Commissioner Of Income Tax (International Taxation Andtransfer Pricing v. Joshi Technologies International Inc

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/TAX APPEAL NO. 514 of 2022 ==========================================================COMMISSIONER OF INCOME TAX (INTERNATIONAL TAXATION ANDTRANSFER PRICING) Versus JOSHI TECHNOLOGIES INTERNATIONAL INC ========================================================== Appearance: MR.VARUN K.PATEL(3802) for the Appellant(s) No. 1 for the Opponent(s) No. 1========================================================== CORAM:HONOURABLE MR. JUSTICE N.V.ANJARIAand HONOURABLE MR. JUSTICE BHARGAV D. KARIA Date : 12/09/2022 ORAL ORDER (PER : HONOURABLE MR. JUSTICE N.V.ANJARIA) Heard learned advocate Mr. Varun K. Patel forthe appellant. 2.This Tax Appeal under Section 260A of the Income Tax Act, 1961 is directed against the judgmentand order dated 25.10.2021 of the Income TaxAppellate Tribunal, Ahmedabad in ITA No. 2389/2015 inrespect of Assessment Year 2006-07. The appellantRevenue seeks to raise following substantial questionof law, Whether in the facts and circumstances of thecase, the learned ITAT has erred in law and onfacts in allowing the depreciation on oil wells treating the same as Plant and Machinery? 3. The respondent assessee Company is engaged inexploration of crude oil from Dholka and Wavel oilfields. The crude is transported to Oil & NaturalGas Corporation central storage for its furtherprocess. 3.1 The company filed its income tax return on02.01.2007 in respect of the order in considerationdeclaring loss of Rs.3,92,94,965/-. The case wasselected for scrutiny and notice under Section 143(2)was issued by the Income Tax Officer. 3.2 In the income tax return, one of the claimregarding deduction by the assessee was thealternative claim for depreciation under Section 42of the Income Tax Act. It was the say of the Companythat it claimed deduction under Section 42 of theIncome Tax Act, therefore, it was not claimingdepreciation, which was otherwise allowable underSection 32 of the Act. 4.It was submitted to the assessing officer thatthe Company had purchased Plant & Machinery for thepurpose of business of prospecting or extractingmineral oils. Definition of Plant under Section43(3) of the Act was relied on and it was submittedthat it had wide import. The claim of depreciationwas in respect of plant by contending that oil wellwas part of the plant. The assessing officer discussed the issue in its assessment order toconclude that the well drilled for exploration of oilwas not a Plant. The claim of the assessee wasdisallowed. 4.1 When the Company preferred an appeal before theCommissioner of Income Tax (Appeals) the appellateauthority dealt with the said Ground No. 4 in itsorder dated 29.05.2016. It was held that theassessing officer had committed an error in holdingthat oil well was not an industrial undertaking. 4.2 The appellant authority observed, I have carefully examined the submissions of theappellant and also considered the reasoning given bythe Assessing Officer in his order. Thejurisdictional ITAT in Niko Resources Ltd. [2009|123 TTJ 210 has after considering all the judicialpronouncements in this regard as to a tube wellconstitute a plant or otherwise held as under videpara 65: "This also gives an impression that the gas oilwells are not plant. It is but a setting throughwhich the assessee extracted oil and gases, andtherefore a part of the building within the extendedmeaning of the term building given in the Appendix 1to Income-tax Rules. The depreciation would beallowed thereon @ 10 per cent as building." In view of the clear finding of the jurisdictionalITAT, I uphold the Assessing Officer's action intreating oil wells as building and allowingdepreciation at 10%. The ground of appellant is rejected." 4.3 The Tribunal endorsed the findings and view "This also gives an impression that the gas oilwells are not plant. It is but a setting throughwhich the assessee extracted oil and gases, andtherefore a part of the building within the extendedmeaning of the term building given in the Appendix 1to Income-tax Rules. The depreciation would beallowed thereon @ 10 per cent as building." In view of the clear finding of the jurisdictionalITAT, I uphold the Assessing Officer's action intreating oil wells as building and allowingdepreciation at 10%. The ground of appellant is rejected." 4.3 The Tribunal endorsed the findings and view taken by the Commissioner of Income Tax (Appeals) tohold that oil well was Plant & Machinery andtherefore, the same was eligible for depreciation asPlant & Machinery Depreciation, which was allowed bythe assessing officer at 10% only and was required tobe allowed at 80% as claimed by the assessee, theTribunal held. While holding so, it relied on itsown case of the assessee in ITA No. 3988/08 for theassessment year 2005-06. 5.The issue as to what constitutes and what isincluded in "Plant" for the purposes of Section 32 ofthe Act is no longer res integra. In Niko ResourcesVs. Assistant Commissioner of Income Tax [(2017) 395ITR 301(Guj)], the Division Bench of this Court laiddown that under Section 32 of the Income Tax Act, thedepreciation allowances is subject to the provisionsof Section 34 and that the same is permissible onlyin respect of certain assets specified therein,namely, buildings, machinery, plant and furnitureowned by the assessee and used for the purpose ofbusiness. 5.1 It was held that section 43(3) defines "Plant",which is wide in its import. The Court held that inorder to qualify as Plant, the article must have somedegree of durability. The test was laid down that,does the article fulfil the function of plant in theassessee's trading activity and whether it could besaid to be a tool of his trade with which the assessee carries on his business, becomes part andparcel of plant. 5.2 Therefore, all such things and tools whichbecome plant, if they are part and parcel of theplant, functioning would aid an assessee's businessactivity. 5.3 In Niko Resources (supra), it was accordinglyheld reversing the decision of the Tribunal that theTribunal was not right in law in treating mineral oilwells as Buildings for the purpose of applying rateof depreciation under Section 32 of the Act. It washeld that mineral oil wells constitute "Plant" forthe purpose of Section 32 of the Act. 6.In view of the above, no question of law muchless substantial question of law as proposed by theassessee arise. No other question of law was foundto be arising in the facts of the case from theimpugned judgment of the Income Tax AppellateTribunal. 7.In the aforesaid view, the present Tax Appeal ismeritless, liable to be dismissed and the same ishereby dismissed. (N.V.ANJARIA, J) BIJOY B. PILLAI (BHARGAV D. KARIA, J)