "This also gives an impression that the gas oil wells are not plant. It is but a setting through which the assessee extracted oil and gases, and therefore a part of the building within the extended meaning of the term building given in the Appendix 1 to Income-tax Rules. The depreciation would be allowed thereon @ 10 per cent as building." In view of the clear finding of the jurisdictional ITAT, I uphold the Assessing Officer's action in treating oil wells as building and allowing depreciation at 10%. The ground of appellant is rejected."

3 The Tribunal endorsed the findings and view taken by the Commissioner of Income Tax (Appeals) to hold that oil well was Plant & Machinery and therefore, the same was eligible for depreciation as Plant & Machinery Depreciation, which was allowed by the assessing officer at 10% only and was required to be allowed at 80% as claimed by the assessee, the Tribunal held. While holding so, it relied on its own case of the assessee in ITA No. 3988/08 for the assessment year 2005-06. 5. The issue as to what constitutes and what is included in "Plant" for the purposes of Section 32 of the Act is no longer res integra. In Niko Resources Vs. Assistant Commissioner of Income Tax [(2017) 395 ITR 301(Guj)], the Division Bench of this Court laid down that under Section 32 of the Income Tax Act, the depreciation allowances is subject to the provisions of Section 34 and that the same is permissible only in respect of certain assets specified therein, namely, buildings, machinery, plant and furniture owned by the assessee and used for the purpose of business.

1 It was held that section 43(3) defines "Plant", which is wide in its import. The Court held that in order to qualify as Plant, the article must have some degree of durability. The test was laid down that, does the article fulfil the function of plant in the assessee's trading activity and whether it could be said to be a tool of his trade with which the assessee carries on his business, becomes part and parcel of plant.

2 Therefore, all such things and tools which become plant, if they are part and parcel of the plant, functioning would aid an assessee's business activity.

3 In Niko Resources (supra), it was accordingly held reversing the decision of the Tribunal that the Tribunal was not right in law in treating mineral oil wells as Buildings for the purpose of applying rate of depreciation under Section 32 of the Act. It was held that mineral oil wells constitute "Plant" for the purpose of Section 32 of the Act.

In view of the above, no question of law much less substantial question of law as proposed by the assessee arise. No other question of law was found to be arising in the facts of the case from the impugned judgment of the Income Tax Appellate Tribunal.

In the aforesaid view, the present Tax Appeal is meritless, liable to be dismissed and the same is hereby dismissed. (N.V.ANJARIA, J) (BHARGAV D. KARIA, J) BIJOY B. PILLAI