Whether on the facts and in the
circumstances of the case, the appellate Tribunal was
justified in law in holding that the assessee was entitled to
claim 100% depreciation on the centering/shuttering
material?
2. The first Division Bench in Commissioner of
Income Tax Vs. Raghavendra Constructions( ) (for
short the first judgment) decided on 19.01.2011, while
dealing with the aforesaid question, held that if a thing
(material) itself is durable but cannot effectively stand
alone without functional integration, it would not qualify as
a plant and answered the question against the assessee and
in favour of the Revenue.
The second Division Bench in
Commissioner of Income Tax Vs. Live Well Home
Finance (P) Limited( )] decided on 27-11-2014 (for short
the second judgment), however, answered the question in
favour of the assessee and against the Revenue, applying
durability and functional test to hold that every individual
thing (material), such as shuttering plate used for formation
is a plant.
3. Having noticed the divergent views/opinions
expressed by two Division Benches, another Division Bench
while dealing with the instant appeal (ITTA No.95 of 2001),
as prayed for by learned counsel for the parties, framed the
question, as reproduced in the first paragraph, vide order
dated 14-02-2015 directed the Registry to place the order
along with the proceedings before the Honble the Chief
Justice for appropriate orders. Accordingly, the above
question has been referred to this Full Bench.
Section 32. DEPRECIATION :
(1) In respect of depreciation of buildings , machinery , plant or
furniture owned by the assessee and used for the purposes of the
business or profession, the following deductions shall, subject to the
provisions of section 34, be allowed
(i) .
(ii) in the case of any block of assets, such percentage on the
written down value thereof as may be prescribed:
Provided that where the actual cost of any machinery or plant
does not exceed five thousand rupees, the actual costs thereof
shall be allowed as a deduction in respect of the previous year in
which such machinery or plant is first put to use by the assessee
for the purposes of his business or profession:
(emphasis supplied)
5.1 Section 32 deals with depreciation. For our
purpose, it provides that a plant owned by the assessee
and used for the purposes of his business or profession, is
entitled for certain deductions subject to the provisions of
Section 34 and where the actual cost of any plant does not
exceed Rs.5000/-, the actual cost thereof shall be allowed
as a deduction in respect of the previous year in which such
plant is first put to use by the assessee for the purposes of
his business or profession. It is well settled that a proviso
is normally used as a legislative tool to carve out an
exception from the main provision, which precedes the
proviso. Section 32 of the Act, enables deductions in
respect of buildings, machinery, plant or furniture owned by
the assessee and used for the purpose of his business or
profession and the first proviso enables deduction of the
actual cost thereof where the actual cost of plant does not
exceed Rs.5,000/-, if such machinery or plant is first put to
use by the assessee for the purpose of his business or
profession in the previous year. Thus, to claim 100%
depreciation, an asset should be a plant; the actual cost of
the plant should not exceed Rs.5000/-; it should be owned
by the assessee; and it should be used for the purpose of
business or profession. It is not in dispute before us that
shuttering and/or centering materials, when put to use,
satisfy all the tests of plant. Therefore, what needs to be
considered is whether every individual material/component
of shuttering or centering, such as a steel plate or
wooden plank, could be treated as plant and deserve
100% depreciation as claimed by the assessee in the
instant appeal.
5.2 From a perusal of this provision, it appears to us
that the plant contemplated by the main section would
include a plant worth more than Rs.5,000/- or less. The
first proviso, however, has carved out an exception from
the main section, which precedes the proviso. If the actual
cost of any plant is less than Rs.5,000/-, as provided for in
the first proviso, it is clearly admissible for 100%
depreciation. The question is if the cost of any plant is
more than Rs.5,000/-, whether 100% depreciation could be
allowed by splitting up of the cost of such plant on the basis
of cost of every individual component/material used for the
plant such as shuttering and centering. In other words,
we would have to consider, whether it was intended to
bring every individual component or material forming a
plant under the main section and allow one rate of
depreciation, and if it is divisible and less than Rs.5,000/,
allow 100% depreciation by bringing it under the proviso.
I, therefore, answer the reference in favour of
the assessee that the Appellate Tribunal was justified in law
in holding that the assessee is entitled to claim 100%
depreciation on the centering/shuttering materials.
I also
hold that the decision of the Division Bench of this Court in
Sri Raghavendra Constructions (29 supra) is not
correctly decided in so far as it held that individual units of
centring/shuttering material would not be plant are not
entitled to 100% depreciation under the first proviso to
Sec.32 (1) since they cannot be used on a stand alone
basis. It is accordingly overruled. I hold that the view
taken in Live Well Home Finance (P) Ltd (30 supra) is
the correct one for the reasons above given.
THE HONBLE THE ACTING CHIEF JUSTICE SRI DILIP B.BHOSALE AND THE HONBLE SRI M.S.RAMACHANDRA RAO
AND
THE HONBLE SRI JUSTICE A.RAMALINGESWARA RAO
I.T.T.A. No.95 OF 2001
05-06-2015
Commissioner of Income-Tax, Visakhapatnam Appellant
S.Vijaya Kumar Respondent
Counsel for Appellant : Sri S.Vivek Chandra Shekar
Counsel for Respondent : Sri Challa Gunaranjan
<GIST:
>HEAD NOTE:
? Cases referred :
1) [(2011) 332 ITR 235 (AP)]
2) (MANU/AP/2311/2014)
3) [(1989) 175 ITR 154 (AP)]
4) (1997)227 ITC 646 (AP)
5) [(1977) 226 ITR 865 (Delhi)]
6) [(2001) 247 ITR 25 (Delhi)]
7) [1887] 19 QBD 647
8) [(1998) 229 ITR 776 (Allahabad)]
9) (2002) 256 ITR 320 (Punjab & Haryana)
10) (2003) 264 ITR 269(Madras)
11) (2005) 273 ITR 276 (Rajasthan)
12) (2006) 280 ITR 452 (Madras)
13) (2013) 354 ITR 180(Delhi)
14) (1998) 234 ITR 822 (Madhya Pradesh)
15) (2014) 367 ITR 122 (AP)
16) (1989) 177 ITR 0038
17) MANU-GJ-1163-2014
18) [1964 ITR 165]
19) [(1922) I.L.R.49 Cal.190 (P.C)]
20) [(1944) (1) Ch.281]
21) [Tax Cases Vol.49]
22) [1952 S.C 402]
23) [(1980) 122 ITR 288]
24) [ (1974) 96 ITR 672 ]
25) [AIR 1988 Kerala 140]
26) AIR 2001 SC 1339
27) (1996) 221 ITR 368
28) (2011) 332 ITR 0235
29) AIR 1972 SC 168
30) (1887) (19) Q.B. 647
31) AIR 1986 SC 338
32) (1969) 71 ITR 587 (Mad)
33) (1997) 225 ITR 84 (Guj)
34) (1884) 13 QBD 583 (CA)
35) [2000 (5) SCC 393]
36) [(1970) 76 ITR 62 (HL)]
37) [(1977) 50 TC 491 (CA)]
38) [(1994) 210 ITR 668 (Karnataka)]
39) [(1970) 75 ITR 533 (All)]
THE HONBLE THE ACTING CHIEF JUSTICE SRI DILIP B.BHOSALE
AND
THE HONBLE SRI JUSTICE M.S.RAMACHANDRA RAO
AND
THE HONBLE SRI JUSTICE A.RAMALINGESWARA RAO
I.T.T.A. No.95 OF 2001
JUDGMENT: (per the Honble The Acting Chief Justice Sri Dilip B.Bhosale,
for himself and for the Honble Sri Justice A.Ramalingeswara Rao)
In view of divergence of opinions in two judgments of
the Division Benches of this Court, the then learned Chief
Justice made reference to this Full Bench to express opinion
on the question Whether on the facts and in the
circumstances of the case, the appellate Tribunal was
justified in law in holding that the assessee was entitled to
claim 100% depreciation on the centering/shuttering
material?
2. The first Division Bench in Commissioner of
Income Tax Vs. Raghavendra Constructions( ) (for
short the first judgment) decided on 19.01.2011, while
dealing with the aforesaid question, held that if a thing
(material) itself is durable but cannot effectively stand
alone without functional integration, it would not qualify as
a plant and answered the question against the assessee and
in favour of the Revenue. The second Division Bench in
Commissioner of Income Tax Vs. Live Well Home
Finance (P) Limited( )] decided on 27-11-2014 (for short
the second judgment), however, answered the question in
favour of the assessee and against the Revenue, applying
durability and functional test to hold that every individual
thing (material), such as shuttering plate used for formation
is a plant.
3. Having noticed the divergent views/opinions
expressed by two Division Benches, another Division Bench
while dealing with the instant appeal (ITTA No.95 of 2001),
as prayed for by learned counsel for the parties, framed the
question, as reproduced in the first paragraph, vide order
dated 14-02-2015 directed the Registry to place the order
along with the proceedings before the Honble the Chief
Justice for appropriate orders. Accordingly, the above
question has been referred to this Full Bench.
4. The facts that are necessary, to deal with the
question, are that the respondent-assessee in ITTA No.95
of 2001 had claimed deduction of Rs.17,93,556/- being
depreciation on machinery, centering and shuttering
equipments at the rate of 100% for the Assessment Year
1991-92. According to the assessee, the assets include
machinery below Rs.5,000/- each of the value of
Rs.3,88,562/- and centering and shuttering equipments of
the value of Rs.13,19,434/-. In the instant case, we are
concerned only with centering and shuttering materials. The
Assessing Officer allowed depreciation to the extent of
33 1/3 % on the centering and shuttering materials. The
assessee, feeling aggrieved and dissatisfied with the order
of the Assessing Officer preferred an appeal before the
Commissioner of Income Tax (Appeals). The Commissioner
(Appeals) allowed the appeal and directed the Assessing
Officer to allow 100% depreciation as provided for in the
proviso to Section 32(1)(ii) of Income Tax Act, 1960 (for
short the Act). Against this order, the Revenue went in
appeal before the Income Tax Appellate Tribunal. The
Tribunal, relying on its earlier order in
ITA No.435/Hyd/1997 dated 13.11.1998 culminating in the
first judgment, upheld the order of Commissioner
(Appeals). It is against this backdrop, the Revenue
preferred the instant appeal under Section 260A of the
Income Tax Act, 1961 (for short the Act). We make it
clear that we have not stated the facts in detail, since, after
expressing our opinion, we propose to send the appeals to
the Court which is assigned to hear these appeals on merits
and in the light of the opinion expressed by this Bench.
5. The arguments advanced by learned counsel for
the parties were centered around Sections 32 and 43 of the
Act. The relevant portion of Section 32 (1) (ii), as it stood
at the relevant time, reads thus:-
Section 32. DEPRECIATION :
(1) In respect of depreciation of buildings , machinery , plant or
furniture owned by the assessee and used for the purposes of the
business or profession, the following deductions shall, subject to the
provisions of section 34, be allowed
(i) .
(ii) in the case of any block of assets, such percentage on the
written down value thereof as may be prescribed:
Provided that where the actual cost of any machinery or plant
does not exceed five thousand rupees, the actual costs thereof
shall be allowed as a deduction in respect of the previous year in
which such machinery or plant is first put to use by the assessee
for the purposes of his business or profession:
(emphasis supplied)
5.1 Section 32 deals with depreciation. For our
purpose, it provides that a plant owned by the assessee
and used for the purposes of his business or profession, is
entitled for certain deductions subject to the provisions of
Section 34 and where the actual cost of any plant does not
exceed Rs.5000/-, the actual cost thereof shall be allowed
as a deduction in respect of the previous year in which such
plant is first put to use by the assessee for the purposes of
his business or profession. It is well settled that a proviso
is normally used as a legislative tool to carve out an
exception from the main provision, which precedes the
proviso. Section 32 of the Act, enables deductions in
respect of buildings, machinery, plant or furniture owned by
the assessee and used for the purpose of his business or
profession and the first proviso enables deduction of the
actual cost thereof where the actual cost of plant does not
exceed Rs.5,000/-, if such machinery or plant is first put to
use by the assessee for the purpose of his business or
profession in the previous year. Thus, to claim 100%
depreciation, an asset should be a plant; the actual cost of
the plant should not exceed Rs.5000/-; it should be owned
by the assessee; and it should be used for the purpose of
business or profession. It is not in dispute before us that
shuttering and/or centering materials, when put to use,
satisfy all the tests of plant. Therefore, what needs to be
considered is whether every individual material/component
of shuttering or centering, such as a steel plate or
wooden plank, could be treated as plant and deserve
100% depreciation as claimed by the assessee in the
instant appeal.
5.2 From a perusal of this provision, it appears to us
that the plant contemplated by the main section would
include a plant worth more than Rs.5,000/- or less. The
first proviso, however, has carved out an exception from
the main section, which precedes the proviso. If the actual
cost of any plant is less than Rs.5,000/-, as provided for in
the first proviso, it is clearly admissible for 100%
depreciation. The question is if the cost of any plant is
more than Rs.5,000/-, whether 100% depreciation could be
allowed by splitting up of the cost of such plant on the basis
of cost of every individual component/material used for the
plant such as shuttering and centering. In other words,
we would have to consider, whether it was intended to
bring every individual component or material forming a
plant under the main section and allow one rate of
depreciation, and if it is divisible and less than Rs.5,000/,
allow 100% depreciation by bringing it under the proviso.
5.3 Section 43 of the Act, as it stood at the relevant
time, defines certain terms, including the word plant,
relevant to income from profits and gains of business or
profession. The relevant portion of Section 43 of the Act
reads thus:-
Section 43 : Definitions of certain terms relevant to income from profits
and
gains of business or profession:
Explanation 9.-
(3) plant includes ships, vehicles, books, scientific apparatus and
surgical equipment used for the purposes of the business or
profession but does not include tea bushes or livestock:
5.4 It is true that where the definition of a word has
not been given, it must be construed in its popular sense if
it is a word of everyday use. Popular sense means the
sense, which people conversant with the subject matter
with which the statute is dealing, would attribute to it. The
very fact that even books have been included within the
definition of plant shows that the meaning intended to be
given to plant is wide. The word includes is often used in
interpretation clauses in order to enlarge the meaning of
the words or phrases occurring in the body of the statute.
When it is so used, these words and phrases must be
construed as comprehending not only such things as they
signify according to their nature and import but also those
things which the interpretation clause declares that they
shall include. [see Commissioner of Income Tax, Andhra
Pradesh Vs. Taj Mahal Hotel (1971) 82 ITR 44 (SC)]
6. To understand the controversy and to decide the
question, we deem it appropriate to make a detailed
reference to the first and the second judgments. In the
first judgment, the Division Bench considered the
question whether on the facts and in the circumstances of
the case the Tribunal was justified in directing to allow @
100% depreciation on centering and shuttering material?
In that case, the assessee/firm had claimed 100%
depreciation of Rs.3,18,520/- towards the purchase value of
centering and shuttering equipments/materials. After
referring to several judgments of different High Courts and
the Supreme Court, the Division Bench (in the first
judgment) in the concluding paragraph observed thus:-
In all the decisions, to our mind, the Courts have applied durability
and/or functional tests. If a thing itself is durable (in the sense which can
be used and re-used as non-interdependent, interconnected a non-
consumable thing) and has functional utility in the trade or business of
the assessee to advance his business interest, such thing would be a
plant. If it is durable, but cannot effectively stand alone without
functional integration with other similar or dissimilar components or
units, it would not qualify as a plant. As is understood in the engineering
construction industry, a single unit of centering or shuttering material
by itself though durable may not have functional value. Similar units
form one integrated part which can be used as shuttering material.
Therefore, it is not possible to accept the plea of the assessees that each
similar or dissimilar component or unit, forming part of the whole
integrated shuttering material, is entitled for 100 per cent depreciation
as a plant. As observed by Lord Wilberforce (quoted with approval in
Pathange Poultry Farm vs. CIT (supra) in IRC vs. Scottish & Newcastle
Breweries Ltd. (1982) 55 Tax Cases 252 (HL).
it is too much to stomach, that each one of all the hundreds and
thousands of props or poles, sheets, plates and planks forming part of
centering or shuttering material, would be of functional utility to the
builder, contractor or the owner of the property in construction activity.
As pointed out by the Supreme Court in Challapalli Sugars Limited (supra),
the term plant is to be understood in the sense no commercial man
would misunderstand. Applying this test, we are convinced that each
item of shuttering material cannot be treated as one whole shuttering
material forming one plant eligible for 100 per cent depreciation under
the first proviso to Section 32(1)(ii) of the Income Tax Act. We answer
the Reference accordingly.
(emphasis supplied)
6.1 It would also be relevant to reproduce the
observations made by the Division Bench in the first
judgment while dealing with the definition of plant. The
relevant observations read thus:-
10. Plant is described with an inclusive definition. Anything, used
for the purpose of business or profession is a Plant. Whether a thing,
a building, a vehicle, a contrivance or a contraption is a plaintat least in
Tax jurisprudence is a vexed question. The term Plant appears in
many places in Sections 28 to 41 of the Act, which deal with computation
of profits and gains from business or profession. Determination of
Plant is relevant in computing the chargeable income from business or
profession in allowing depreciation (Section 32), investment allowance
(Sections 32-A and 32-AB), development rebate (Section 33) and
rehabilitation allowance to industrial undertaking in the event of damage
or destruction due to calamities (Section 33B).
The precedents are galore which distinguish between a building and a
Plant. If the business or industrial process is carried on with
something, it is a Plant and if business activity or industrial process
is carried on in a place or at a place, it is a building. Ramanatha Aiyars
Advanced Law Lexicon contains about 30 definitions/descriptions of the
term Plant with reference to dictionaries, precedents and statutes. The
best possible way is to understand the nature of the business, and the
purpose of a thing in such a business. If one single individual unit itself is
sufficient to carry on any business it is a Plant. But if one single
individual thing or item is not, by itself, fully useful to carry on business
or advance trade, it is certainly not a plant. Even if such a thing,
associated with many other similar or dissimilar things, is of immense
utility for the business, it is in plurality and is to be considered as Plant.
In other words, the way a businessman understands the term Plant is
the most relevant because it would carry natural and proper sense.
(emphasis supplied)
6.2 In short, it is clear, in the first judgment, the
Division Bench held that if a thing itself is durable, but
cannot effectively stand alone without functional integration
with other similar or dissimilar components or units, it
would not qualify as a plant. It was further observed that a
single unit of centering or shuttering material by itself -
though durable may not have functional value. In this
judgment, the Division Bench, among others, also referred
to the judgments in CIT Vs. Sri Krishna Bottlers Pvt.
Ltd.,( ).
7. In the second judgment, the Division Bench
considered the question whether the shuttering material
purchased by the assessee, in the Assessment Year
1995-96, qualified for 100% depreciation under Section
32 of the Act? The first judgment was placed before the
said Division Bench, which dealt with the very same
question in the second judgment. The Division Bench, in the
second judgment, extensively referred to the judgment in
Krishna Bottlers(supra) for answering the question in
favour of the assessee and against the Revenue and while
doing so made observations in paragraphs 9 to 13 as
follows:-
9. In Raghavendra Constructions case (supra), recently this court has
taken a different view. The two judgments referred to above and certain
others were cited before it. However, the Bench expressed its inability to
concur with them.
