Allowability of depreciation on oil well

56. To determine as to whether an asset is a ‘plant’, the Supreme Court in the case of Scientific Engineering House Private Limited (supra) lays down certain tests. These are : “Does the article fulfill the function of a plant in the assessee’s trading activity? Is it a tool of his trade with which he earned on his business? If this answer is in the affirmative, it will be a plant”. The Supreme Court also referred to the material passage from the speech of Lindley U, in Yarmouth vs. France (1887) 1.9 QBD 647 where a cart horse was held to be a plant by observing: “…that plant would include any article or object fixed or movable live or dead used by a businessman for carrying on his business and it is not necessarily confined to an apparatus which is used for mechanical operations or processes or is employed in mechanical or industrial business”. 57. Applying these functional tests, a well may be the producing apparatus with which the business of oil and gas extraction business is carried on and hence could be a ‘plant’ within the meaning of Section 43(3) of the Act. This view is also supported by decisions where a well and a tube well have been held to be plant. These are - (i) CIT v. Oil India 198 ITR 701(Cal) holding the oil well a plant, it being an apparatus used by the assessee for the purpose of deriving income from crude oil after drilling the well; (ii) Siemens India Ltd. v. CIT 217 ITR 622 (Bom) holding a tube well in connection with setting up of a electroplating plant shop, a plant for a concern engaged in the manufacture of equipment for the generation and distribution of electricity, x-ray equipment and other electrical equipment; (iii) CIT vs. Hindustan Motors Limited 170 ITR 431 (Cal) holding that tube well used by the assessee for drawing water to be used in production constituted a plant for an assessee manufacturing automobile ancillaries used in its own business of manufacturing cars; (iv) CIT vs. Taj Mahal Hotel 82 ITR 44 (SC) holding pipelines and sanitary fittings to be a plant for a hotel because of a wide definition under section 43(3) and based on the functional test; (v) the decision of Calcutta High Court in the case of Tribeni Tissues Ltd. vs. CIT (Cal) 190 ITR 487, holding that tube-well is an apparatus with equipment necessary for drawing water from subterranean sources where water is used for production was a plant; and (vi) CIT v. Warner Hindustan Ltd. 117 ITR 15 (AP) and 117 ITR 68 (AP), wherein a well even in a pharmaceutical factory was held to be in the nature of a plant and not a building. The decision of Gujarat High Court in the case of Shree Digvijay Woolen Mills Ltd. vs. CIT, 204 ITR 398 (Guj) relied upon by the Ld. Commissioner-DR was not whether tube well is a plant but it held that the expenditure on tube well is a capital expenditure. It held that even if it did not result in the creation of an asset, it would not cease to be an expenditure of the nature of capital. 58. The decision of Supreme Court in the case of Indore Municipal Corporation v. CIT, 247 ITR 803 (SC), wherein the expenditure on laying road was held to a capital expenditure road not leading to the building is held to be not a building. A claim in this case before the High court was also made that road is a plant but was rejected by the High Court ( 132 ITR 240-MP) because construction of metal roads for hauling compost cannot be an expenditure on plant and machinery. 59. The view of the Assessing Officer that well constitute building in a mineral oil concern may also be not wrong, if we see it with the definition of a building which includes a well and a tube-well within its meaning. In Commissioner of Income tax v. Gwalior Rayon Silk Manufacturing Co. Ltd. and Others 196 ITR 149 (SC) the road was held to be a building and the view was supported by the amendment in the Rules. The court observed “While enacting the Income tax (Fourth Amendment) Rules, 1983, the rule making authority accepted this interpretation consistently laid down by various High Courts that building includes roads and also elongated bridges, culverts, wells and tube-wells as building but prescribed fixed rates of depreciation setting at rest the variable rates claimed by the assessee. Rules validly made have the same force as the sections in the Act. The contention of the respondents that unless the Act itself is amended, the rules would not cut down the meaning of the word “building” is without substance. The inclusive definition of “building” to include roads, etc., enlarges the scope of section 32 and does not whittle down its effect. It is true that in CIT v. Coromandel Fertilisers Ltd. [1985] 156 ITR 283 (AP), the High Court of Andhra Pradesh interpreted that “roads” fell within the meaning of “plant” and granted depreciation at the rates admissible to plant. CIT v. Sandvik Asia Ltd. [1983] 144 ITR 585 (Bom) took the opposite view and held them to be building. In view of the consistent view of the other High Courts and which, in our view, is the correct one, the view of the High Court of Andhra Pradesh is not correct in law.” 60. Would it, therefore, be permissible to give the well or a tube-well a meaning other than a building when the definition given in a statute says it a building? It might be true that as per certain decisions a well or a tube-well is an apparatus and therefore a plant but these decisions are all before their inclusion in the definition of building. These might therefore be not helpful in treating them as plant for the period after the amendment in the IT Rules by including the well or a tube-well into the definition of the term ‘building’. The language is clear and therefore its natural meaning is to be given to the words, Rules having the same force as the sections in the Act. An oil well or a natural gas oil well is a well and also a tube-well as a steel tube is put to reach the reservoir source of oil and gas and therefore in absence of any compelling circumstances the gas oil well is to be treated as building. The contention of the assessee that intention to include well or a tube-well in the building because they serve the building and therefore only those wells are to be included which serve the purpose of a building or those lead to a building has no force. Bridges are also included in the building and they might not necessarily be leading to the building and therefore the leading to the building theory not sacrosanct and fails. Consequently all types of wells and tube-wells would be included in the term building.