Expert Advisory Committee
ICAI-Expert Advisory Committee
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Query No. 35

 

Subject:     

Rate of depreciation applicable to pump trucks under

Schedule XIV to the Companies Act, 1956.[1]

A. Facts of the Case

 

1. A company is engaged in the business of manufacture and sale of bulk industrial explosives which are used in the mining of coal and other minerals.

 

2. Certain input materials are mixed in a plant to make solutions.  The solutions along with other input materials are loaded on the pump 

 

3. The pump truck consists of a chassis and a pumper unit installed on the chassis.  The pumper unit comprises the following main components:

 

(i)      Various tanks for storage of intermediates (solutions) as well as other input materials.

 

(ii)      Hydraulic power pack system including pumps, motors, flow control valves, etc.

 

(iii)      Electric control system including counter control panel and tachometer panel.

 

(iv)      Various pumps, auger mixer, flow-lines, hoses, etc.

 

4. The pump truck, loaded with the input materials, goes to the mine site, mixes the input materials in predetermined ratios with the help of machineries installed in the pump truck and discharges the mixed products in the bore holes through delivery hose pipe as per the mining site requirement.  The quantity of explosives delivered in bore holes is recorded in the counter meter installed in the pump truck.  The invoicing to the customer is based on the delivered quantity.

 

5. The company has classified the pump truck under the head ‘plant and machinery’ and depreciation is being charged at ‘general rate’ as applicable to ‘plant and machinery’ (4.75% on straight line basis) as per Schedule XIV to the Companies Act, 1956.  According to the querist, a question has arisen as to whether depreciation on the said pump truck should be charged at the above rate or at the rate prescribed under Schedule XIV for ‘motor buses and motor lorries other than those used in a business of running them on hire’ (i.e. 11.31% on straight line basis).

 

B. Queries

 

6. The opinion of the Expert Advisory Committee has been sought on the following issues:

 

(a) Whether charging of depreciation on the pump truck at ‘general rate’ prescribed for ‘plant and machinery’ under Schedule XIV to the Companies Act is in order.

 

(b) If not, what should be the basis for charging depreciation on the pump truck?

 

C. Points Considered by the Committee

 

7. The Committee notes that a ‘motor bus’ or a ‘motor lorry’ refers to a motorised vehicle meant for transportation of passengers and goods respectively.  The pump truck in question not only performs the task of transportation of input materials but also performs other functions like mixing of input materials and delivery of the final products.  Apart from the chassis, it has a pumper unit comprising various machineries as described in paragraph 3 above.  Therefore, the Committee is of the view that the pumper truck cannot be described as a ‘motor bus’ or a ‘motor lorry’.

 

8. The Committee further notes that Schedule XIV to the Companies Act, 1956 does not prescribe any specific rate of depreciation for pump trucks of the nature described in the query. The Committee is of the view that in the absence of any specific rate of depreciation, the general rate of depreciation applicable to ‘plant and machinery’ as prescribed under the said Schedule should be applied.

 

D. Opinion

 

9. On the basis of the above, the Committee is of the following opinion on the issues raised in paragraph 6:

 

(a)  Yes. Charging of depreciation on the pump truck at the general rate prescribed for ‘plant and machinery’ under Schedule XIV to the Companies Act, 1956 is in order.

 

(b) In view of (a) above, this question does not arise.

 

 

__________

 

[1] Opinion finalised by the Committee on 14.1.2000.