10. The judgment of this Court in Sri Krishna Bottlers Pvt. Ltd.s case
(supra) was cited extensively before the Bench that heard Raghavendra
Constructions case (supra). One of the questions that was dealt with in
Sri Krishna Bottlers Pvt. Ltd.s case (supra) was whether each bottle that is
used for serving a soft drink and the shells, in which they are arranged
qualify for 100 per cent depreciation under Section 32 of the Act. The
matter was discussed in detail, obviously because the subject was almost
untouched by that time. The judgment of the Supreme Court in CIT v. Taj
Mahal Hotel [ (1971) 82 ITR 44(SC) ] and various judgments of the courts
in India and foreign countries were discussed at length to draw support
for the conclusions. The purpose of almost each and every judgment that
was cited before their Lordships was taken note of. As regards bottles
and shells, their Lordships observed :
The bottles containing the soft drink cannot be stock-
in-trade inasmuch as the bottle by itself is not the subject of
sale. The customer or the retailer returns back the bottle to the
assessee after the soft drink is consumed. Likewise, the shells
which are sent to the customer or dealer also come back with
the empty bottles and they cannot also be stock-in-trade. What
is the function these bottles and shells perform in the assessees
trade? Are they essentially tools in the assessees business?. In
our opinion, yes. The bottles are essential tools of the trade for
it is through them that the soft drink is passed on from the
assessee to the customer. Without these bottles, the soft drink
cannot be effectively transported, like the silos in Schofield v. R
and H.Hall Ltd. [1974] 49 TC 538(CA), which are used to store
grain and to empty the same, performing a trade function. As
pointed out in Dixon v. Fitchs Garage Ltd. [1975] 50 TC 509
(Ch.D), the bottles and the contents are totally interdependent.
So are the shells. The bottles and shells also satisfy the durability
test for it is nobodys case that their life is too transitory or
negligible to warrant an inference that they have no function to
play in the assessees trade. They are therefore plant for the
purpose of the Act.
The principle that a setting in which the trade is
conducted in not attracted to the facts of the case of all. The
bottles and shells have nothing to do with the building in which the
trade in conducted nor with the setting in which it is conducted.
Each bottle and each shell is an entity by itself and they cannot be
broken down into pieces for considering whether they have any
part to play in the business of the assessee. The bottles and shells
are gross matter and, in fact, gross materiality is not a requirement
at all for a thing to be treated as plant.
For the aforesaid reasons, we agree with the decision of
the Rajasthan High Court in CIT v. Jai Drinks P.Ltd. [1988] 173 ITR
100 (Raj). That case also related to bottles and shells, the assessee
being a seller of soft drinks. The learned judges, after referring to
the two Supreme Court Judgments referred to above, also referred
to the decision of the Delhi High Court in CIT v. National Air
Products Ltd. [1980] 126 ITR 196) Delhi and of the Calcutta High
Court in CIT v. Steel Rolling Mills of Hindustan P.Ltd. [1987] 164 ITR
633 (Cal), wherein it was held that gas cylinders fall within the
definition of plant. The fact that in the latter two cases, gas could
not otherwise be transported especially by cylinders made for that
purpose makes no difference.
11. At the end, the reference was answered in favour of the assessee
and against the Department.
12. However, in Raghavendra Constructions s case(supra), another
Division Bench of this Court observed as under:
Applying the above principles, this court held that the
bottles and shells used by soft drinks bottling industry is plant.
The Division Bench nowhere observed that each bottle or each
shell would also be a plant for the purpose of Section 32(1)(ii).
13. It was proceeded as though in Sri Krishna Bottlers Pvt. Ltd.s case
(supra), each bottle and shell was not treated as unit qualifying for
depreciation under Section 32(1)(ii) of the Act. This does not appear to
be correct. The underlined portion of the Judgment in Krishna Bottlers
Pvt. Ltd.s case (supra) makes this clear.
7.1 Then, the Division Bench (in the second
judgment) after referring to the judgment in Krishna
Bottlers (supra) in paragraphs 15, 16 and 27 observed
thus:-
15. The precedents can be treated as having been rendered sub
silentio, if an otherwise binding precedent or a specific provision of law
was not taken note of. Generally, we do not come across the instances
of a judgment being treated as sub silentio, if the binding precedent is
taken note of. However, if the ratio emerging from a binding precedent
was treated as non-existing and the judgment was rendered contrary to
what was decided in the precedent, a situation may arise, where the
judgment so rendered almost resembles, the one done in sub silentio.
16. It has already been demonstrated that the ratio in Sri Krishna
Bottlers Pvt. Ltd.s case (supra), which is to the effect that each bottle
and shell deserve to be treated as independent units and qualify for
100% depreciation was treated as nonexistent at all in Raghavendra
constructions case (supra). Since both the judgments referred to above
were rendered by Division Benches only, we are faced with the problem
of choosing, since there is conflict of views.
27. The discussion can be further prolonged on academic lines. The
effort is only to drive home the point that if a Court is placed with two
precedents rendered by itself, one in conflict with the other, it has every
right to choose as between the two and by doing so, it does not do any
violence to the other. At the most, it may be an occasion for the superior
Court to resolve the rule on ostensible conflict. Applying these
principles, we prefer to follow the ratio in the judgment of this Court in
Sri Krishna Bottlers Pvt. Ltd.s case (supra) than to be guided by the
judgment in Raghavendra Constructions case (supra).
(emphasis supplied)
7.2 The Division Bench (in the second judgment)
also considered the doctrine of sub silentio and the doctrine
of stare decis and noticing the distinction between ratio and
dictum with reference to the same judgment, ultimately
held in favour of the assessee and against the Revenue.
The concluding para of the second judgment is relevant,
which reads thus:-
30. On merits also, we are convinced that the irreducible minimum
for the shuttering material is the individual plates, for providing support
to the reinforced concrete and cement or the poles and bars that are
used at the time of formation. We choose to fall in line not only with the
judgment of this Court in Sri Krishna Bottlers Pvt. Ltd.s case (supra),
which in turn has dorawn its conclusion based upon the judgment of the
Supreme Court in Commissioner of Income Tax vs. Taj Mahal Hotel, but
also the judgments rendered by the other High Courts.
8. In this backdrop, it has become imperative to
make a detailed reference to the judgment in Krishna
Bottlers (supra). In Krishna Bottlers (supra), this
Court considered the question whether, on the facts and in
the circumstances of the case, the bottles and shells
constitute plant and depreciation is admissible thereon
under Section 32(1)(ii) of the Act, for the Assessment Year
1976-77? The assessee before the Court was a Private
Limited Company manufacturing soft drinks and selling the
same at Hyderabad and other places. The Company was
claiming breakages in bottles in the respective years as a
deduction. For the Assessment Year 1976-77 the Company
had claimed deduction under the first proviso to Section
32(1)(ii) of the Act in respect of the bottles and shells
purchased and put to use during the year. During the
relevant year the Company had purchased bottles to the
tune of Rs.3,25,021/- and claimed that the same should be
allowed as outright deduction. The claim was, however,
rejected by the Income Tax Officer. In this backdrop, the
matter reached this Court.
8.1 Honble Justice Jagannadha Rao, as he then was,
speaking for the Division Bench, after considering several
English judgments and so also the judgments of the
Supreme Court and High Courts carved out the principles or
the tests to hold whether an apparatus or thing could be
treated as plant thus:-
From the aforesaid rulings, the following principles can be gathered:
(1) Plant in section 43 (3) of the Act is to be construed in the popular
sense, namely, in the sense in which people conversant with the subject
matter with which the section is dealing, would attribute to it. The word
plaint is to be given a very wide meaning. In its ordinary sense, it
includes whatever apparatus is used by a businessman for carrying on
his business but it does not include his stock-in-trade which he buys or
makes for sale. It, however, includes all goods and chattels, fixed or
movable, live or dead which the tradesman keeps for permanent
employment in his business. (2) But the building or the setting in
which the business is carried on cannot be plaint. (3) The thing need not
be part of apparatus used in carrying on the business but having a
degree of durability. (4) Merely because the asset has a passive
function in the carrying on of the business, it cannot be said that it is not
plaint. It may have a passive or an active role. (5) The subject must
have a function in the traders operation and if it has, it is prima facie
a plant unless there was good reason to exclude it from that category.
It must be a tool in the trade of the businessman. (6) Gross materiality
or tangibility is not necessary and, in fact, intangible things like ideas and
designs contained in a book could be plaint. They fall under the
category of intellectual storehouse. (7) In considering whether a
structure is plaint or premises, one must look at the finished product and
not at the bits and pieces as they arrive from the factory. The fact that a
building or part of a building holds the plant in position does not,
convert the building into plant. A piecemeal approach is not
permissible and the entire matter must be considered as a single unit
unless of course, the component parts can be treated as separate units
having different purposes. (8) The functional test is a decisive test.
(emphasis supplied)
8.2 Bearing the principles/tests in view, the Division
Bench in that case answered the question that fell for its
consideration in favour of the assessee and against the
Revenue with the following observations in the concluding
paragraphs:-
Bearing these principles in mind, we shall approach the facts of the
present case. The bottles containing the soft drink cannot be stock-in-
trade inasmuch as the bottle by itself is not the subject of sale. The
customer or the retailer returns back the bottle to the assessee after the
soft drink is consumed. Likewise, the shells which are sent to the
customer or dealer also come back with the empty bottles and they
cannot also be stock-in-trade. What is the function these bottles and
shells perform in the assessees trade? Are they essentially tools in the
assessees business? In our opinion, yes. The bottles are essential tools
of the trade for it is through them that the soft drink is passed on from
the assessee to the customer. Without these bottles, the soft drink
cannot be effectively transported, like the silos in Schofield v. R. and H.
Hall LTd. [1974] 49 TC 538 (CA), which are used to store grain and to
empty the same, performing a trade function. As pointed out in Dixon v.
Fitchs Garage Ltd. [1975] 50 Tc 509 (Ch D), the bottles and the contents
are totally interdependent. So are the shells, The bottles and shells
also satisfy the durability test for it is nobodys case that their life is too
transitory or negligible to warrant an interference that they have no
function to play in the assessees trade. They are therefore plant for
the purposes of the Act.
The principle that a setting in which the trade is conducted is not
attracted to the facts of the case at all. The bottles and shells have
nothing to do with the building in which the trade is conducted nor with
the setting in which it is conducted. Each bottle and each shell is an
entity by itself and they cannot be broken down into pieces for
considering whether they have any part to play in the business of the
assessee. The bottles and shells are gross matter and, in fact, gross
materiality is not a requirement at all for a thing to be treated as plant.
For the aforesaid reasons, we agree with the decision of the
Rajasthan High Court in CIT V. Jai Drinks (P) Ltd. [1988] 173 ITR 100.
That case also related to bottles and shells, the assessee being a seller of
soft drinks. The learned judges, after referring to the two Supreme Court
judgments referred to above, also referred to the decision of the Delhi
High Court in CIT v. National Air Products Ltd. [1980] 126 ITR 196 and of
the Calcutta High Court in CIT v. Steel Rolling Mills of Hindusthan (P.)
Ltd. [1987] 164 ITR 633, wherein it was held that in the latter two cases,
gas could not otherwise be transported especially by cylinders made for
that purpose makes no difference. The cylinders are not stock-in-trade
and are returned back to the trader as are the bottles and shells in the
present case. They too satisfy the functional test and answer the
definition plant.
(emphasis supplied)
8.3 The observations of the Division Bench that each
bottle and each shell is an entity by itself should be
understood in the context by reading the whole sentence.
Their Lordships were of the opinion that they cannot be
broken down further for considering their part of play in the
business but did not express their view that in case of
material which can be broken down further, whether it
entails for higher depreciation. That issue did not arise for
consideration in that case.
8.4 Thus, in Krishna Bottlers (supra) after
considering several English judgments and also the
judgments of this Court and other High Courts, laid down
the tests/principles to hold any particular article as plant.
As per the principles laid down in that judgment, one of the
tests is that an article must have a function in the traders
operation and if it has, it is prima facie a plant, unless there
is good reason to exclude it from that category. It must be
a tool in the trade of the businessman. It further laid
down that for considering whether an article is plant, one
must look at the finished product and not at the bits and
pieces as they arrive from the factory. Functional test was
held to be a decisive test.
8.5 It may be noticed that the question before the
Division Bench in Krishna Bottlers (supra) was not as
quoted in the second judgment in para.10, viz., whether
each bottle that is used for serving a soft drink and the
shells, in which they are arranged, qualify for 100%
depreciation under Section 32 of the Act. The only
question in Krishna Bottlers (supra) was, at the cost of
repetition, whether on the facts and in the circumstances
of the case, bottles and shells constitute plant and
depreciation is admissible thereon under Section 32(1)(ii)
of the Income Tax Act, 1961 for the Assessment Year
1976-77?
9. An identical question as in Krishna Bottlers
(supra) came up for consideration before another Division
Bench in The Commissioner of Income Tax, Central,
Hyderabad v. M/s.Margadarsi Chit Fund (P) Ltd.,( )
which was decided on 13.03.1997. The questions of law
that were considered by the Division Bench were as follows:
1. Whether on the facts and in the circumstances of the
case, the ITAT is correct in law in holding that the assessee is
entitled for 100% depreciation on bottles and crates treating
them as plant in the business carried on by the assessee
2. Whether on the facts and in the circumstances of the case,
the ITAT is correct in law in holding that the assessee company
is entitled for 100% depreciation on bottles and crates in the
assessees business of leasing them out on hire?
9.1 It is an appeal filed by the Revenue. The learned
counsel for the Revenue submitted that even if for the
purpose of the business of the respondent, the bottles are
treated as plant within the meaning of Section 32 (1), yet
the deduction is leviable only when the purchase is enblock
and cannot be allowed in respect of single bottles which
would obviously be priced less than Rs.5,000/-. The
Division Bench followed the view of Krishna Bottlers
(supra) and held that bottles constitute plant for the
purpose of business or profession of the respondent. It
further held as follows:
Once such a ground applies and indeed the fact is conceded
by Mr.S.R.Ashok, in view of the decision in KRISHNA BOTTLERS
CASE, the further question raised by the learned counsel does
not arises. There is no distinction that the purchase on which
the depreciation would be allowed must be bulk purchase of a
large number and that it would be disallowed if the purchase is
of single items. There is no evidence that the bottles in respect
of which depreciation was claimed were not subject of bulk
purchase. Even apart from it, a bulk purchase is merely
individualized purchase made collectively and we do not find
any distinction in the provisions of Section 32(1) or the proviso
distinction possible to be drawn in the manner suggested. The
only test is whether the article in respect of which depreciation
is claimed is plant for the purpose of the business or
profession. Individual items of purchase would also be plant if
it is integrally involved in the carrying out of the profession or
business and deprecation could be claimed in respect of that.
and accordingly dismissed the case filed by the Revenue.
9.2 In our view, the observations made by the said
Division Bench that there is no distinction that the purchase
on which the depreciation would be allowed must be bulk
purchase of a large number and that it would be disallowed
if the purchase is of single items and individual items of
purchase would also be plant if it is integrally involved in
the carrying out of the profession or business and
depreciation could be claimed in respect of that, is obiter in
nature. The said issue did not arise for consideration nor
elaborate arguments were advanced on the said point
before the Division Bench. Hence, in our opinion, the
observations in Margadarsi (supra) cannot be construed
as laying down a ratio.
10. We would also like to make a brief reference to
the judgments relied upon by the learned counsel for the
parties in support of their contentions. In Commissioner
of Income Tax Vs. Prem Nath Monga Bottles(P)
Ltd.,( ), the Delhi High Court considered almost identical
question in respect of Bottles and after referring to Krishna
Bottlers (supra) answered the question in favour of the
assessee and against the Revenue. In yet another
judgment of the Delhi High Court in Joint Commissioner
of Income Tax Vs. Anatronics General Co.(P) Ltd.,( )
similar view was taken while dealing with the question as
regards the rate of depreciation on the bottles given on
lease to another concern. Though ultimately, the Delhi High
Court held that no question of law much less substantial
question of law arose out of the order of the Tribunal in
view of the settled position of law, made specific reference
to the definition of plant and observed thus:-
The definition of plant given by Lindley L. J. in Yarmouth v. France
[1887] 19 QBD 647 has become locus classicus. He said (page 658):
There is no definition of plant in the Act : but, in its ordinary sense, it
includes whatever apparatus is used by a businessman for carrying on
his business, not his stock-in-trade which he buys or makes for sale; but
all goods and chattels, fixed of movable, live or dead, which he keeps
for permanent employment in his business. It is of relevance to note
that section 43 (3) of the act defines plant by way of an inclusive
definition; thereby intending to enlarge the meaning of the expression.
In Scientific Engineering House P. Ltd v. CIT [1986] 157 ITR 86 (SC), it was
observed that in order to qualify as plant, the article must have some
degree of durability the test to be applied for such determination is
does the article fulfil the function of a plant in the assessees trading
activity? Is it a tool of his trade with which he carries on his business? If
the answer is in the affirmative, it will be a plant. Judged in the above
background the Tribunals conclusions are on terra firma.
(emphasis supplied)
10.1 One would have to bear in mind that the word
plant had not been defined in the relevant Act when the
Yarmouth v. France( )was decided. But we are dealing
with the case when definition of the word plant is available
in the Act and, therefore, we would have to consider the
question in the light of the intent of Legislature.
11. The Allahabad High Court in Harijan Evam
Nirbal Varg Avas Nigam Ltd., Vs. Commissioner of
Income Tax( ) considered the question whether, on the
facts and in the circumstances of the case, the Tribunal
was, in law, justified in holding that depreciation of
shuttering material is allowable? While dealing with the
question, the Division Bench observed thus:-
Shuttering is normally used to support the roof when concrete is
being laid on it. These are not items of consumable stores, for they are
retrieved after the roof has been laid, and used again elsewhere. It is like
any other tool with the help of which construction is done, say, Karni,
Tasla, Kudel or Spade. It is not, therefore, correct to hold that
shuttering material is not plant or machinery. In our opinion, with
which the Karigars and masons work would be. The assessee is,
therefore, entitled to depreciation on shuttering material and the same
be allowed to it.
Under section 43 of the Act, plant includes ships, vehicles, books,
scientific apparatus and surgical equipment used for the purposes of the
business or profession but does not include tea bushes or livestock. The
word plant has come up for interpretation before various courts on
numerous occasions in the context of different statutes and the catena of
judicial decisions shows that it is word of wide and varied import,
susceptible of diverse meanings of depending upon its setting in the
scheme of the statute. The word plant in its ordinary meaning is a
word of wide import and it must be broadly construed having regard to
the fact that articles like books and surgical equipment are expressly
included in the definition of plant in section 43 (3) of the Act. It includes
any article or object, fixed or movable, live or dead, used by the
businessman for carrying on his business. It is not necessarily confined
to an apparatus which is used for mechanical operation or processing or
is employed in mechanical or industrial business. It, however, does not
cover the stock-in-trade or an article which is merely a part of the
premises in which business is carried on.
To reach a correct conclusion whether a given item is plant or not
the inquiry must be made is as to what operation the apparatus
performs in the assessees business. The relevant test to be applied is:
Does it fulfill the function of plant in the assessees trading activities? Is
it the tool of the taxpayers trade? If it is, then it is plant. No matter
that it is not very long lasting or does not contain working parts such as a
machine does and plays merely a passive role in the accomplishment of
the trading purpose. So the main test is whether a given item is such
without which business cannot be carried on.
The assessee being engaged, inter alia, in the activity of building
construction, it can be said with certainty that without shuttering no
building can be erected and, therefore, the shuttering material is an
essential part for carrying on the construction work by the assessee.
