AJIT K. SENGUPTA, J.

( 1 ) IN this reference under Section 256 (1) of the Income-tax Act, 1961, the following question of law has been referred to by the Tribunal for the assessment years 1978-79 to 1980-81 and 1982-83:"whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that investment allowance under Section 32a of the Income-tax Act, 1961, was allowable on the machinery used by the assessee for boring operation for extracting water from underground ?"

( 2 ) THE assessee, a limited company, had been carrying on coal mines and boring operations. After nationalisation of the coal mines, the assessee-company had been carrying on business of boring operations for extracting water from underground. The assessee had claimed investment allowance under Section 32a in respect of its machinery used in boring operations. It is not in dispute that the machinery are new. The dispute relates to the question whether the plant and machinery used for boring to extract Sub-soil water would be eligible for investment allowance under Section 32a. The Assessing Officer held against the assessee as, according to him, boring and drawing Sub-soil water is not any activity for producing any article or thing. He was, therefore, of the opinion that the machinery used for boring operations were not entitled to investment allowance and he denied investment allowance claimed by the assessee on such plant and machinery. The Commissioner of Income-tax (Appeals), however, directed the Assessing Officer to allow the investment allowance under Section 32a on the machinery used by the assessee-company for the boring operations. Aggrieved, the Department preferred a second appeal before the Tribunal and the Tribunal after considering the submissions of the parties upheld the decision of the Commissioner of Income-tax (Appeals ).

( 3 ) BEFORE the Tribunal, it was the contention of the Revenue that the boring equipments are essential adjuncts of mining operations. Therefore, the assessee could not be said to produce any article or thing. The Tribunal was, however, of the view that by extracting underground water, the assessee has the business of producing a thing or article. The Tribunal applied and followed the decision of the Andhra Pradesh High Court in CIT v. Super Drillers [1988] 174 ITR 640 in directing the Income-tax Officer to allow investment allowance on plant and machinery installed and used for drilling operations.

( 4 ) AT the hearing, counsel of the parties reiterated the contentions as were urged before the Tribunal.

( 5 ) THE contention of the Revenue both before the Tribunal as also before us has been that drilling operations do not produce any article or thing by reason only of the fact that underground water is drawn out to the surface.

( 6 ) LEARNED counsel for the assessee placed reliance on the decision of the Andhra Pradesh High Court in CIT v. Super Drillers [1988] 174 ITR 640. There, the Andhra Pradesh High Court decided that new plant and machinery owned by the assessee who used them for the purpose of the business of drilling bore wells are entitled to investment allowance. In the case before the Andhra Pradesh High Court, the assessee-firm carried on the business of drilling bore wells. It was found as a matter of fact that drilling equipment was used by the assessee-firm for the purpose of business carried out by it in order to bring to the surface underground water. The Andhra Pradesh High Court held that the purpose of operating the boring equipment was to go underground and to produce water lying hidden under the ground. Drilling operations, according to the Andhra Pradesh High Court, had resulted in the production of underground water for use on the surface of the ground and, in that sense, the court held that the assessee-company was an industrial undertaking for the purpose of production of underground water for use on the surface of the ground.

( 7 ) THE Andhra Pradesh High Co

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