The Gujarat High Court has dismissed the appeal of revenue concerning the order of the Income Tax Appellate Tribunal (ITAT), allowing the assessee to claim additional depreciation under Section 32(1)(iia) of the Income Tax Act, 1961, for an oil well classified as ‘plant & machinery’.
The appeal proposed the question of law: whether the ITAT erred in classifying the oil well as ‘plant and machinery’ for the purpose of availing depreciation benefits.
The revenue, represented by Varun K. Patel, submitted that the issue arising in this appeal is with regard to the additional depreciation as provided in u/s.32(1)(iia) of the Act as the assessee is engaged in the extraction of mineral oil.
It was further submitted that in the assessee’s own case in Tax Appeal no.514 of 2022, a similar issue was considered by the court, and the appeal of the department for the assessment year 2006-07 was dismissed on merits.
The division bench of Justices Bhargav D. Karia and Niral R. Mehta, referred to their observations in the previously decided case, where the court relied on the judgement in Niko Resources vs. Assistant Commissioner of Income Tax.
The Niko Resources case established that depreciation allowances under Section 32 of the Act are subject to Section 34 and can only be claimed for specific assets like buildings, machinery, and plants used for business purposes. The definition of ‘plant’ under Section 43(3) of the Act was also considered.
Based on the reasoning in Niko Resources, the court determined that oil wells can qualify as “plant” under Section 32 of the Act for claiming depreciation benefits. An oil well, according to the court, fulfills the function of the plant in the assessee’s business activity and acts as a tool of trade.
Consequently, the court found no substantial question of law arising from the order. Therefore, the appeal filed by the revenue was dismissed.
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