We, therefore, fully agree with the conclusion reached by the
Appellate Tribunal that the shuttering material being plant, the
depreciation will be allowable to the assessee on that material.
(emphasis supplied)
12. In Commissioner of Income Tax Vs. Akal
Constructions and Engineering Company( ), the High
Court of Punjab and Haryana while dealing with a similar
question in respect of shuttering materials observed that
the assessee had purchased various items for being used in
the construction work and since each item was below
Rs.5000/-, the Tribunal had rightly accepted the assessees
claim for 100% depreciation inconformity with the
provisions of Section 32(1) (ii) of the Act.
13. The Madras High Court in Commissioner of
Income Tax Vs. Alagendran Finance Limited( ) dealt
with the question pertaining to centering sheets and held
that the assessee was entitled to 100% depreciation on
centering sheets as per the proviso to Section 32(1)(ii) of
the Act, because they are individual plant and machinery.
The Madras High Court in this judgment, for taking such a
view, placed reliance upon the judgment of the same High
Court in First Leasing Co. of India Ltd (supra), which
dealt with the similar question pertaining to bottles.
14. In Commissioner of Income Tax Vs. Mohta
Constructions Co.( ), the Rajasthan High Court also took
similar view while dealing with a use of shuttering materials
relying upon the judgment of Allahabad High Court in
Harijan Evam Nirbal Varg Avas Nigam Ltd(supra).
15. In Express Newspapers Ltd., Vs. Deputy
Commissioner of Income Tax( ), the Madras High Court
while dealing with the similar question in respect of
scaffolding material, relying upon, among the other, the
judgment in Harijan Evam Nirbal Varg Avas Nigam
Ltd(supra) took similar view.
16. The High Court of Delhi in Commissioner of
Income Tax Vs. Ansal Housing Finance and Leasing
Company( ) dealt with the question of 100% depreciation
on shuttering and scaffolding materials and relying upon
several judgments including the judgment of the Allahabad
High Court in Harijan Evam Nirbal Varg Avas Nigam
Ltd(supra) answered the question in favour of the
assessee. For taking this view, the Delhi High Court also
placed reliance upon its Judgment in Anatronics General
Company (supra) and the judgment of the Rajasthan High
Court in Mohata Constructions Company (supra).
17. In Commissioner of Income Tax Vs.
Singhania Enterprises( ), the Madhya Pradesh High
Court, however, while dealing with a similar question
pertaining to centering material directed the Tribunal to
examine the case in the light of observations made in the
judgment on the factual aspect to determine whether each
plate of the centering material can constitute a plant or
not.
18. In yet another judgment of this Court in Vinod
Bhargava Vs. Commissioner of Income Tax( ) took
similar view as taken in the second judgment.
19. The Madras High Court in Mysore Dasaprakash
Vs. Commissioner of Income Tax( ) considered the
question whether on the facts and in the circumstances of
the case, the Tribunal was right in its view that the items
like, switch boards, verandah lights, distribution boards
etc., making up of electricity system and the sanitary
pipelines and fittings have to be considered as one
integrated whole and not as an independent plant. The
assessees claim in that case, for depreciation under the
proviso to Section 32(1)(ii) of the Act, at the rate of 100%,
on electrical switch boards, distribution boards, sanitary
pipeline installations, etc. in respect of certain new
constructions in the existing building was rejected on the
ground that the installations should be considered as an
integrated unit and depreciation allowed only at 10%.
Holding that it was not proper to work out separately
the cost of individual items used to ascertain
whether the cost did not exceed Rs.750/-, it was held that
the electrical switch boards, distribution boards and the
fittings formed constituent parts of the entire electricity
supply system as a whole and there was no scope for
cutting up the aggregate expenditure into several parts
room-wise, as claimed by the assessee. The benefit arising
out of the installation of electricity switch boards,
distribution boards, etc. was not confined to any particular
room but was intended to regulate, distribute and make
available electricity to all the rooms. To break up this
expenditure in relation to the electrical system room-wise
would be unreal and wholly artificial. Accordingly,
considering the electricity system as an integrated whole,
the expenditure incurred on it had to be treated as such
and there was no scope for dissecting the electrical system
into different component parts for each room and working
out depreciation under the proviso to section 32(1)(ii) of
the Act. Similarly, as sanitary pipelines and fittings (with
the exception of commodes, seat covers, etc., in each room
for which depreciation at 100% had been allowed) were
intended to serve all rooms as a whole and not any
particular room, they had to be regarded as an integrated
unit and hence there was no possibility of apportioning the
expenditure relating to that with reference to each room.
Thus, it was held that the Tribunal was right in its view that
the allowable depreciation on electrical system and sanitary
pipelines and fittings had to be restricted to 10 per cent.
20. In Assistant Commissioner of Income Tax
Vs. Ravi Construction( ), the Gujarat High Court had an
occasion to consider the question: is centering material to
be viewed as block of assets for the purpose of allowing
deduction in respect of depreciation under Section 32(1)(ii)
of the Act? and further is depreciation allowable at 100%
on the centering material as against normal rate of
depreciation at 33.1/3 % for plant and machinery?.
Gujarat High Court dismissed the appeals filed by the
Revenue answering both the questions infavour of the
assessee.
21. The High Court of Karnataka in Pathange
Poultry Farm Vs. Commissioner of Income Tax [1994
ITR 210 (668)] considered the question whether each cage
was a plant by itself and, therefore, entitled to depreciation
at 100 per cent under Section 32 (1) (ii) of the Act. The
assessee had claimed 100 per cent depreciation on the cost
of cages purchased on the ground that each cage was a
separate plant whose value being less than Rs.750/-. The
assessees claim was, however, disallowed holding that the
cages were not separate but one continuous fabricated unit
in which the partitions are made for a number of birds to be
enclosed in each compartment. In this backdrop, the
matter reached the High Court. The Division Bench
(S.B.Majmudar and T.S.Thakur, JJ) after considering
several judgments of different High Courts
and also English judgments observed that
the position of smaller cages is no better than the
components of an engine which in a knocked down
condition do not perform any function but when assembled
together make a vital contribution towards the functioning
of the engine. It was further observed that just as the
components of an engine cannot be treated as plant in
themselves, so also these cages cannot be termed as plant
to individually qualify for the depreciation allowance claimed
by the assessee. It was further observed that for any article
or thing, component or object to be termed plant itself so
as to qualify for depreciation allowance at 100 per cent of
the cost incurred on the purchase or fabrication thereof, the
article or component, as the case may be, must be used by
the assessee, as a self-contained unit and not as a part or
attachment of a bigger unit as in the case of cages. This,
however, does not mean that the article or object would
cease to be plant for the purpose of depreciation, as a part
of the bigger unit. All that it would mean that while it may
qualify for depreciation as a part or extension of the bigger
plant of which it becomes a part, it would not be entitled to
be termed plant in itself to qualify for the allowance in its
own right.
22. The Supreme Court in Commissioner of
Income Tax, Madras Vs. Mir Mohammad Ali( )
considered the question whether extra depreciation is
admissible under the provisions of Section 10(2)(via) of the
Income Tax Act, 1922 (for short 1922 Act) in respect of a
diesel oil engine fitted to a motor vehicle in replacement of
the existing engine? While dealing with this question, the
Supreme Court extensively quoted and considered the
provisions contained in all clauses of Section 10(2) of the
1922 Act. The Supreme Court also considered the word
machinery used in all the clauses of Section 10(2) and
observed that if a machine is machinery for purposes of
giving an allowance in respect of insurance or for repairs or
in respect of normal depreciation or for the purpose of
paragraph one of Clause (vi), it must also be machinery for
the purpose of the second paragraph of Clause (vi) and
Clause (via). Then after considering the scheme of
paragraph two of Clause(vi) and Clause (via), observed that
it is different from that of paragraph one of Clause (vi)
inasmuch as before it can qualify for extra depreciation, the
machinery must be new and must be installed, and the rate
of depreciation is provided in the Act itself. Keeping in view
this scheme, it was urged before the Supreme Court that
the word machinery must be given a restricted meaning in
paragraph two of Clause(vi) and Clause (via), and the
meaning suggested is that it must be a self contained unit
capable of being put to use in the business, profession or
vocation for the benefit of which it was installed. While
dealing with this contention, the Supreme Court observed
as follows:-
First, we do not think that there is anything in the
scheme of the second paragraph of clause (vi) and clause
(via) that throws any light on the construction of the word
machinery in these clauses. It is true that the machinery
must be new and it must be installed and the rate of
allowance is prescribed in the Act itself. But the
requirement that the machinery must be new does not tell
us what is machinery. Assuming for the present that a
diesel engine is machinery, if an assessee buys and installs
a second hand diesel engine, he will not be given the extra
allowance under the second paragraph of clause (vi), and
the ground would be that the engine is not new and not
that because it is second hand it is not machinery.
Similarly, if it is purchased but not installed, the ground of
refusal would be that it has not been installed and not that
because it has not been installed it has ceased to be
machinery. Suppose a new machinery is purchased but
not installed, it would not qualify for extra depreciation on
the ground that it has not been installed and not because it
has ceased to be machinery due to its non-installation.
The fact that the rate of depreciation is provided for in the
Act has also no bearing on the question of the construction
of the word machinery. This fact only indicates that the
legislature had made up its mind as to the extent of
encouragement to be given to industry and, therefore, it
did not consider it necessary to delegate this to the rule-
making authority.
22.1 The Supreme Court then considered the
judgment of Privy Council in the case of Corporation of
Calcutta Vs.Chairman, Cossipore and Chitpore
Municipality( ) and reproduced the definition of
machinery in the judgment. The Privy Council in that case
hazarded the definition of machinery to mean, some
mechanical contrivances which, by themselves or in
combination with one or more other mechanical
contrivances, by the combined movement and inter-
dependent operation of their respective parts generate
power, or evoke, modify, apply or direct natural forces with
the object in each case of effecting so definite and specific a
result. It was then observed that when the assessee
purchased the diesel engines, they were not plant or part
of a plant: because they had not been installed in any
vehicle. They were, according to the definition given by the
Privy Council, machinery. They were not yet part of a
plant, and, according to the Act, 20% of the cost thereof
was allowable to the assessee. It was further observed that
all the conditions required by the Act satisfied. If we look
at the point of time of purchase and installation, what was
purchased and installed was machinery. Ultimately, the
majority judges in this case (Mir Mohammad Ali)
answered the question in the affirmative.
23. In Taj Mahal (supra) the Supreme Court
considered the question whether sanitary and pipeline
fittings in a building , which is run as a hotel would fall
within the meaning of the word plant in Section
10 (2) (vi-b) of the 1922 Act. Section 10(5) of the 1922
Act defines the word plant, which includes vehicles, books,
scientific apparatus and surgical equipment purchased for
the purpose of the business, profession or vocation. In
paragraph 11 the Supreme Court observed thus:-
11. It cannot be denied that the business of hotelier is
carried on by adapting a building or premises in a suitable
way to be used as a residential hotel where visitors come
and stay and where there is arrangement for meals and
other amenities are provided for their comfort and
convenience. To have sanitary fittings etc. in a bath-room
is one of the essential amenities or conveniences which are
normally provided in any good hotel, in the present times.
If tine partitions in Jarrolds case (supra) could be treated
as having been used for the purpose of the business of the
trader, it is incomprehensible how sanitary fittings can be
said to have no connection with the business of the
hotelier. He can reasonably expect to get more custom
and earn larger profit by charging higher rates for the use
of rooms if the bath-rooms have sanitary fittings and
similar amenities. We are unable to see how the sanitary
fittings in the bath-rooms in a hotel will not be plant
within Section 10 (2) (vi-b) read with Section 10 (5) when
it is quite clear that the intention of the Legislature was to
give it a wide meaning and that is why, articles like books
and surgical instruments were expressly included in the
definition of plant. In decided cases, the High Courts
have rightly understood the meaning of the term plant in
a wide sense. (See Commissioner of Income-tax, U.P. v.
Indian Turpentine and Rosin Co. Ltd.).
MANU/UP/0144/1969 : [1970] 75 ITR 533 (All)]
23.1 Then the Supreme Court observed that the High
Court was right in not accepting the reasoning of the
Tribunal based on the rates relating to depreciation under
Section 10(2)(vi) and the assessee having claimed that the
sanitary and pipe-line fittings fell within the meaning of
furniture and fittings in Rule 8(2) of the Rules. It has been
rightly observed that the Rules were meant only for the
purpose of carrying out the provisions of the Act and they
could not take away what was conferred by the Act or
whittle down its effect. If the assessee had claimed higher
depreciation allowance that would not detract from meaning
of the word plant in Clause (vi-b) of Section 10(2) of the
1922 Act and thus dismissed the appeal filed by the
Revenue.
23.2 It is necessary to notice that in Taj Mahal
(supra) the judgment in J.Lyons and Company Limited
Vs. Attorney General( ) was relied upon by the Revenue
and while dealing with the submission based on these
judgments, the Supreme Court observed that it is
distinguishable and it hardly supports the contention of the
Revenue. In that case, it was held that electric lamps and
fittings in a tea shop were not part of the apparatus used
for carrying on the business but were part of the setting in
which the business was carried on and, therefore, were not
plant, within the meaning of certain provisions of the War
Damage Act, 1943. It was further observed if these
articles are plant, it can only be by reason that they are
found on premises exclusively devoted to trade purposes.
Trade plant alone need be considered.
24. In St.Johns School (Mountford and
Another) Vs. Ward( ) the High Court of Justice (Chancery
Division), the question that was considered was whether
the expenditure incurred in the accounting years ended on
31-01-1968 and 03-01-1969 respectively of structures for
use in trade were in whole or part expenditure on the
provisions of machinery or plant within the meaning of
Sections 18 & 19 of the Capital Allowances Act, 1968.
Templeman, J speaking for the Bench after considering
the observations made in Yarmouth (supra) as to what is
plant, proceeded to consider the judgment in
Commissioners of Inland Revenue Vs. Guthrie( ).
That case concerned a motor car and the question was
whether the taxpayer was entitled to an initial allowance in
respect of the expenditure, which he paid for that Car in
order that it might be used for business purposes. He had
the misfortune to pay his money and never get the motor
car owing to default of the company from which it had been
ordered. It was held that the purchase price was paid for
the provision of plant i.e., the motor car and the relief was
granted accordingly.
24.1 The Supreme Court in Taj Mahal (supra)
though held that sanitary and pipeline fittings in a building
which is run as a hotel would fall within the meaning of the
word plant, distinguished the case J.Lyons and
Company Limited (supra) and held that electric lamps
and fittings in a tea shop were not part of the apparatus
used for carrying on the business and they were the part of
setting in which the business was carried on and, therefore,
were not plant. Thus, the functional test assumes
importance. One can use the car for his business and not
spare parts. Even if spare parts are held to be plant, but if
they are not used for his business independently, they
cannot be treated as plant. The light and pipeline fittings in
a hotel building are plant but the light and pipeline fittings
cannot be treated as plant if they are not used for
business independently as seen from the judgment of the
Supreme Court in Taj Mahal (supra).
Shuttering/centering is undoubtedly a plant, but its
components which cannot be put to use in the business
independently, cannot be treated as plant.
25. The Bombay High Court in Commissioner of
Income Tax, Bombay Vs. Tata Hydro Electric Power
Supply Company Limited( )considered the question
whether on the facts and in the circumstances of the case,
it was rightly held that the assessee was entitled to
development rebate on the expenditure incurred by the
assessee for the Assessment Year 1962-63 and 1963-64 on
anchoring Walawhan Dam and cement grouting of
Shirawata Dam. The question was answered in the
affirmative after considering several judgments including
the judgment of the Supreme Court in Taj Mahal (supra).
The relevant observations in the judgment read thus:-
It should not be overlooked that Walawhan Dam and
Shirawata Dam were constructed in the years 1911 and
1916. At that time, the modern technique for construction
of dams was not so much advanced. In the two years,
with which we are concerned, lakhs of rupees have been
spent in anchoring Walawhan Dam and Shirawata Dam. It
is undoubtedly true that by incurring this expenditure no
independent asset has come into existence but in order to
entitle an assessee to claim development rebate creation of
an independent asset is not essential. If by incurring this
expenditure the existing dams have been so strengthened
as to prolong their lives for a sufficiently long duration,
then by incurring this expenditure a new plant can be said
to have been installed so as to entitle the assessee to claim
development rebate. Instead of demolishing the old dams
and constructing new ones in their place, what has been
done by the assessee by modern scientific technique is
that huge expenditure has been incurred as a result of
which the lives of the existing dams will be prolonged for a
sufficiently long period. This will result in a new plant
being installed within the meaning of s.33 of the Act, even
though by the incurring of the expenditure, the dams are
not having any independent existence apart from the old
dams themselves. Thus, by adopting the Coyne method of
anchoring the two dams the new plant can be said to have
been installed within the meaning of s.33 of the Act, and
the Tribunal was right in allowing the claim of the assessee
for development rebate.
25.1 Then the Bombay High Court referred to the
judgment of the Gujarat High Court in CIT Vs. Elecon
Engineering Company Limited( ) wherein it was held
that the drawings and patterns, which constitute know-how
and are fundamental to the assessees manufacturing
business, are plants. It is further observed that it is well
settled in view of the judicial pronouncements that neither
the word plant nor the word machinery is confined to a
self-contained unit plant includes part of a plant, e.g., the
engine of a vehicle; machinery includes part of a
machinery, and building includes part of a building.
25.2 With respect to the Honble Judges for making
such observations, we did not find any judgment so far
holding that the plant includes part of a plant. To support
we would like to state that a Car is a plant or engine of the
vehicle is a machinery but in any case spare parts of the car
or of the machinery cannot be treated as a plant because
the same cannot be used in the business/profession of the
assessee independently. Similarly, every single
component/unit forming a shuttering or centering cannot be
used independently in the business of construction. In other
words, unless every component/unit of shuttering is
combined with one or more similar or dissimilar
components/units, it cannot put to use in shuttering which
is the plant in itself.
26. The Karnataka High Court in Pathange Poultry
Farm (supra) took similar view that any article or thing,
component or object to be termed plant itself so as to
qualify for depreciation allowance at 100 per cent of the
cost incurred on the purchase or fabrication thereof, the
article or component, as the case may be, must be used by
the assessee, as a self-contained unit and not as a part or
attachment of a bigger unit. In a given case a
component/article being used as a shuttering/centering
material could be treated as plant, but it cannot be
treated as a plant if it is part of shuttering, which is a plant
in itself. In other words, a component/article being used for
shuttering, which is a plant in itself, would not qualify for
depreciation under proviso to Section 32 (1) (ii) of the Act
as a part or extension of the bigger plant of which it
becomes a part and it would not be entitled to be termed as
a plant in itself to qualify for the allowance in its own
right.
27. In this backdrop, it would be relevant to know
what does the words centering and shuttering exactly
mean, or how they are understood in common parlance or
in civil engineering, and what exactly centering or
shuttering materials mean. This is necessary, since in the
present case what falls for our consideration is whether
materials or components collectively or individually, used
for centering or shuttering could also be treated as plant.
At the out set, in our opinion, as observed earlier,
shuttering-which is a supporting structure, used to shape
and support the concrete until it attains strength, is a plant
within the meaning of section 43 of the Act. The question,
however, is whether every unit/component (thing) used for
forming shuttering or centering could be treated as plant.
The words centering or shuttering are not defined in any
enactment or elsewhere, and therefore, it would be
necessary to find out how they are understood in civil
engineering.
27.1 Dictionary meaning of the word centering is a
temporary frame used to support an arch, dome etc., while
under construction and the word shuttering means a
temporary structure of wood/steel used to hold concrete
during setting. Shuttering or centering is also known as
formwork. It is a temporary structure to confine and
support the concrete till it gains strength for self-
supporting. As fresh concrete is in a plastic state when it is
placed for construction purposes, it becomes necessary to
provide some temporary structure. A complete study of
formwork or shuttering can be divided into several sub-
heads, such as, requirements of formwork; economy in
formwork; materials and sizes for forms; types of formwork
and removal of formwork. The materials used for
shuttering/formwork, most commonly used, are timber,
plywood, steel and aluminum. For erecting temporary
structure, apart from timber, plywood, steel sheets and
aluminum, several other articles/components are also used
namely steel or wooden poles or bamboo sticks, cleats,
braces, yokes, bevel strip boalts, ribbon, ledgers, wooden
joists, hanger, wedges etc. All these articles are used to
support and join timber plank, plywood, steel sheets, etc.
For instance, formwork for stairs consists of plank sheeting
(to receive concrete), risers (to give height to the steps),
stiffer risers (to keep risers in position), wooden boards on
wall side and stingers on the open side of stair.
27.2 In construction activity, the vertical formwork is
usually called shuttering, whereas horizontal formwork is
called centering. The components or units (things) put to
use for shuttering and centering are similar or common.
Generally, there are two main types of shuttering, namely
steel and wooden plank/plywood shuttering. Apart from
steel and wood, plastics and biboglass are also used in
formwork. Thus, the shuttering could be classified as a
structure, erected temporarily, designed to cast fresh fluid
concrete of the required shape and dimensions, and support
it until it becomes self supporting. After the cement
concrete is set or gets hardened, the formwork is removed
and it is known as stripping. Stripped formwork can be
reused. A good formwork should satisfy the following
requirements: i) it should be strong enough to withstand all
types of dead and live loads; ii) it should be rigidly
constructed and efficiently propped and braced both
horizontally and vertically, so as to retain its shape; and iii)
it should permit removal of various parts in desired
sequences without damage to the concrete. Steel sheets
and/or timber/wood planks can also be used as shuttering
material. They can be fabricated in large number in any
desired modular shapes and sizes. Steel forms are used in
large number of projects and in situation where large
numbers of reuse of the shuttering is possible. Steel forms
are stronger, durable and have longer life than the timber
formwork. They can be installed and dismantled with
greater ease and speed. Steel plates/wooden planks used
as shuttering material need support of wooden poles or
steel rods or bamboo sticks, with braces or batten to keep it
in its place till they are stripped after setting off or
hardening off cement concrete. Without support with the
poles/rods or braces or batten, they cannot be used
independently. Even for joining more than one shuttering
sheet/wooden planks, they required to be efficiently braced
both horizontally and vertically so as to retain its shape. In
short, the shuttering sheets can be used with the support of
one or more other units/components such as poles, braces,
yokes, ledgers, bevel strip boalts, ribbons, etc.. The
shuttering materials would not mean a single unit or
component, which can be put to use and make it functional.
No single unit or component of the shuttering/centering
materials can be used and make function and that it has to
be used only with the support of other components
(things). It is true that individual plates or planks used for
providing support for slab or for providing support to the
beam or pillars, can be treated as individual units or
components of shuttering material, but it can be put to use
and make it functional only with the support of other
units/components such as poles/rods, braces, battens, etc.
28. Having so understood the meaning of the word
shuttering or centering, which is also known as formwork,
we would now like to have a glance at the definition of the
word plant, as defined under Section 43 of the Act. The
word plant is described with an inclusive definition. It
includes ships, vehicles, books, scientific apparatus and
surgical equipment used for the purposes of business or
profession but does not include tea bushes or live stock.
The word plant in its ordinary meaning is a word of wide
import and it must be broadly construed having regard to
the fact that articles like books and surgical instruments are
expressly included in the definition of plant in Section
43(3) of the Act. It includes any article or object, fixed or
movable, live or dead, used by a businessman for carrying
on his business. An article to qualify as plant must have
some degree of durability and that which is quickly
consumed or worn out in the course of a few operations or
within a short time cannot properly be called plant. The
size or value or quantity of an article, used in carrying on
business, would not have any effect on calling it a plant.
The relevant test to be applied is whether it fulfils the
function of plant in the assessees business/trading
activity? Is it a tool of the assessees business/trade? If it
is, then it is plant, no matter that it is not very long lasting
or does not contain working parts such as a machine does
and plays a merely passive role in the accomplishment of
the trading purposes. In other words, the test would be
does the article fulfill the function of a plant in the
assessees trading activity? Is it a tool of his trade with
which he carries on his business? If the answer to these
questions is in the affirmative, it would be a plant. We
have no doubt that centering and shuttering fulfill the
function of a plant, which the assessee use it as a tool for
carrying on his business and hence it is a plant.
29. In this backdrop, it is necessary to consider
whether each article/unit/component used in shuttering or
centering could also be treated/termed as a plant. The
best possible way is to understand the nature of the
business and the purpose of such article/unit/component in
such a business. It is also necessary to find out whether
any single article/unit/component can be put to use as
shuttering material and if the answer is in the negative, in
our opinion, a single article/unit/component cannot be
treated as a plant or it would not fall within the meaning of
the word plant as defined under Section 43(3) of the Act.
The test is if one single article/unit/component itself is
sufficient to fulfill the functioning of shuttering, it could be
called or treated as a plant but if not it is certainly not a
plant. We do not wish even indirectly to suggest that
shuttering materials when put to use for laying cement
concrete, is not a plant. When shuttering materials or
units/components/articles are put to use together which are
dependent on each other, it is considered as a plant.
Thus, in our opinion, the functional test is the test, apart
from the other tests, if applied, no individual
article/unit/component could be considered as a plant.
Merely because these articles are durable, they cannot
effectively stand alone without functional integration with
other similar or dissimilar article/unit/component so as to
qualify as plant. Functional utility of each
article/unit/component of the shuttering material to a
Builder or Contractor in construction activity is the relevant
test so as to consider it a plant and as observed earlier
none of the article/unit/component of the shuttering
material could be put to use without support of other
similar or dissimilar article/unit/component. To test, what
we are holding is correct, we may add that a car is a plant
but not its spare parts, a book is a plant but not its pages, a
ship is a plant but not its parts.
30. From bare reading of the definition of plant
under Section 43(3) of the Act, it is clear that each of the
items/articles mentioned therein is an independent
article/item, which fits-in the functional test for the use.
None of the articles/items mentioned in the definition or
even for that matter a bottle is dependent on any other
article or they need not be put to use with other similar or
dissimilar items/articles so as to make it functional. Having
so observed, in our opinion, the judgment of Krishna
Bottlers (supra) would not come in our way to hold that
shuttering materials though is a plant every individual
article/unit/component of the shuttering materials cannot
be treated as plant. The benefit arising out of every
individual article/unit/component of the shuttering material
is not confined to any particular part of the construction
activity. Temporary structure, used for moulding cement
concrete may be for a very small portion of construction
activity, is also not confined to the use of any particular
article/unit/component of shuttering material. In other
words, in any case unless two or more
articles/units/components, similar or dissimilar, are put to
use together, it cannot be made functional and no cement
concrete can be laid in the process of construction activity.
31. We also need to understand what does
apparatus means. The Judicial Dictionary by
Justice L.P.Singh and Justice P.K.Majumdar, third edition,
reprint 2012 with reference to a judgment of Kerala High
Court in K.N.Achuthan Pillai v. Union of India( )
described the word apparatus to include a telephone
receiver. It further states if any extension is taken from
such a receiver, it becomes an appliance or part of that
apparatus.
31.1 As stated in the New Oxford Dictionary of English
edited by Judy Pearsall the word apparatus means the
equipment needed for a particular activity or purpose. The
other meaning of the word given in the dictionary is a
complex structure within an organization or system: the
apparatus of Government. The third meaning in the
dictionary is collection of notes, variant readings and other
matter accompanying a printed text.
31.2 The Supreme Court in Words and Phrases by
Justice M.L.Singhal with reference to a Commissioner of
Customs v. C-Net communication(I) Pvt.Ltd., [2007 (11) JT
329] stated the word apparatus would mean the
compound instrument or chain of series of instruments
designed to carry out specific function or for a particular
use.
31.3 The Chambers Dictionary, 10th Edition, described
the word apparatus to mean things prepared or provided,
material; a set of instruments, tools, natural organs, etc; a
machine or piece of equipment with a particular purpose;
materials for the critical study of a document; an
organization or system that enables something to function.
31.4 Thus, from the meaning of the word apparatus
given in different dictionaries would, in our opinion,
definitely not mean only a single piece of some instrument
but it would also include compound instrument or chain of
series of instruments designed to carry out specific function
or for a particular use.
32. Our line of thinking is also supported by the
interpretative process of enquiry. One has to determine
whether each item of heterogeneous material comes under
the definition of Plant mentioned in Sec.32 (1) or not.
Then, if it is a plant one has to go to proviso to see
whether any item of such Plant utilized by the assessee
for the purpose of his business or profession falls therein.
In this case the centering and shuttering material is a
homogenous qualitative material, though it is divisible. In
such a case, one should not allow the assessee to claim
higher rate of depreciation by application of proviso to such
homogenous material. For example, the Supreme Court
was considering in Appropriate Authority and
Commissioner, Income Tax v. Smt.Varshaben
Bharatbhai Shah( ) a case of pre-emptive purchase of
immovable property by Central Government. It was held
that the application of provisions to pre-emptive purchase
cannot be avoided by taking technical view of agreement
that share received by each co-owner was less than the
prescribed value, as the apparent consideration stated in
the agreement exceeded the value prescribed for
applicability of provision of pre-emptive purchase. It was
held that the subject-matter of transfer and its apparent
consideration has to be decided by taking realistic view and
not in technical manner. The judgments of Madras,
Karnataka, Delhi and Calcutta High Court were overruled
and the view taken by Bombay High Court in Jodhram
Daulatram Arora v. M.B.Kodnani( ) was upheld.
33. In Commissioner of Income Tax v. Vijaya
Enterprises( ), it was wrongly quoted that they were
dealing with the proviso to Section 32 (1) (ii), but in fact, it
is a proviso to Section 32 (1) only. In Krishna Bottlers
(supra), the proviso was not considered and what was
considered was whether the bottles and shells constitute
plant and depreciation is admissible thereon under
Section 32 (1) (ii) of the Act. The decisions of English law
which dealt with plant are of no avail for interpreting the
section. Thus, it is clear that where the actual cost of any
plant does not exceed Rs.5000/-, the assessee is entitled
to claim 100% depreciation. Merely because cost of every
single item is less than Rs.5000/-, if we hold that every
single item used for shuttering can be treated as plant
perhaps that will create a very strange situation. For
instance, a Car is a plant within the meaning of Section 43
of the Act, however the owner of the Car is not entitled to
claim 100% depreciation on its spare parts since the cost of
the Car is more than Rs.5000/-. Therefore, if we ask
question to ourselves whether all spare parts of the Car
including tyres costing less than Rs.5000/- individually or
separately by the assessee, whether he is entitled to claim
100% depreciation on those items, our answer to this
question is in the negative. Similarly, centering/shuttering,
erected temporarily, even it is assessed costing less than
Rs.5000/-, in a given case, perhaps the Contractor may be
able to claim 100% depreciation but cannot claim that
every single unit/article/component used for shuttering is
costing less than Rs.5000/- and is, therefore, entitled to
claim 100% depreciation. In the circumstances, the
question referred to must be answered in the negative.
JUDGMENT (per Honble Sri Justice M.S.Ramachandra Rao) :
34. I have seen the opinion of the Honble the Acting
Chief Justice for himself and my brother Justice
A.Ramalingeswara Rao, but for the following reasons, I
regret to defer from their opinion:
I. THE BRIEF FACTS OF THE CASE :
35. The assessee is the proprietor of a concern by
name M/s Vijaya Nirman Co. which is engaged in the
business of Civil Contracts. It had filed a return of income
on 4.11.1991 admitting a taxable income of Rs.9,87,690/-.
It had claimed 100% depreciation on centring and
shuttering equipment worth Rs.13,19,434/- invoking the
first proviso to Sec.32(1) (ii) of the Income Tax Act,1961
(for short the Act). It was not disputed by the Revenue
that if the said proviso is not attracted, the assessee would
still be entitled to claim 33 1/3 % depreciation on the
centering and shuttering equipment under Sec.32(1) of the
Act.
36. By order dt.31.3.1994, the Dy. Commissioner of
Income Tax held that the assessee cannot claim 100%
depreciation on centering and shuttering equipment and he
is entitled to only 33 1/3 % depreciation thereon. He held
that, unlike in the case of certain single equipments like
bottle, centering and shuttering equipment/materials are
usable only collectively, and therefore the question of
allowing depreciation on such materials with reference to
cost of one or two such material/s cannot arise. He rejected
the assessees submissions that he is entitled to
depreciation thereon at 100% by taking purchase value of
each unit thereof into account. He also rejected the
assessees plea that although sometimes centering and
shuttering equipment/materials might be used in whole
lots, at other times a few of these materials or even a
single one could be put to use. He also held that
depreciation can be allowed on centering and shuttering
equipment/materials, not on entire amount of
Rs.13,19,434/ claimed by assessee, but only on
Rs.11,46,124/.
37. The assessee filed an appeal to the
Commissioner of Income Tax. By order dt.25.11.1994, the
Commissioner partly allowed the appeal of the assessee
and following his earlier order dt.2.8.1994 in the case of
one M/s Bharti Builders, Vishakhapatnam (wherein he had
taken a view that centering and shuttering
equipment/materials acquired by assessee each costing
less than Rs.5000/- were used individually or under various
combinations in construction work), he held that the
assessing officer should allow 100% depreciation to the
assessee.
38. The Revenue filed a further appeal to the
Income Tax Appellate Tribunal. The Tribunal, by order
dt.14.02.2001 dismissed the appeal of the Revenue relying
upon its order dt.13.11.1998 in ITA.No.435/HYD/1997 in
the case of M/s.Raghavendra Constructions, Visakhapatnam
vs. ACIT, Circle-II, Visakhapatnam in which, on similar
facts, it had allowed depreciation at 100% on shuttering
and centering materials.
39. This is questioned by the Revenue in the present
appeal.
40. This appeal was admitted in 2001 to consider
the following substantial questions of law :
(A) Whether on the facts and in the circumstances of the
case, the Appellate Tribunal was justified in law in holding
that the assessee is entitled to claim 100% depreciation on
the shuttering/centring materials ?
(B) Whether on the facts and in the circumstances of the
case, the order of the ITAT suffers from perversity by reason
of there being no material placed before the Appellate
Tribunal to hold that each of the shuttering plate was used
independently and individually by the assessee on the basis
of functional test ?
41. When the appeal came up for consideration on
14.02.2015 before a Division Bench of this Court, the said
Division Bench had opined that there was a conflict
between two Division Bench judgments of this court, the
first, in Commissioner of Income Tax v. Raghavendra
Constructions( ) and the second, in The Commissioner
of Income Tax v. Live Well Home Finance (P) Ltd( )
and the matter was required to be decided by a larger
Bench.
42. The Honble Chief Justice then constituted this
Full Bench to consider the following question of law:
Whether on the facts and in the circumstances of the case,
the Appellate Tribunal is justified in law in holding that the
assessee is entitled to claim 100% depreciation on the
centring/shuttering materials?
II. THE APPLICABLE PROVISIONS OF LAW :
43. In both the above decisions first proviso to
Sec.32(1)(ii) of the Act thereto as it existed in assessment
year 1991-92 was considered. As it stood then, the said
provision stated as under:
32. Depreciation : -- (1) In respect of depreciation of
buildings, machinery, plant or furniture owned by the
assessee and used for the purposes of the business or
profession, the following deductions shall, subject to the
provisions of Section 34, be allowed.
(i) Omitted by TL (Amend Misc. Provisions) Act,
1986, w.e.f.01.04.88;
(ii) in the case of any block of assets, such
percentage on the written down value thereof as may be
prescribed:
Provided that where the actual cost of any machinery
or plant does not exceed five thousand rupees, the actual
cost thereof shall be allowed as a deduction in respect of the
previous year in which such machinery or plant is first put to
use by the assessee for the purposes of his business or
profession.
44. It appears that Sub-section (1) of Sec.32 was
substituted by Finance (no.2) Act, 1998 w.e.f 1.4.1999 and
the proviso thereto was deleted. However we are not
concerned with the substituted provision.
45. Sec.43 (3) of the Act as it stood in 1991-92
assessment year stated:
Sec.43. Definitions of certain terms relevant to income from
profits and gains of business or profession :
In Sec.28 to 41 and in this section, unless the context
otherwise requires---
(3) Plant includes ships, vehicles, books, scientific
apparatus and surgical equipment used for the purposes of
the business or profession but does not include tea bushes
or live stock;
III. DICTIONARY MEANING OF SHUTERING/CENTRING
46. The Concise Oxford Dictionary (9th Edition)
defines centering as a temporary frame used to support an
arch, dome, etc., while under construction. It defines
shuttering as a temporary structure, usually of wood, used
to hold concrete during setting.
IV. MOST OF THE HIGH COURTS IN INDIA HAVE ACCEPTED THAT
SHUTTERING/CENTERING MATERIAL IS PLANT :
47. That centering and shuttering material would
come within the definition of plant as defined in Section
43 (3) of the Act has been accepted by Madras High Court
in Commissioner of Income Tax v. Alagendran
Finance Ltd.( ) and in Express Newspapers Ltd. v. Dy.
Commissioner of Income Tax( ), by the Allahabad High
Court in Harijan Evam Nirbal Varg Avas Nigam Ltd. v.
C.I.T.( ), by the High Court of Punjab and Haryana in
C.I.T. v. Akal Construction and Engineering
Company( ), by the Rajasthan High Court in C.I.T. v.
Mohta Construction Company( ), by the Delhi High
Court in C.I.T. v. Ansal Housing Finance and Leasing
Company Ltd( )., by the Madhya Pradesh High Court in
C.I.T. vs. Singhania Enterprises( ), and by the Gujarat
High Court in Assistant Commissioner of Income Tax v.
Ravi Construction( ).
V. THE VIEW IN RAGHAVENDRA CONSTRUCTIONS:
48. Contrary to the consistent view of the above
High Courts, in Raghavendra Constructions (29 supra),
the Division Bench had taken the view that shuttering is not
an integrated component forming a plant; that it consists
of metal and non-metal props, pipes, right angles, sewer
clamps, fixed base plates, wooden poles, wooden planks,
plates, steel and aluminum boxes, wooden chairs and
anything which can be used to support a suspended wall,
reinforced cement concrete stand, an arch, a sunshade, a
cantilever cement structure as support when such
structures are being built with cement concrete; the
purpose of shuttering is only till the setting of the cement
concrete or cement material and the moment the cement
concrete achieves the required setting, the shuttering
material is removed and used or re-used in other
constructions. It held that in the very nature of things, and
as understood in the construction industry, a single metal
or wooden pole or supporting material is never understood
as forming shuttering material and that it is understood
only as an integrated unit consisting of more than a few
metal or wooden poles, planks and other props used to
support the cement construction stage of a building. It
held that the Courts in India had applied the durability
and/or functional tests; if a thing itself is durable (in the
sense it can be used and re-used as non-interdependent,
interconnected a non-consumable thing) and has functional
utility in the trade or business of the assessee to advance
his business interest, such a thing would be a plant; if it is
durable, but cannot effectively stand alone without
functional integration with other similar or dissimilar
components or unit, it would not qualify as a plant. It held
that a single unit of centering or shuttering material by
itself though durable may not have functional value;
similar units form one integrated part which can be used as
shuttering material; and therefore, it is not possible to
accept the plea of the assessees that each similar or
dissimilar component or unit, forming part of the whole
integrated shuttering material, is entitled for 100%
depreciation as a plant. It held that each item of shuttering
material cannot be treated as one whole shuttering material
forming one plant eligible for 100% depreciation under the
proviso to Section 32 (1) (ii) of the Act.
VI. THE OPPOSITE VIEW IN M/S LIVE WELL HOME FINANCE
(P) LTD
49. On the other hand, in Live Well Home Finance
(P) Ltd. (30 supra) another Division Bench disagreed with
the above view in Raghavendra Constructions
(29 supra). It held that in the context of availing the
benefit under Section 32(1)(ii) of the Act, identification of a
unit of plant becomes essential and though the Act and
the precedents on the subject are silent about this, the
safest way is to identify the irreducible minimum of the
plant or machinery, which in turn can be put to
independent use. It held that mere fact that number of
such units can be clubbed together to achieve the result in
a greater magnitude by itself does not result in the merger
into the larger one or loss of their identity. It held that
individual plates of sizes of about 3 ft x 3 ft. for providing
support for slab or 10 ft. x 3 ft. or 2 ft. for providing
support to the beams or pillars can safely be treated as
units. It held that the irreducible minimum for the
shuttering material is the individual plates, for providing
support to the reinforced concrete and cement or the poles
and bars that are used at the time of formation.
VII. THE RIVAL CONTENTIONS
50. While the Revenue contends that this view in
Live Well Home Finance (P) Ltd. (30 supra) is not the
correct view and that the view in Raghavendra
Constructions (29 supra) is the correct view, the assessee
contends to the contra.
51. The contention of the Revenue is that it was not
the intention of Parliament while enacting the proviso to
Section 32 (1) (ii) to permit 100% depreciation on the
primary tools used by the assessee in the course of his
trading activity and that since individual
shuttering/centering material cannot function on stand
alone basis without functional integration with other similar
items, they would not qualify as plant.
52. The Revenue does not seriously dispute that the
assessee would be entitled to 33 1/3 % depreciation on the
shuttering/centring material. In fact, neither before the
assessing officer, the Commissioner of Income Tax or
before the Income Tax Appellate Tribunal, was it the plea of
the Revenue that shuttering/centering material is not
entitled to be treated as a plant at all.
53. Its contention is that since each of the
centring/shuttering material cannot be used on stand
alone basis, the assessee cannot claim 100% depreciation.
According to it, the Division Bench in Raghavendra
Constructions (29 supra) has rightly applied stand alone
test and came to the conclusion that individual
components of centering/shuttering material would not be
eligible for 100% depreciation even though they are of
value less than Rs.5,000/-.
VIII. THE INTERPRETATION OF THE TERM PLANT BY THE
SUPREME COURT
54. Section 43 (3) defines a plant as including
ships, vehicles, books, scientific apparatus and surgical
equipment used for the purposes of the business or
profession . This being an inclusive definition, it
indicates that the definition of the term plant is intended
to be extensive.
55. First in 1972, the Supreme Court while
construing the said definition in CIT, A.P. v. Tajmahal
Hotel, Secunderabad( ) held that sanitary and pipeline
fittings in a building which is run as a hotel fall within the
word plant in Section 10 (2) (vi-b) of the Income Tax Act,
1922 (which is in pari materia with Section 43 (3) of the
Income Tax Act, 1961) for grant of depreciation allowance
and observed :
9. Now it is well settled that where the
definition of, a word has not been given, it must be
construed in its popular sense if it is a word of every
day use. Popular sense means that sense which people
conversant with the subject matter with which the
statute is dealing, would attribute to it. In the present
case, Section 10(5) enlarges the definition of the word
plant by including in it the words which have already
been mentioned before. The very fact that even books
have been included shows that the meaning intended to
be given to plant is wide. The word includes is often
used in interpretation clauses in order to enlarge the
meaning of the words or phrases occurring in the body
of the statute. When it is so used these words and
phrases must be construed as comprehending not only
such things as they signify according to their nature and
import but also those things which the interpretation
clause declares that they shall include.
10. The meaning of plant as
given in Yarmouth v. France( ) was accepted as
correct. According to that meaning plant includes
whatever apparatus or instruments are used by a
businessman in carrying on his business.
11. We are unable to see how the
sanitary fittings in the bath-rooms in a hotel will not be
plant within Section 10(2)(vi-b) read with Section
10(5) when it is quite clear that the intention of the
Legislature was to give it a wide meaning and that is
why, articles like books and surgical instruments were
expressly included in the definition of plant. In
decided cases, the High Courts have rightly understood
the meaning of the term plant in a wide sense. (See
Commissioner of Income-tax, U.P. v. Indian
Turpentine and Rosin Co. Ltd.) MANU/UP/0144/1969
: [1970] 751 ITR 533 (All)...
56. In the year 1986, in Scientific Engineering
House P. Ltd. v CIT, A.P.( ), the Supreme Court
considered Section 43 (3) of the Act and declared that
technical know-how in the shape of drawings, designs,
charts, plans, processing data and other literature falls
within the definition of plant and is therefore, a
depreciable asset. It declared that the term plant would
include any article or object fixed, movable, live or dead,
used by a business 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. It held that in order to
qualify as plant, the article must have some degree of
durability and held that the test would be :
Does the article fulfill the function of a plant in the
assessees trading activity ? Is it a tool of his trade with
which he carries on his business ? If the answer is in the
affirmative, it will be a plant.
IX. THE SUPREME COURT DEALING WITH THE WORD
MACHINERY HELD SOME MECHANICAL CONTRIVANCES
EITHER BY THEMSELVES OR IN COMBINATION WITH ONE OR
MORE OTHER MECHANICAL CONTRIVANCES COULD BE
MACHINERY
57. Coming to the point in issue in this case , in
Commissioner of Income Tax v Mir Mohd Ali( ), the
Supreme Court was considering the claim by an assessee, a
bus owner and a transport operator, who had replaced
petrol engines in two of his buses by new diesel engines for
not only normal depreciation under first proviso of
clause (vi) of Section 10 (2) of the Income Tax Act, 1922
but also depreciation under the second para of clause (vi)
and clause (via) of the said Act. The I.T.O. allowed only
25% depreciation under the first para of clause (vi). The
assessee appealed to the Assistant Commissioner and also
to the I.T.A.T. Both of whom rejected his claims for further
depreciation. The Tribunal held that he is not entitled to
extra depreciation under clause 10 (2) (vi) or 10 (2) (via)
on the ground that even if an engine is important for
running a motor, it is after all part of an equipment and
cannot itself be machinery for claiming extra depreciation
as envisaged in those sub sections. It referred the matter
to the High Court which held in favour of the assessee.
While dealing with the question whether a new diesel
engine in a Bus amounts to machinery, Sikri, J of the
Supreme Court (speaking for himself and Justice Subba
Rao), posed the question
What then is the test for determining whether a mechanical
contrivance is machinery for the purposes of second para
of cl.(vi) and (via) 9of sec.10(2)) ?
The Court then quoted with approval, the following passage
from the judgment of the Privy Council in Corporation of
Calcutta v Chairman v Chairman, Cossipore and
Chitpore Municipality( ):
The word machinery, when used in ordinary language prima-
facie, means some mechanical contrivances which, by
themselves or in combination with one or more other
mechanical contrivances, by the combined movement and
inter dependent operation of their respective parts generate
power, or evoke, modify, apply, or direct natural forces with the
object in each case of effecting so definite and specific a result.
(emphasis supplied)
It upheld the contention of the assessee and affirmed the
decision of the Madras High Court that the assessee is
entitled to extra depreciation admissible under Section 10
(2) (vi) and 10 (2) (via) of the Act.
X. THE SUPREME COURTS ABOVE INTERPRETATION W.R.T.
MACHINERY APPLIED TO PLANT BY HIGH COURTS.
58. The above interpretation regarding single
contrivances in a machinery has been applied by the
Madras High Court in Sundaram Motors Pvt. Ltd., v
CIT( ), to the meaning of the word plant also to say that
contrivance can be a plant if it is used by itself or along
with other contrivances. The Madras High Court held that
the word plant also should be given the same popular
meaning as machinery and held:
if a plant in combination with other appliances in the
business effectuate and perpetuate the trade or
commerce in question, then such induction or
introduction of such plant to be deemed to be such that
they are placed in a position for service or use in
business.
It held that the assessees by introduction of apparatus or
appliances such as electric fans, bicycles, motorcycles,
office cars, jeeps, tractors, type writer and office appliances
etc in their business as dealers in motor cars, trucks, jeeps,
motor parts and accessories, tractors etc. are entitled to
claim development rebate under Section 10 (2) (vib) of the
Income Tax Act, 1922.
59. The judgment in Sundaram Motors (44 supra)
was followed by the same High Court in Express
Newspapers Limited (32 supra). There the Court while
holding that scaffolding materials are entitled to 100%
depreciation, held:
Under the scheme of the statutory provision,
each apparatus conforming to the definition of
machinery or plant, as the case may be, has to be
taken individually for the purpose of considering
the computation of depreciation and not the
organization or the unit as a whole by treating each
and every apparatus necessary for the function of
the factory as forming an integral part of the
factory vide CIT v. Kiran Crimpers( ). In Cripps
v. Judge( ), scaffolding has been held to be a
plant.
XI. THE A.P. HIGH COURT DECISIONS
60. In 1989, the decision in Scientific Engineering
House P. Ltd (41 supra) was followed in Commissioner
of Income-Tax v. Sri Krishna Bottlers Pvt. Ltd( ). In
that case, the Division Bench was considering the case of
an assessee who was manufacturing and selling soft drinks.
The assessee had claimed for the assessment year 1976-77
deduction under the 1st proviso to Section 32 (1) (ii) of the
Act in respect of bottles and shells purchased and put to
use during the year. The Income Tax Officer deducted the
claim for outright deduction on the ground that bottles
cannot be treated as plant on which depreciation can be
claimed; bottle and cool drinks therein put together form
stock-in-trade and cannot be separated from the drink for
the purpose of sale and that the assessee, having
manufactured the cool drinks supplied them along with the
bottles. On appeal, the Commissioner accepted the
assessees claim that the bottles constitute plant and
therefore held that the entire cost of purchase of glass
bottles should be allowed as deduction under proviso to
Section 32 (1) (ii) and the same would also be the position
in respect of the shells which were simple wooden
equipment for carrying the bottles. The Tribunal confirmed
the same. Questioning the same, the Revenue appealed to
the High Court. The Bench reviewed a number of cases of
Courts in India as well as England and held as under:
31. From the aforesaid rulings, the following
principles can be gathered; (1) "Plant" in
section 43(3) of the Act is to be construed in the
popular sense, namely, in the sense in which people
conversant with the subject-matter with which the
section is dealing, would attribute to it. The word
"plant" is to be given a "very wide" meaning. In its
ordinary sense, it includes whatever "apparatus" is
used by a businessman for carrying on his business
but it does not include his stock-in-trade which he
buys or makes for sale. It, however, includes all goods
and chattels, fixed or movable, live or dead which the
tradesman keeps for permanent employment in his
business. (2) But the building or the "setting" in which
the business is carried on cannot be plant. (3) The
thing need not be part of the machine used in the
manufacturing process but could be merely an
apparatus used in carrying on the business but having
a "degree of durability". (4) Merely because the asset
has a passive function in the carrying on of the
business, it cannot be said that it is not plant. It may
have a passive operation and if it has, it is prima facie
a plant unless there was good reason to exclude it
from that category. It must be a "tool in the trade" of
the businessman. (6) Gross materiality or tangibility is
not necessary and, in fact, intangible things like ideas
and designs contained in a book could be "plant". They
fall under the category of "intellectual storehouse". (7)
In considering whether a structure is plant or
premises, one must look at the finished product and
not at the bits and pieces as they arrive from the
factory. The fact that a building is part of a building
holds the plant in position does not, convert the
building into plant. A piecemeal approach is not
permissible and the entire matter must be considered
as a single unit unless of course, the component parts
can be treated as separate units having different
purposes. (8) The functional test is a decisive test.
32. Bearing these principles in mind, we shall
approach the facts of the present case. The bottles
containing the soft drink cannot be stock-in-trade
inasmuch as the bottle by itself is not the subject of
sale. The customer or the retailer returns back the
bottle to the assessee after the soft drink is consumed.
Likewise, the shells which are sent to the customer or
dealer also come back with the empty bottles and they
cannot also be stock-in-trade. What is the function
these bottles and shells perform in the assessee's trade
? Are they essentially tools in the assessee's business ?
In our opinion, yes. The bottles are essential tools of
the trade for it is through them that the soft drink is
passed on from the assessee to the customer. Without
these bottles, the soft drink cannot be effectively
transported, like the silos in Schofield v. R. and H. Hall
Ltd. [1974] 49 TC 538 , which are used to store grain
and to empty the same, performing a trade function. As
pointed out in Dixon v. Fitch's Garage Ltd. [1975] 50 TC
509 , the bottles and the contents are "totally
interdependent." So are the shells. The bottles and
shells also satisfy the durability test for it is nobody's
case that their life is too transitory or negligible to
warrant an inference that they have no function to play
in the assessee's trade. They are therefore "plant" for
the purposes of the Act.
33. The principle that a "setting" in which the trade is
conducted in not attracted to the facts of the case of all.
The bottles and shells have nothing to do with the
building in which the trade in conducted nor with the
"setting" in which it is conducted. Each bottle and
each shell is an entity by itself and they cannot be
broken down into pieces for considering whether they
have any part to play in the business of the assessee.
The bottles and shells are gross matter and, in fact,
gross materiality is not a requirement at all for a thing
to be treated as plant. ( emphasis supplied)
In CIT V. Anand Theatres( ) , the Supreme Court
approved this decision and observed that this Court had
exhaustively considered the decisions.
61. In C.I.T. v. Margadarsi Chit Fund (P) Ltd.( ),
the Revenue had specifically raised the contention that
even if for the purpose of business of the assessee (who
purchased bottles for the purpose of leasing them), bottles
are treated as plant within the meaning of Sec.32(1), yet
the deduction is leviable only when the purchase is enblock
and cannot be allowed in respect of a single bottles which
are priced less than Rs.5,000/-. Rejecting the said
contention and following the decision in Sri Krishna
Bottlers (47 supra), the Bench held:
There is no distinction that the purchase on which
the depreciation would be allowed must be bulk purchase
of a large number and that it would be disallowed if the
purchase is of single items. There is no evidence that the
bottles in respect of which depreciation was claimed were
not subject of bulk purchase. Even apart from it, a bulk
purchase is merely individualized purchase made
collectively and we do not find any distinction in the
provisions of Section 32 (1) or the proviso of a distinction
possible to be drawn in the manner suggested. The only
test is whether the article in respect of which depreciation
is claimed is plant for the purpose of the business or
profession. Individual items of purchase would also be
plant if it is integrally involved in the carrying out of the
profession or business and depreciation could be claimed in
respect of that.
(emphasis supplied)
62. Coming back to Raghavendra Constructions
(29 supra), I may state that it referred to the Sri Krishna
Bottlers (P) Ltd. (47 supra), and distinguished it on the
ground that the Division Bench therein nowhere observed
that each bottle or shell would also be a plant for the
purpose of Section 32 (1)(ii) of the Act, erroneously. In
fact, in Sri Krishna Bottlers (P) Ltd. (47 supra), the
Division Bench had categorically held that each bottle and
each shell is an entity by itself. Further, going deeply into
the facts of that case, the issue in Sri Krishna Bottlers
(P) Ltd. (47 supra) was not about whether a group of
bottles are a plant but in fact, whether each bottle was a
plant. Therefore, it is clear that by oversight the Bench in
Raghavendra Constructions (29 supra) overlooked this
passage and the facts in the judgment in Sri Krishna
Bottlers(P) Ltd. (47 supra).
63. Further, in Raghavendra Constructions
(29 supra), the Division Bench did not notice the judgment
in Margadarsi Chit Fund (P) Ltd (49 supra) at all. The
decision in Margadarsi Chit Fund (P) Ltd (49 supra),
particularly the observations set out supra, are binding on
the Bench which decided Raghavendra Constructions
(29 supra) and the view taken therein is diametrically
opposite to the view expressed in Margadarsi Chit Fund
(P) Ltd (49 supra). The Bench which decided
Raghavendra Constructions (29 supra) could not have
taken a view different from that in Margadarsi Chit Fund
(P) Ltd (49 supra) and only a larger bench could have over
ruled it. Therefore, in my opinion, the decision in
Raghavendra Constructions (29 supra) can be said to be
per in curiam.
64. In Live Well Home Finance (P) Ltd.
(30 supra) , the Division Bench held that as between the
two Division Bench decisions in Raghavendra
Constructions (29 supra) and in Sri Krishna Bottlers
(P) Ltd. (47 supra), it would choose to follow the decision
of the latter Division Bench in preference to the former.
65. More clinchingly, Raghavendra Constructions
(29 supra) did not refer to the judgment of the Supreme
Court in Mir Mohd Ali (42 supra) where the Supreme
Court followed observations of the Privy Council that a
contrivance can be a machinery either by itself or
along with other contrivances and that the said principle
has been applied by the Madras High Court for
interpretation of the word plant. Thus Mir Mohd Ali
(42 supra) had accepted in principle that an apparatus by
itself or in combination with other , if used in the business
of an assessee, would qualify as plant. Raghavendra
Constructions (29 supra) therefore runs counter to the
judgment in Mir Mohd Ali (42 supra) in so far as it took
the view that only if an apparatus fulfils the stand alone
use test, it is a plant and it would not be a plant if it is
used in combination with others.
XII. WHETHER A SINGLE PIECE OF SHUTTERING/CENTRING
MATERIAL CAN BE A PLANT WHETHER USED BY ITSELF OR IN
COMBINATION WITH OTHERS ?
66. It is pertinent to note that both Sec.32(1) and
proviso thereto use the words plant and machinery. It is
not disputed that if the plant is valued more than
Rs.5000/- , the main provision i.e Sec. 32(1) applies and
the assessee would get only 33 1/3 % depreciation only.
But if its value is less than Rs.5,000/-, then the assessee
can claim 100% depreciation.
67. As stated in the beginning, it is not disputed by
the Revenue that if the said proviso is not attracted, the
assessee would still be entitled to claim 33 1/3 % on the
centering and shuttering equipment under Sec.32(1) of the
Act.
68. Once it is accepted that for claiming
depreciation under Sec.32(1), centring and shuttering
material would constitute a plant, it is difficult to agree
with the Revenues plea that for purpose of 1st proviso to
Sec.32 (1), each piece of the centring and shuttering
material will not be a plant on the mere ground that they
cannot be used on a stand alone basis but only in
combination with other items thereof.
69. As stated above in Mir Mohd. Ali (42 supra),
the Court while dealing with the question whether a new
diesel engine in a Bus amounts to machinery, posed the
question:
What then is the test for determining whether a mechanical
contrivance is machinery for the purposes of second para
of cl.(vi) and (via) 9of sec.10(2)) ?
The Court then quoted with approval, the following passage
from the judgment of the Privy Council in Corporation of
Calcutta (43 supra):
The word machinery, when used in ordinary language
prima-facie, means some mechanical contrivances which,
by themselves or in combination with one or more
other mechanical contrivances, by the combined
movement and inter dependent operation of their
respective parts generate power, or evoke, modify,
apply, or direct natural forces with the object in each case
of effecting so definite and specific a result.
(emphasis supplied)
70. I have already stated that this interpretation of
term machinery has been applied by the Madras High
Court to the word plant in Sundaram Motors (44 supra)
which was followed in Express Newspapers Limited
(32 supra). I completely agree with the view therein that
the word plant also should be interpreted in a like manner
as was done by the Supreme Court in Mir Mohd. Ali
(42 supra) with regard to the word machinery.
71. The Madras High Court in Alagendran
(31 supra) held while dealing with centring material that
the benefit of the proviso to Section 32 (1) (ii) of the Act is
not confined only to units in bulk; that it does not refer to
the number of units, but refers to the value of individual
units; and if the individual unit is regarded as plant and if
it is valued below Rs.5,000/-, it would qualify for 100%
depreciation. It held that there is no question of how many
units are normally used for the business and the test is as
to whether one centering sheet can be identified as a plant
or machinery. It observed that while erecting scaffoldings
for a building, centering sheets are usually arranged in
different shapes and sizes and a single sheet also is used
for a particular work.
72. The Rajasthan High Court in Mohta
Construction Company (35 supra) held that without
shuttering, construction work cannot be executed and since
shuttering is a necessary component for construction of the
building, it is a plant; each shuttering itself is an
independent unit; and since each shuttering costs less than
Rs.5,000/-, it is entitled for 100% depreciation.
73. The Delhi High Court in Ansal Housing Finance
and Leasing Co. Ltd. (36 supra) has held that 100%
depreciation can be claimed in respect of parts of
scaffolding and shuttering and followed its earlier decision
dt.16.08.2010 in ITR No.241 / 1992 and also the decisions
in Mohta Construction Co. (35 supra) and Alagendran
Finance Ltd. (31 supra).
XIII. THE STAND ALONE USE TEST IS NOT THE ONLY TEST
FOR A CONTRIVANCE TO BE A PLANT AND SUCH A VIEW IS
CONTRARY TO THE JUDGMENTS OF THE SUPREME COURT
74. As previously mentioned, the Supreme Court in
Tajmahal Hotel (39 supra) has held that the word plant
as defined in Section 43 (3) would include any article or
object fixed, moveable, live or dead, used by a
businessman for carrying on his business. It held that
sanitary fittings in the bathrooms in a hotel would be plant
and they cannot be said to have no connection with the
business of hotelier.
75. Similarly, in Scientific Engineering House
P. Ltd. (41 supra) the Supreme Court has reiterated this
and further held that in order to qualify as a plant an article
is not necessarily confined to an apparatus which is used
for mechanical operations or processes or is employed in
mechanical or industrial business, but it must have some
degree of durability. It approved the functional test laid
down in IRC v. Barclay, Curle and Co. Ltd( ). wherein
Lord Guest held that in order to decide whether a particular
subject is an apparatus, enquiry has to be made as to
what operation it performs. The Supreme Court held that
the test would be : Does the article fulfill the function of a
plant in the assessees trading activity ? Is it a tool of his
trade with which he carries on his business ? If the answer
is in the affirmative, it will be a plant. In that case, the
Supreme Court held that drawings, designs, charts, plans,
processing data and other literature comprised in the
documentation service would constitute a book and would
fall within the definition of plant.
76. The Supreme Court has no where indicated in
both the above decisions, that to qualify as plant, the
article in question used by the businessman for carrying on
his business should be capable of being put to use only on
a stand alone basis. Thus the view taken in
Raghavendra Construction (29 supra) goes beyond the
test laid down by the Supreme Court and super-adds a new
requirement that the article in question should also be
capable of being used only on a stand alone basis. Thus, in
my opinion, the Bench did not follow the law laid down by
the Supreme Court as to interpretation of the term plant
as defined in Section 43 (3) of the Act. In my opinion, in
view of the judgment of the Supreme Court in Mir Mohd
Ali (42 supra), a single contrivance can be a plant by itself
or in combination with other contrivances. This judgment is
binding on this Court.
77. In my opinion, the Supreme Court judgments
referred to above should be understood as referring to
functional test as function of the article in question qua
the business of the assessee. They do not refer to the
function of the article as such whether it is used by itself
or in combination with others. Since the Bench in
Raghavendra Construction (29 supra) , instead of
looking at the function of the shuttering/centering material
qua the business of the assessee, had looked at the
function of the shuttering/centering material en bloc or solo
(the stand alone use test), it does not lay down the correct
law.
78. Further as pointed out above, the Madras High
Court in Algendran (31 supra), the Rajasthan High Court
in Mohta Constructions (35 supra) and the Delhi High
Court in Ansal Housing (36 supra) have granted 100%
depreciation even in respect of a single unit of stuttering
material.
XIV. WHY SINGLE CENTRING/SHUTTERING MATERIALS
SHOULD BE TREATED AS PLANT
79. In my opinion, individual components of
shuttering/centering material do not lose their individuality
merely because they are used in combination with other
similar or dissimilar units in the construction activity of the
assessee. They can be and are normally dis-assembled
after their use in combination and revert back to their
individual status. Since they are durable and have a
function in the assessees business, merely because they
are not capable of being used individually on a stand alone
basis and have to be used in combination with other units
thereof, they do not cease to be a plant.
80. In Munby v. Furlong Munby( ) , the tax-
payer, a barrister started to practice at a Bar in 1972.
During the following year, he bought textbooks and law
reports for the purpose of his practice. In making
assessments for income tax, the Inspector of Taxes refused
to allow the taxpayer deductions in respect of the
expenditure which he had incurred in buying the books.
The taxpayer appealed against the assessments on the
ground that the books were plant qualifying for capital
allowances in Chapter I of Part III of the Finance Act, 1971.
The appeal was dismissed and was upheld by a single
Judge of the High Court but the tax payer succeeded before
the Court of Appeal. The Court of Appeal declared that in
the context of a profession, the provision of plant should
be so interpreted that a lawyers books his set of law
reports and his text books are plant. It held that the
word plant had acquired special meaning and in the
interests of fairness, it extends virtually to a mans tools of
trade and to the things which he uses day by day in the
exercise of his profession; that the said term should not be
confined to things which are used physically by a barrister
like a typewriter but should be extended also to the
intellectual storehouse which a barrister or a solicitor or any
other professional man has in the course of carrying on his
profession. This decision was approved and followed in Sri
Krishna Bottlers (47 supra).
81. Therefore an apposite example to our case
would be law books in an Advocates office which though
each individually may not by themselves contribute to the
Advocates performance in a legal profession, yet
collectively, without losing their individuality, make a very
important contribution in his career and have rightly been
held to be a plant.
82. Therefore, I hold that it is possible for the
assessee to claim depreciation on individual items thereof
under the proviso to Section 32 (1) (ii) of the Act and that
it is not necessary for him to prove that each such
individual item is capable of being used on a stand alone
basis.
83. It is only necessary for the assessee to establish
that the unit of shuttering/centering material performs an
operation in his business and trading activities and that it is
a tool in his trade. He has to show that it is such that
without it, he cannot carry on business.
84. I would approve of the view in Margadarsi Chit
Fund (P) Ltd (49 supra) that there is no distinction that
the purchase on which depreciation would be allowed must
be a bulk purchase of a large number and it would be
disallowed if the purchase is of single items; and that
individual items of purchase would also be plant if it is
integrally involved in the carrying out of the profession or
business and depreciation could be claimed in respect of
that.
85. I also agree with the view in Alagendran
Finance Ltd. (31 supra) insofar as it was held therein that
a single sheet of centering or scaffolding is also useful to an
assessee; the benefit of the proviso to Section 32 (1)(ii) of
the Act is not confined only to units in bulk; that it does not
refer to the number of units, but refers to the value of
individual units; and if the individual unit is regarded as a
plant, and if it is valued below Rs.5,000/-, it would qualify
for 100% depreciation. There is no question of how many
units are normally used for the business and the test is as
to whether one centering/shuttering material is a tool of
the assessees trade with which he carries on business.
86. No doubt, in Pathange Poultry Farm v.
Commissioner of Income-Tax( ), a Division Bench of
the Karnataka High Court, while dealing with a case of an
assessee engaged in poultry business who claimed 100%
depreciation on the cost of individual cages (which were
then fabricated in such a manner to form a bigger unit)
disallowed such a claim. But, the basis of such
disallowance was that once the smaller cages are
integrated into a bigger unit, they lose their individuality;
and that they become a part of the bigger plant and cease
to either perform or remain capable of performing any
function independent of what is performed by the entire
unit as one complete plant or machine. It is this judgment
which was followed in Raghavendra Constructions
(29 supra), by the Division Bench therein to come to the
conclusion that in the engineering construction industry, a
single unit of centering or shuttering material by itself,
though durable, may not have functional value; that it must
also effectively stand alone without functional integration
with other similar or dissimilar components or units, in
order to qualify as a plant.
87. In my opinion, the Division Bench in
Raghavendra Constructions (29 supra) appears to have
overlooked the fact that unlike in the case of individual
cages which have been fabricated into one bigger unit and
thereafter lose their individuality, individual components of
shuttering/centering material do not lose their individual
identity merely because they are used in combination with
other similar or dissimilar units in the construction activity
of the assessee. They will be dis-assembled after each use
and reused again as such in combination with same or
different units thereof. Thus the decision in Pathange
Poultry Farm (52 supra) cannot be applied to the present
case.
88. The principle that each of the assets owned by
the assessee for the purpose of his business is to be taken
individually and independent of each other [for considering
a claim of depreciation under first proviso to Sec.32(1)],
though one may be necessary for the functioning of the
other, has one exception.
89. As explained in Kiran Crimpers (45 supra) by
the Gujarat High Court (which was followed in Express
Newspapers (32 supra)), this principle would not apply if
it is an integral part of another asset as such. Once an
apparatus becomes an integral part of another asset as
such, it loses its identity as an asset and the asset of which
it becomes an integral part is only to be considered as an
asset. For example, when the assessee owns a motor car
for the purposes of his business, necessarily it includes all
the parts which go into the making of the car and
necessary for its running. Notwithstanding the fact that
individually taken some of the parts by themselves may be
treated as machine or plant if used independently, once it is
fitted in another, it loses its identity as a machine
independent of the machine in which it is fitted.
90. However as held by me in para 79 supra
individual components of shuttering/centering material do
not lose their individuality merely because they are used in
combination with other similar or dissimilar units in the
construction activity of the assessee. They can be and are
normally dis-assembled after their use in combination and
revert back to their individual status. They are then reused
in different combinations. Unlike parts of a motor car, the
shuttering/ centring material do not lose their identity.
Parts of a motor car once integrated are not dis-assembled
after each use of the car like shuttering/centring material.
So centring/shuttering material stand on a truly different
position from parts of a motor car.
91. In fact in Commissioner of Income Tax v.
Indian Turpentine and Rosin Co. Ltd( ), which
was approved and followed by the Supreme Court in Taj
Mahal Hotel (39 supra), poles, cables, conductors
and switch boards used by a Company engaged in
manufacturing and selling rosin and turpentine to change
over power from D.C to A.C, have been held to be a plant.
The court held:
The Tribunal described the change over from
D.C. system to A.C. system thus :
" This involved new installations of poles, cables,
conductors, switchboards for distribution to various
feeders."
8. In Commissioner of Income Tax v. Mir
Mohammad Ali, the Supreme Court explained
that the expression "installed" in the second
paragraph of Clause (vi) and Clause (via), did
not necessarily mean "fixed in position" but was
also used in the sense of induct or introduce or
placing an apparatus in position for service or
use. Where an engine was fixed in a vehicle it
was installed within the meaning of the
expression in Clauses (vi) and (via) of Section
10(2) of the Act. The word "installed" must
carry the same sense in Clause (vib) of Section
10(2) of the Act.
9. The word "plant" as used in Sub-section (2)
of Section 10 of the Act has been defined in
Sub-section (5) of Section 10 :
"Plant includes vehicles, books, scientific apparatus
and surgical equipment purchased for the purposes
of the business, profession or vocation."
10. The definition of plant contained in Sub-
section (5) of Section 10 is very wide. The term
"plant" includes such articles as books and
scientific apparatus. There should, therefore, be
no difficulty in treating poles, cables, conductors
and switch-boards for distribution of electricity
as plant within the meaning of Clause (vib) of
Section 10(2) of the Act.
11. It is significant that the Income Tax Officer
allowed normal depreciation on these very
articles under Clause (vi) of Section 10(2) of the
Act. He must have allowed depreciation on the
footing that these articles constitute machinery
or plant within the meaning of Clause (vi) of
Section 10(2) of the Act. If the poles, cables,
conductors and switch-boards constituted
"machinery or plant" within the meaning of
Clause (vi), there is no reason why they should
not constitute "machinery or plant" within the
meaning of Clause (vib) of Section 10(2) of the
Act. Even if there is some difficulty in looking
upon poles, cables, conductors and switch-
boards as machinery, there is no difficulty in
accepting the assessee's case that these articles
constitute a plant within the meaning of Clause
(vib) of Section 10(2) of the Act. The Tribunal
was, therefore, right in holding that the
assessee is entitled to development rebate
under Clause (vib) of Section 10(2) of the Act.
We answered the question referred to this court
as follows :
" On the facts and in the circumstances of the case,
the electrical installations installed by the assessee-
company as a result of a change over from D.C. to
A.C. system constitute plant. Consequently,
development rebate was admissible in respect of
expenditure incurred in connection therewith."
92. Thus electric poles used in an industry for
change of power from D.C to A.C would constitute a plant.
It cannot be disputed that poles support the
shuttering/centring material used by the assessee. On the
same parity of reasoning, poles used in shuttering/ centring
work would also be plant no matter that they cannot be
used on a stand alone basis.
93. I, therefore, answer the reference in favour of
the assessee that the Appellate Tribunal was justified in law
in holding that the assessee is entitled to claim 100%
depreciation on the centering/shuttering materials. I also
hold that the decision of the Division Bench of this Court in
Sri Raghavendra Constructions (29 supra) is not
correctly decided in so far as it held that individual units of
centring/shuttering material would not be plant are not
entitled to 100% depreciation under the first proviso to
Sec.32 (1) since they cannot be used on a stand alone
basis. It is accordingly overruled. I hold that the view
taken in Live Well Home Finance (P) Ltd (30 supra) is
the correct one for the reasons above given.
94. In the result, we answer the question in the
negative. The Registry is directed to place the appeal
before the Bench which is assigned to hear such Appeals for
its decision on the basis of the majority opinion expressed
in this judgment.
__________________
DILIP B.BHOSALE, ACJ
_____________________
M.S.RAMACHANDRA RAO, J
_______________________
A.RAMALINGESWARA RAO, J
5th June, 2015.
circumstances of the case, the appellate Tribunal was
justified in law in holding that the assessee was entitled to
claim 100% depreciation on the centering/shuttering
material?
2. The first Division Bench in Commissioner of
Income Tax Vs. Raghavendra Constructions( ) (for
short the first judgment) decided on 19.01.2011, while
dealing with the aforesaid question, held that if a thing
(material) itself is durable but cannot effectively stand
alone without functional integration, it would not qualify as
a plant and answered the question against the assessee and
in favour of the Revenue.
The second Division Bench in
Commissioner of Income Tax Vs. Live Well Home
Finance (P) Limited( )] decided on 27-11-2014 (for short
the second judgment), however, answered the question in
favour of the assessee and against the Revenue, applying
durability and functional test to hold that every individual
thing (material), such as shuttering plate used for formation
is a plant.
3. Having noticed the divergent views/opinions
expressed by two Division Benches, another Division Bench
while dealing with the instant appeal (ITTA No.95 of 2001),
as prayed for by learned counsel for the parties, framed the
question, as reproduced in the first paragraph, vide order
dated 14-02-2015 directed the Registry to place the order
along with the proceedings before the Honble the Chief
Justice for appropriate orders. Accordingly, the above
question has been referred to this Full Bench.
Section 32. DEPRECIATION :
(1) In respect of depreciation of buildings , machinery , plant or
furniture owned by the assessee and used for the purposes of the
business or profession, the following deductions shall, subject to the
provisions of section 34, be allowed
(i) .
(ii) in the case of any block of assets, such percentage on the
written down value thereof as may be prescribed:
Provided that where the actual cost of any machinery or plant
does not exceed five thousand rupees, the actual costs thereof
shall be allowed as a deduction in respect of the previous year in
which such machinery or plant is first put to use by the assessee
for the purposes of his business or profession:
(emphasis supplied)
5.1 Section 32 deals with depreciation. For our
purpose, it provides that a plant owned by the assessee
and used for the purposes of his business or profession, is
entitled for certain deductions subject to the provisions of
Section 34 and where the actual cost of any plant does not
exceed Rs.5000/-, the actual cost thereof shall be allowed
as a deduction in respect of the previous year in which such
plant is first put to use by the assessee for the purposes of
his business or profession. It is well settled that a proviso
is normally used as a legislative tool to carve out an
exception from the main provision, which precedes the
proviso. Section 32 of the Act, enables deductions in
respect of buildings, machinery, plant or furniture owned by
the assessee and used for the purpose of his business or
profession and the first proviso enables deduction of the
actual cost thereof where the actual cost of plant does not
exceed Rs.5,000/-, if such machinery or plant is first put to
use by the assessee for the purpose of his business or
profession in the previous year. Thus, to claim 100%
depreciation, an asset should be a plant; the actual cost of
the plant should not exceed Rs.5000/-; it should be owned
by the assessee; and it should be used for the purpose of
business or profession. It is not in dispute before us that
shuttering and/or centering materials, when put to use,
satisfy all the tests of plant. Therefore, what needs to be
considered is whether every individual material/component
of shuttering or centering, such as a steel plate or
wooden plank, could be treated as plant and deserve
100% depreciation as claimed by the assessee in the
instant appeal.
5.2 From a perusal of this provision, it appears to us
that the plant contemplated by the main section would
include a plant worth more than Rs.5,000/- or less. The
first proviso, however, has carved out an exception from
the main section, which precedes the proviso. If the actual
cost of any plant is less than Rs.5,000/-, as provided for in
the first proviso, it is clearly admissible for 100%
depreciation. The question is if the cost of any plant is
more than Rs.5,000/-, whether 100% depreciation could be
allowed by splitting up of the cost of such plant on the basis
of cost of every individual component/material used for the
plant such as shuttering and centering. In other words,
we would have to consider, whether it was intended to
bring every individual component or material forming a
plant under the main section and allow one rate of
depreciation, and if it is divisible and less than Rs.5,000/,
allow 100% depreciation by bringing it under the proviso.
I, therefore, answer the reference in favour of
the assessee that the Appellate Tribunal was justified in law
in holding that the assessee is entitled to claim 100%
depreciation on the centering/shuttering materials.
I also
hold that the decision of the Division Bench of this Court in
Sri Raghavendra Constructions (29 supra) is not
correctly decided in so far as it held that individual units of
centring/shuttering material would not be plant are not
entitled to 100% depreciation under the first proviso to
Sec.32 (1) since they cannot be used on a stand alone
basis. It is accordingly overruled. I hold that the view
taken in Live Well Home Finance (P) Ltd (30 supra) is
the correct one for the reasons above given.
THE HONBLE THE ACTING CHIEF JUSTICE SRI DILIP B.BHOSALE AND THE HONBLE SRI M.S.RAMACHANDRA RAO
AND
THE HONBLE SRI JUSTICE A.RAMALINGESWARA RAO
I.T.T.A. No.95 OF 2001
05-06-2015
Commissioner of Income-Tax, Visakhapatnam Appellant
S.Vijaya Kumar Respondent
Counsel for Appellant : Sri S.Vivek Chandra Shekar
Counsel for Respondent : Sri Challa Gunaranjan
<GIST:
>HEAD NOTE:
? Cases referred :
1) [(2011) 332 ITR 235 (AP)]
2) (MANU/AP/2311/2014)
3) [(1989) 175 ITR 154 (AP)]
4) (1997)227 ITC 646 (AP)
5) [(1977) 226 ITR 865 (Delhi)]
6) [(2001) 247 ITR 25 (Delhi)]
7) [1887] 19 QBD 647
8) [(1998) 229 ITR 776 (Allahabad)]
9) (2002) 256 ITR 320 (Punjab & Haryana)
10) (2003) 264 ITR 269(Madras)
11) (2005) 273 ITR 276 (Rajasthan)
12) (2006) 280 ITR 452 (Madras)
13) (2013) 354 ITR 180(Delhi)
14) (1998) 234 ITR 822 (Madhya Pradesh)
15) (2014) 367 ITR 122 (AP)
16) (1989) 177 ITR 0038
17) MANU-GJ-1163-2014
18) [1964 ITR 165]
19) [(1922) I.L.R.49 Cal.190 (P.C)]
20) [(1944) (1) Ch.281]
21) [Tax Cases Vol.49]
22) [1952 S.C 402]
23) [(1980) 122 ITR 288]
24) [ (1974) 96 ITR 672 ]
25) [AIR 1988 Kerala 140]
26) AIR 2001 SC 1339
27) (1996) 221 ITR 368
28) (2011) 332 ITR 0235
29) AIR 1972 SC 168
30) (1887) (19) Q.B. 647
31) AIR 1986 SC 338
32) (1969) 71 ITR 587 (Mad)
33) (1997) 225 ITR 84 (Guj)
34) (1884) 13 QBD 583 (CA)
35) [2000 (5) SCC 393]
36) [(1970) 76 ITR 62 (HL)]
37) [(1977) 50 TC 491 (CA)]
38) [(1994) 210 ITR 668 (Karnataka)]
39) [(1970) 75 ITR 533 (All)]
THE HONBLE THE ACTING CHIEF JUSTICE SRI DILIP B.BHOSALE
AND
THE HONBLE SRI JUSTICE M.S.RAMACHANDRA RAO
AND
THE HONBLE SRI JUSTICE A.RAMALINGESWARA RAO
I.T.T.A. No.95 OF 2001
JUDGMENT: (per the Honble The Acting Chief Justice Sri Dilip B.Bhosale,
for himself and for the Honble Sri Justice A.Ramalingeswara Rao)
In view of divergence of opinions in two judgments of
the Division Benches of this Court, the then learned Chief
Justice made reference to this Full Bench to express opinion
on the question Whether on the facts and in the
circumstances of the case, the appellate Tribunal was
justified in law in holding that the assessee was entitled to
claim 100% depreciation on the centering/shuttering
material?
2. The first Division Bench in Commissioner of
Income Tax Vs. Raghavendra Constructions( ) (for
short the first judgment) decided on 19.01.2011, while
dealing with the aforesaid question, held that if a thing
(material) itself is durable but cannot effectively stand
alone without functional integration, it would not qualify as
a plant and answered the question against the assessee and
in favour of the Revenue. The second Division Bench in
Commissioner of Income Tax Vs. Live Well Home
Finance (P) Limited( )] decided on 27-11-2014 (for short
the second judgment), however, answered the question in
favour of the assessee and against the Revenue, applying
durability and functional test to hold that every individual
thing (material), such as shuttering plate used for formation
is a plant.
3. Having noticed the divergent views/opinions
expressed by two Division Benches, another Division Bench
while dealing with the instant appeal (ITTA No.95 of 2001),
as prayed for by learned counsel for the parties, framed the
question, as reproduced in the first paragraph, vide order
dated 14-02-2015 directed the Registry to place the order
along with the proceedings before the Honble the Chief
Justice for appropriate orders. Accordingly, the above
question has been referred to this Full Bench.
4. The facts that are necessary, to deal with the
question, are that the respondent-assessee in ITTA No.95
of 2001 had claimed deduction of Rs.17,93,556/- being
depreciation on machinery, centering and shuttering
equipments at the rate of 100% for the Assessment Year
1991-92. According to the assessee, the assets include
machinery below Rs.5,000/- each of the value of
Rs.3,88,562/- and centering and shuttering equipments of
the value of Rs.13,19,434/-. In the instant case, we are
concerned only with centering and shuttering materials. The
Assessing Officer allowed depreciation to the extent of
33 1/3 % on the centering and shuttering materials. The
assessee, feeling aggrieved and dissatisfied with the order
of the Assessing Officer preferred an appeal before the
Commissioner of Income Tax (Appeals). The Commissioner
(Appeals) allowed the appeal and directed the Assessing
Officer to allow 100% depreciation as provided for in the
proviso to Section 32(1)(ii) of Income Tax Act, 1960 (for
short the Act). Against this order, the Revenue went in
appeal before the Income Tax Appellate Tribunal. The
Tribunal, relying on its earlier order in
ITA No.435/Hyd/1997 dated 13.11.1998 culminating in the
first judgment, upheld the order of Commissioner
(Appeals). It is against this backdrop, the Revenue
preferred the instant appeal under Section 260A of the
Income Tax Act, 1961 (for short the Act). We make it
clear that we have not stated the facts in detail, since, after
expressing our opinion, we propose to send the appeals to
the Court which is assigned to hear these appeals on merits
and in the light of the opinion expressed by this Bench.
5. The arguments advanced by learned counsel for
the parties were centered around Sections 32 and 43 of the
Act. The relevant portion of Section 32 (1) (ii), as it stood
at the relevant time, reads thus:-
Section 32. DEPRECIATION :
(1) In respect of depreciation of buildings , machinery , plant or
furniture owned by the assessee and used for the purposes of the
business or profession, the following deductions shall, subject to the
provisions of section 34, be allowed
(i) .
(ii) in the case of any block of assets, such percentage on the
written down value thereof as may be prescribed:
Provided that where the actual cost of any machinery or plant
does not exceed five thousand rupees, the actual costs thereof
shall be allowed as a deduction in respect of the previous year in
which such machinery or plant is first put to use by the assessee
for the purposes of his business or profession:
(emphasis supplied)
5.1 Section 32 deals with depreciation. For our
purpose, it provides that a plant owned by the assessee
and used for the purposes of his business or profession, is
entitled for certain deductions subject to the provisions of
Section 34 and where the actual cost of any plant does not
exceed Rs.5000/-, the actual cost thereof shall be allowed
as a deduction in respect of the previous year in which such
plant is first put to use by the assessee for the purposes of
his business or profession. It is well settled that a proviso
is normally used as a legislative tool to carve out an
exception from the main provision, which precedes the
proviso. Section 32 of the Act, enables deductions in
respect of buildings, machinery, plant or furniture owned by
the assessee and used for the purpose of his business or
profession and the first proviso enables deduction of the
actual cost thereof where the actual cost of plant does not
exceed Rs.5,000/-, if such machinery or plant is first put to
use by the assessee for the purpose of his business or
profession in the previous year. Thus, to claim 100%
depreciation, an asset should be a plant; the actual cost of
the plant should not exceed Rs.5000/-; it should be owned
by the assessee; and it should be used for the purpose of
business or profession. It is not in dispute before us that
shuttering and/or centering materials, when put to use,
satisfy all the tests of plant. Therefore, what needs to be
considered is whether every individual material/component
of shuttering or centering, such as a steel plate or
wooden plank, could be treated as plant and deserve
100% depreciation as claimed by the assessee in the
instant appeal.
5.2 From a perusal of this provision, it appears to us
that the plant contemplated by the main section would
include a plant worth more than Rs.5,000/- or less. The
first proviso, however, has carved out an exception from
the main section, which precedes the proviso. If the actual
cost of any plant is less than Rs.5,000/-, as provided for in
the first proviso, it is clearly admissible for 100%
depreciation. The question is if the cost of any plant is
more than Rs.5,000/-, whether 100% depreciation could be
allowed by splitting up of the cost of such plant on the basis
of cost of every individual component/material used for the
plant such as shuttering and centering. In other words,
we would have to consider, whether it was intended to
bring every individual component or material forming a
plant under the main section and allow one rate of
depreciation, and if it is divisible and less than Rs.5,000/,
allow 100% depreciation by bringing it under the proviso.
5.3 Section 43 of the Act, as it stood at the relevant
time, defines certain terms, including the word plant,
relevant to income from profits and gains of business or
profession. The relevant portion of Section 43 of the Act
reads thus:-
Section 43 : Definitions of certain terms relevant to income from profits
and
gains of business or profession:
Explanation 9.-
(3) plant includes ships, vehicles, books, scientific apparatus and
surgical equipment used for the purposes of the business or
profession but does not include tea bushes or livestock:
5.4 It is true that where the definition of a word has
not been given, it must be construed in its popular sense if
it is a word of everyday use. Popular sense means the
sense, which people conversant with the subject matter
with which the statute is dealing, would attribute to it. The
very fact that even books have been included within the
definition of plant shows that the meaning intended to be
given to plant is wide. The word includes is often used in
interpretation clauses in order to enlarge the meaning of
the words or phrases occurring in the body of the statute.
When it is so used, these words and phrases must be
construed as comprehending not only such things as they
signify according to their nature and import but also those
things which the interpretation clause declares that they
shall include. [see Commissioner of Income Tax, Andhra
Pradesh Vs. Taj Mahal Hotel (1971) 82 ITR 44 (SC)]
6. To understand the controversy and to decide the
question, we deem it appropriate to make a detailed
reference to the first and the second judgments. In the
first judgment, the Division Bench considered the
question whether on the facts and in the circumstances of
the case the Tribunal was justified in directing to allow @
100% depreciation on centering and shuttering material?
In that case, the assessee/firm had claimed 100%
depreciation of Rs.3,18,520/- towards the purchase value of
centering and shuttering equipments/materials. After
referring to several judgments of different High Courts and
the Supreme Court, the Division Bench (in the first
judgment) in the concluding paragraph observed thus:-
In all the decisions, to our mind, the Courts have applied durability
and/or functional tests. If a thing itself is durable (in the sense which can
be used and re-used as non-interdependent, interconnected a non-
consumable thing) and has functional utility in the trade or business of
the assessee to advance his business interest, such thing would be a
plant. If it is durable, but cannot effectively stand alone without
functional integration with other similar or dissimilar components or
units, it would not qualify as a plant. As is understood in the engineering
construction industry, a single unit of centering or shuttering material
by itself though durable may not have functional value. Similar units
form one integrated part which can be used as shuttering material.
Therefore, it is not possible to accept the plea of the assessees that each
similar or dissimilar component or unit, forming part of the whole
integrated shuttering material, is entitled for 100 per cent depreciation
as a plant. As observed by Lord Wilberforce (quoted with approval in
Pathange Poultry Farm vs. CIT (supra) in IRC vs. Scottish & Newcastle
Breweries Ltd. (1982) 55 Tax Cases 252 (HL).
it is too much to stomach, that each one of all the hundreds and
thousands of props or poles, sheets, plates and planks forming part of
centering or shuttering material, would be of functional utility to the
builder, contractor or the owner of the property in construction activity.
As pointed out by the Supreme Court in Challapalli Sugars Limited (supra),
the term plant is to be understood in the sense no commercial man
would misunderstand. Applying this test, we are convinced that each
item of shuttering material cannot be treated as one whole shuttering
material forming one plant eligible for 100 per cent depreciation under
the first proviso to Section 32(1)(ii) of the Income Tax Act. We answer
the Reference accordingly.
(emphasis supplied)
6.1 It would also be relevant to reproduce the
observations made by the Division Bench in the first
judgment while dealing with the definition of plant. The
relevant observations read thus:-
10. Plant is described with an inclusive definition. Anything, used
for the purpose of business or profession is a Plant. Whether a thing,
a building, a vehicle, a contrivance or a contraption is a plaintat least in
Tax jurisprudence is a vexed question. The term Plant appears in
many places in Sections 28 to 41 of the Act, which deal with computation
of profits and gains from business or profession. Determination of
Plant is relevant in computing the chargeable income from business or
profession in allowing depreciation (Section 32), investment allowance
(Sections 32-A and 32-AB), development rebate (Section 33) and
rehabilitation allowance to industrial undertaking in the event of damage
or destruction due to calamities (Section 33B).
The precedents are galore which distinguish between a building and a
Plant. If the business or industrial process is carried on with
something, it is a Plant and if business activity or industrial process
is carried on in a place or at a place, it is a building. Ramanatha Aiyars
Advanced Law Lexicon contains about 30 definitions/descriptions of the
term Plant with reference to dictionaries, precedents and statutes. The
best possible way is to understand the nature of the business, and the
purpose of a thing in such a business. If one single individual unit itself is
sufficient to carry on any business it is a Plant. But if one single
individual thing or item is not, by itself, fully useful to carry on business
or advance trade, it is certainly not a plant. Even if such a thing,
associated with many other similar or dissimilar things, is of immense
utility for the business, it is in plurality and is to be considered as Plant.
In other words, the way a businessman understands the term Plant is
the most relevant because it would carry natural and proper sense.
(emphasis supplied)
6.2 In short, it is clear, in the first judgment, the
Division Bench held that if a thing itself is durable, but
cannot effectively stand alone without functional integration
with other similar or dissimilar components or units, it
would not qualify as a plant. It was further observed that a
single unit of centering or shuttering material by itself -
though durable may not have functional value. In this
judgment, the Division Bench, among others, also referred
to the judgments in CIT Vs. Sri Krishna Bottlers Pvt.
Ltd.,( ).
7. In the second judgment, the Division Bench
considered the question whether the shuttering material
purchased by the assessee, in the Assessment Year
1995-96, qualified for 100% depreciation under Section
32 of the Act? The first judgment was placed before the
said Division Bench, which dealt with the very same
question in the second judgment. The Division Bench, in the
second judgment, extensively referred to the judgment in
Krishna Bottlers(supra) for answering the question in
favour of the assessee and against the Revenue and while
doing so made observations in paragraphs 9 to 13 as
follows:-
9. In Raghavendra Constructions case (supra), recently this court has
taken a different view. The two judgments referred to above and certain
others were cited before it. However, the Bench expressed its inability to
concur with them.
10. The judgment of this Court in Sri Krishna Bottlers Pvt. Ltd.s case
(supra) was cited extensively before the Bench that heard Raghavendra
Constructions case (supra). One of the questions that was dealt with in
Sri Krishna Bottlers Pvt. Ltd.s case (supra) was whether each bottle that is
used for serving a soft drink and the shells, in which they are arranged
qualify for 100 per cent depreciation under Section 32 of the Act. The
matter was discussed in detail, obviously because the subject was almost
untouched by that time. The judgment of the Supreme Court in CIT v. Taj
Mahal Hotel [ (1971) 82 ITR 44(SC) ] and various judgments of the courts
in India and foreign countries were discussed at length to draw support
for the conclusions. The purpose of almost each and every judgment that
was cited before their Lordships was taken note of. As regards bottles
and shells, their Lordships observed :
The bottles containing the soft drink cannot be stock-
in-trade inasmuch as the bottle by itself is not the subject of
sale. The customer or the retailer returns back the bottle to the
assessee after the soft drink is consumed. Likewise, the shells
which are sent to the customer or dealer also come back with
the empty bottles and they cannot also be stock-in-trade. What
is the function these bottles and shells perform in the assessees
trade? Are they essentially tools in the assessees business?. In
our opinion, yes. The bottles are essential tools of the trade for
it is through them that the soft drink is passed on from the
assessee to the customer. Without these bottles, the soft drink
cannot be effectively transported, like the silos in Schofield v. R
and H.Hall Ltd. [1974] 49 TC 538(CA), which are used to store
grain and to empty the same, performing a trade function. As
pointed out in Dixon v. Fitchs Garage Ltd. [1975] 50 TC 509
(Ch.D), the bottles and the contents are totally interdependent.
So are the shells. The bottles and shells also satisfy the durability
test for it is nobodys case that their life is too transitory or
negligible to warrant an inference that they have no function to
play in the assessees trade. They are therefore plant for the
purpose of the Act.
The principle that a setting in which the trade is
conducted in not attracted to the facts of the case of all. The
bottles and shells have nothing to do with the building in which the
trade in conducted nor with the setting in which it is conducted.
Each bottle and each shell is an entity by itself and they cannot be
broken down into pieces for considering whether they have any
part to play in the business of the assessee. The bottles and shells
are gross matter and, in fact, gross materiality is not a requirement
at all for a thing to be treated as plant.
For the aforesaid reasons, we agree with the decision of
the Rajasthan High Court in CIT v. Jai Drinks P.Ltd. [1988] 173 ITR
100 (Raj). That case also related to bottles and shells, the assessee
being a seller of soft drinks. The learned judges, after referring to
the two Supreme Court Judgments referred to above, also referred
to the decision of the Delhi High Court in CIT v. National Air
Products Ltd. [1980] 126 ITR 196) Delhi and of the Calcutta High
Court in CIT v. Steel Rolling Mills of Hindustan P.Ltd. [1987] 164 ITR
633 (Cal), wherein it was held that gas cylinders fall within the
definition of plant. The fact that in the latter two cases, gas could
not otherwise be transported especially by cylinders made for that
purpose makes no difference.
11. At the end, the reference was answered in favour of the assessee
and against the Department.
12. However, in Raghavendra Constructions s case(supra), another
Division Bench of this Court observed as under:
Applying the above principles, this court held that the
bottles and shells used by soft drinks bottling industry is plant.
The Division Bench nowhere observed that each bottle or each
shell would also be a plant for the purpose of Section 32(1)(ii).
13. It was proceeded as though in Sri Krishna Bottlers Pvt. Ltd.s case
(supra), each bottle and shell was not treated as unit qualifying for
depreciation under Section 32(1)(ii) of the Act. This does not appear to
be correct. The underlined portion of the Judgment in Krishna Bottlers
Pvt. Ltd.s case (supra) makes this clear.
7.1 Then, the Division Bench (in the second
judgment) after referring to the judgment in Krishna
Bottlers (supra) in paragraphs 15, 16 and 27 observed
thus:-
15. The precedents can be treated as having been rendered sub
silentio, if an otherwise binding precedent or a specific provision of law
was not taken note of. Generally, we do not come across the instances
of a judgment being treated as sub silentio, if the binding precedent is
taken note of. However, if the ratio emerging from a binding precedent
was treated as non-existing and the judgment was rendered contrary to
what was decided in the precedent, a situation may arise, where the
judgment so rendered almost resembles, the one done in sub silentio.
16. It has already been demonstrated that the ratio in Sri Krishna
Bottlers Pvt. Ltd.s case (supra), which is to the effect that each bottle
and shell deserve to be treated as independent units and qualify for
100% depreciation was treated as nonexistent at all in Raghavendra
constructions case (supra). Since both the judgments referred to above
were rendered by Division Benches only, we are faced with the problem
of choosing, since there is conflict of views.
27. The discussion can be further prolonged on academic lines. The
effort is only to drive home the point that if a Court is placed with two
precedents rendered by itself, one in conflict with the other, it has every
right to choose as between the two and by doing so, it does not do any
violence to the other. At the most, it may be an occasion for the superior
Court to resolve the rule on ostensible conflict. Applying these
principles, we prefer to follow the ratio in the judgment of this Court in
Sri Krishna Bottlers Pvt. Ltd.s case (supra) than to be guided by the
judgment in Raghavendra Constructions case (supra).
(emphasis supplied)
7.2 The Division Bench (in the second judgment)
also considered the doctrine of sub silentio and the doctrine
of stare decis and noticing the distinction between ratio and
dictum with reference to the same judgment, ultimately
held in favour of the assessee and against the Revenue.
The concluding para of the second judgment is relevant,
which reads thus:-
30. On merits also, we are convinced that the irreducible minimum
for the shuttering material is the individual plates, for providing support
to the reinforced concrete and cement or the poles and bars that are
used at the time of formation. We choose to fall in line not only with the
judgment of this Court in Sri Krishna Bottlers Pvt. Ltd.s case (supra),
which in turn has dorawn its conclusion based upon the judgment of the
Supreme Court in Commissioner of Income Tax vs. Taj Mahal Hotel, but
also the judgments rendered by the other High Courts.
8. In this backdrop, it has become imperative to
make a detailed reference to the judgment in Krishna
Bottlers (supra). In Krishna Bottlers (supra), this
Court considered the question whether, on the facts and in
the circumstances of the case, the bottles and shells
constitute plant and depreciation is admissible thereon
under Section 32(1)(ii) of the Act, for the Assessment Year
1976-77? The assessee before the Court was a Private
Limited Company manufacturing soft drinks and selling the
same at Hyderabad and other places. The Company was
claiming breakages in bottles in the respective years as a
deduction. For the Assessment Year 1976-77 the Company
had claimed deduction under the first proviso to Section
32(1)(ii) of the Act in respect of the bottles and shells
purchased and put to use during the year. During the
relevant year the Company had purchased bottles to the
tune of Rs.3,25,021/- and claimed that the same should be
allowed as outright deduction. The claim was, however,
rejected by the Income Tax Officer. In this backdrop, the
matter reached this Court.
8.1 Honble Justice Jagannadha Rao, as he then was,
speaking for the Division Bench, after considering several
English judgments and so also the judgments of the
Supreme Court and High Courts carved out the principles or
the tests to hold whether an apparatus or thing could be
treated as plant thus:-
From the aforesaid rulings, the following principles can be gathered:
(1) Plant in section 43 (3) of the Act is to be construed in the popular
sense, namely, in the sense in which people conversant with the subject
matter with which the section is dealing, would attribute to it. The word
plaint is to be given a very wide meaning. In its ordinary sense, it
includes whatever apparatus is used by a businessman for carrying on
his business but it does not include his stock-in-trade which he buys or
makes for sale. It, however, includes all goods and chattels, fixed or
movable, live or dead which the tradesman keeps for permanent
employment in his business. (2) But the building or the setting in
which the business is carried on cannot be plaint. (3) The thing need not
be part of apparatus used in carrying on the business but having a
degree of durability. (4) Merely because the asset has a passive
function in the carrying on of the business, it cannot be said that it is not
plaint. It may have a passive or an active role. (5) The subject must
have a function in the traders operation and if it has, it is prima facie
a plant unless there was good reason to exclude it from that category.
It must be a tool in the trade of the businessman. (6) Gross materiality
or tangibility is not necessary and, in fact, intangible things like ideas and
designs contained in a book could be plaint. They fall under the
category of intellectual storehouse. (7) In considering whether a
structure is plaint or premises, one must look at the finished product and
not at the bits and pieces as they arrive from the factory. The fact that a
building or part of a building holds the plant in position does not,
convert the building into plant. A piecemeal approach is not
permissible and the entire matter must be considered as a single unit
unless of course, the component parts can be treated as separate units
having different purposes. (8) The functional test is a decisive test.
(emphasis supplied)
8.2 Bearing the principles/tests in view, the Division
Bench in that case answered the question that fell for its
consideration in favour of the assessee and against the
Revenue with the following observations in the concluding
paragraphs:-
Bearing these principles in mind, we shall approach the facts of the
present case. The bottles containing the soft drink cannot be stock-in-
trade inasmuch as the bottle by itself is not the subject of sale. The
customer or the retailer returns back the bottle to the assessee after the
soft drink is consumed. Likewise, the shells which are sent to the
customer or dealer also come back with the empty bottles and they
cannot also be stock-in-trade. What is the function these bottles and
shells perform in the assessees trade? Are they essentially tools in the
assessees business? In our opinion, yes. The bottles are essential tools
of the trade for it is through them that the soft drink is passed on from
the assessee to the customer. Without these bottles, the soft drink
cannot be effectively transported, like the silos in Schofield v. R. and H.
Hall LTd. [1974] 49 TC 538 (CA), which are used to store grain and to
empty the same, performing a trade function. As pointed out in Dixon v.
Fitchs Garage Ltd. [1975] 50 Tc 509 (Ch D), the bottles and the contents
are totally interdependent. So are the shells, The bottles and shells
also satisfy the durability test for it is nobodys case that their life is too
transitory or negligible to warrant an interference that they have no
function to play in the assessees trade. They are therefore plant for
the purposes of the Act.
The principle that a setting in which the trade is conducted is not
attracted to the facts of the case at all. The bottles and shells have
nothing to do with the building in which the trade is conducted nor with
the setting in which it is conducted. Each bottle and each shell is an
entity by itself and they cannot be broken down into pieces for
considering whether they have any part to play in the business of the
assessee. The bottles and shells are gross matter and, in fact, gross
materiality is not a requirement at all for a thing to be treated as plant.
For the aforesaid reasons, we agree with the decision of the
Rajasthan High Court in CIT V. Jai Drinks (P) Ltd. [1988] 173 ITR 100.
That case also related to bottles and shells, the assessee being a seller of
soft drinks. The learned judges, after referring to the two Supreme Court
judgments referred to above, also referred to the decision of the Delhi
High Court in CIT v. National Air Products Ltd. [1980] 126 ITR 196 and of
the Calcutta High Court in CIT v. Steel Rolling Mills of Hindusthan (P.)
Ltd. [1987] 164 ITR 633, wherein it was held that in the latter two cases,
gas could not otherwise be transported especially by cylinders made for
that purpose makes no difference. The cylinders are not stock-in-trade
and are returned back to the trader as are the bottles and shells in the
present case. They too satisfy the functional test and answer the
definition plant.
(emphasis supplied)
8.3 The observations of the Division Bench that each
bottle and each shell is an entity by itself should be
understood in the context by reading the whole sentence.
Their Lordships were of the opinion that they cannot be
broken down further for considering their part of play in the
business but did not express their view that in case of
material which can be broken down further, whether it
entails for higher depreciation. That issue did not arise for
consideration in that case.
8.4 Thus, in Krishna Bottlers (supra) after
considering several English judgments and also the
judgments of this Court and other High Courts, laid down
the tests/principles to hold any particular article as plant.
As per the principles laid down in that judgment, one of the
tests is that an article must have a function in the traders
operation and if it has, it is prima facie a plant, unless there
is good reason to exclude it from that category. It must be
a tool in the trade of the businessman. It further laid
down that for considering whether an article is plant, one
must look at the finished product and not at the bits and
pieces as they arrive from the factory. Functional test was
held to be a decisive test.
8.5 It may be noticed that the question before the
Division Bench in Krishna Bottlers (supra) was not as
quoted in the second judgment in para.10, viz., whether
each bottle that is used for serving a soft drink and the
shells, in which they are arranged, qualify for 100%
depreciation under Section 32 of the Act. The only
question in Krishna Bottlers (supra) was, at the cost of
repetition, whether on the facts and in the circumstances
of the case, bottles and shells constitute plant and
depreciation is admissible thereon under Section 32(1)(ii)
of the Income Tax Act, 1961 for the Assessment Year
1976-77?
9. An identical question as in Krishna Bottlers
(supra) came up for consideration before another Division
Bench in The Commissioner of Income Tax, Central,
Hyderabad v. M/s.Margadarsi Chit Fund (P) Ltd.,( )
which was decided on 13.03.1997. The questions of law
that were considered by the Division Bench were as follows:
1. Whether on the facts and in the circumstances of the
case, the ITAT is correct in law in holding that the assessee is
entitled for 100% depreciation on bottles and crates treating
them as plant in the business carried on by the assessee
2. Whether on the facts and in the circumstances of the case,
the ITAT is correct in law in holding that the assessee company
is entitled for 100% depreciation on bottles and crates in the
assessees business of leasing them out on hire?
9.1 It is an appeal filed by the Revenue. The learned
counsel for the Revenue submitted that even if for the
purpose of the business of the respondent, the bottles are
treated as plant within the meaning of Section 32 (1), yet
the deduction is leviable only when the purchase is enblock
and cannot be allowed in respect of single bottles which
would obviously be priced less than Rs.5,000/-. The
Division Bench followed the view of Krishna Bottlers
(supra) and held that bottles constitute plant for the
purpose of business or profession of the respondent. It
further held as follows:
Once such a ground applies and indeed the fact is conceded
by Mr.S.R.Ashok, in view of the decision in KRISHNA BOTTLERS
CASE, the further question raised by the learned counsel does
not arises. There is no distinction that the purchase on which
the depreciation would be allowed must be bulk purchase of a
large number and that it would be disallowed if the purchase is
of single items. There is no evidence that the bottles in respect
of which depreciation was claimed were not subject of bulk
purchase. Even apart from it, a bulk purchase is merely
individualized purchase made collectively and we do not find
any distinction in the provisions of Section 32(1) or the proviso
distinction possible to be drawn in the manner suggested. The
only test is whether the article in respect of which depreciation
is claimed is plant for the purpose of the business or
profession. Individual items of purchase would also be plant if
it is integrally involved in the carrying out of the profession or
business and deprecation could be claimed in respect of that.
and accordingly dismissed the case filed by the Revenue.
9.2 In our view, the observations made by the said
Division Bench that there is no distinction that the purchase
on which the depreciation would be allowed must be bulk
purchase of a large number and that it would be disallowed
if the purchase is of single items and individual items of
purchase would also be plant if it is integrally involved in
the carrying out of the profession or business and
depreciation could be claimed in respect of that, is obiter in
nature. The said issue did not arise for consideration nor
elaborate arguments were advanced on the said point
before the Division Bench. Hence, in our opinion, the
observations in Margadarsi (supra) cannot be construed
as laying down a ratio.
10. We would also like to make a brief reference to
the judgments relied upon by the learned counsel for the
parties in support of their contentions. In Commissioner
of Income Tax Vs. Prem Nath Monga Bottles(P)
Ltd.,( ), the Delhi High Court considered almost identical
question in respect of Bottles and after referring to Krishna
Bottlers (supra) answered the question in favour of the
assessee and against the Revenue. In yet another
judgment of the Delhi High Court in Joint Commissioner
of Income Tax Vs. Anatronics General Co.(P) Ltd.,( )
similar view was taken while dealing with the question as
regards the rate of depreciation on the bottles given on
lease to another concern. Though ultimately, the Delhi High
Court held that no question of law much less substantial
question of law arose out of the order of the Tribunal in
view of the settled position of law, made specific reference
to the definition of plant and observed thus:-
The definition of plant given by Lindley L. J. in Yarmouth v. France
[1887] 19 QBD 647 has become locus classicus. He said (page 658):
There is no definition of plant in the Act : but, in its ordinary sense, it
includes whatever apparatus is used by a businessman for carrying on
his business, not his stock-in-trade which he buys or makes for sale; but
all goods and chattels, fixed of movable, live or dead, which he keeps
for permanent employment in his business. It is of relevance to note
that section 43 (3) of the act defines plant by way of an inclusive
definition; thereby intending to enlarge the meaning of the expression.
In Scientific Engineering House P. Ltd v. CIT [1986] 157 ITR 86 (SC), it was
observed that in order to qualify as plant, the article must have some
degree of durability the test to be applied for such determination is
does the article fulfil the function of a plant in the assessees trading
activity? Is it a tool of his trade with which he carries on his business? If
the answer is in the affirmative, it will be a plant. Judged in the above
background the Tribunals conclusions are on terra firma.
(emphasis supplied)
10.1 One would have to bear in mind that the word
plant had not been defined in the relevant Act when the
Yarmouth v. France( )was decided. But we are dealing
with the case when definition of the word plant is available
in the Act and, therefore, we would have to consider the
question in the light of the intent of Legislature.
11. The Allahabad High Court in Harijan Evam
Nirbal Varg Avas Nigam Ltd., Vs. Commissioner of
Income Tax( ) considered the question whether, on the
facts and in the circumstances of the case, the Tribunal
was, in law, justified in holding that depreciation of
shuttering material is allowable? While dealing with the
question, the Division Bench observed thus:-
Shuttering is normally used to support the roof when concrete is
being laid on it. These are not items of consumable stores, for they are
retrieved after the roof has been laid, and used again elsewhere. It is like
any other tool with the help of which construction is done, say, Karni,
Tasla, Kudel or Spade. It is not, therefore, correct to hold that
shuttering material is not plant or machinery. In our opinion, with
which the Karigars and masons work would be. The assessee is,
therefore, entitled to depreciation on shuttering material and the same
be allowed to it.
Under section 43 of the Act, plant includes ships, vehicles, books,
scientific apparatus and surgical equipment used for the purposes of the
business or profession but does not include tea bushes or livestock. The
word plant has come up for interpretation before various courts on
numerous occasions in the context of different statutes and the catena of
judicial decisions shows that it is word of wide and varied import,
susceptible of diverse meanings of depending upon its setting in the
scheme of the statute. The word plant in its ordinary meaning is a
word of wide import and it must be broadly construed having regard to
the fact that articles like books and surgical equipment are expressly
included in the definition of plant in section 43 (3) of the Act. It includes
any article or object, fixed or movable, live or dead, used by the
businessman for carrying on his business. It is not necessarily confined
to an apparatus which is used for mechanical operation or processing or
is employed in mechanical or industrial business. It, however, does not
cover the stock-in-trade or an article which is merely a part of the
premises in which business is carried on.
To reach a correct conclusion whether a given item is plant or not
the inquiry must be made is as to what operation the apparatus
performs in the assessees business. The relevant test to be applied is:
Does it fulfill the function of plant in the assessees trading activities? Is
it the tool of the taxpayers trade? If it is, then it is plant. No matter
that it is not very long lasting or does not contain working parts such as a
machine does and plays merely a passive role in the accomplishment of
the trading purpose. So the main test is whether a given item is such
without which business cannot be carried on.
The assessee being engaged, inter alia, in the activity of building
construction, it can be said with certainty that without shuttering no
building can be erected and, therefore, the shuttering material is an
essential part for carrying on the construction work by the assessee.
We, therefore, fully agree with the conclusion reached by the
Appellate Tribunal that the shuttering material being plant, the
depreciation will be allowable to the assessee on that material.
(emphasis supplied)
12. In Commissioner of Income Tax Vs. Akal
Constructions and Engineering Company( ), the High
Court of Punjab and Haryana while dealing with a similar
question in respect of shuttering materials observed that
the assessee had purchased various items for being used in
the construction work and since each item was below
Rs.5000/-, the Tribunal had rightly accepted the assessees
claim for 100% depreciation inconformity with the
provisions of Section 32(1) (ii) of the Act.
13. The Madras High Court in Commissioner of
Income Tax Vs. Alagendran Finance Limited( ) dealt
with the question pertaining to centering sheets and held
that the assessee was entitled to 100% depreciation on
centering sheets as per the proviso to Section 32(1)(ii) of
the Act, because they are individual plant and machinery.
The Madras High Court in this judgment, for taking such a
view, placed reliance upon the judgment of the same High
Court in First Leasing Co. of India Ltd (supra), which
dealt with the similar question pertaining to bottles.
14. In Commissioner of Income Tax Vs. Mohta
Constructions Co.( ), the Rajasthan High Court also took
similar view while dealing with a use of shuttering materials
relying upon the judgment of Allahabad High Court in
Harijan Evam Nirbal Varg Avas Nigam Ltd(supra).
15. In Express Newspapers Ltd., Vs. Deputy
Commissioner of Income Tax( ), the Madras High Court
while dealing with the similar question in respect of
scaffolding material, relying upon, among the other, the
judgment in Harijan Evam Nirbal Varg Avas Nigam
Ltd(supra) took similar view.
16. The High Court of Delhi in Commissioner of
Income Tax Vs. Ansal Housing Finance and Leasing
Company( ) dealt with the question of 100% depreciation
on shuttering and scaffolding materials and relying upon
several judgments including the judgment of the Allahabad
High Court in Harijan Evam Nirbal Varg Avas Nigam
Ltd(supra) answered the question in favour of the
assessee. For taking this view, the Delhi High Court also
placed reliance upon its Judgment in Anatronics General
Company (supra) and the judgment of the Rajasthan High
Court in Mohata Constructions Company (supra).
17. In Commissioner of Income Tax Vs.
Singhania Enterprises( ), the Madhya Pradesh High
Court, however, while dealing with a similar question
pertaining to centering material directed the Tribunal to
examine the case in the light of observations made in the
judgment on the factual aspect to determine whether each
plate of the centering material can constitute a plant or
not.
18. In yet another judgment of this Court in Vinod
Bhargava Vs. Commissioner of Income Tax( ) took
similar view as taken in the second judgment.
19. The Madras High Court in Mysore Dasaprakash
Vs. Commissioner of Income Tax( ) considered the
question whether on the facts and in the circumstances of
the case, the Tribunal was right in its view that the items
like, switch boards, verandah lights, distribution boards
etc., making up of electricity system and the sanitary
pipelines and fittings have to be considered as one
integrated whole and not as an independent plant. The
assessees claim in that case, for depreciation under the
proviso to Section 32(1)(ii) of the Act, at the rate of 100%,
on electrical switch boards, distribution boards, sanitary
pipeline installations, etc. in respect of certain new
constructions in the existing building was rejected on the
ground that the installations should be considered as an
integrated unit and depreciation allowed only at 10%.
Holding that it was not proper to work out separately
the cost of individual items used to ascertain
whether the cost did not exceed Rs.750/-, it was held that
the electrical switch boards, distribution boards and the
fittings formed constituent parts of the entire electricity
supply system as a whole and there was no scope for
cutting up the aggregate expenditure into several parts
room-wise, as claimed by the assessee. The benefit arising
out of the installation of electricity switch boards,
distribution boards, etc. was not confined to any particular
room but was intended to regulate, distribute and make
available electricity to all the rooms. To break up this
expenditure in relation to the electrical system room-wise
would be unreal and wholly artificial. Accordingly,
considering the electricity system as an integrated whole,
the expenditure incurred on it had to be treated as such
and there was no scope for dissecting the electrical system
into different component parts for each room and working
out depreciation under the proviso to section 32(1)(ii) of
the Act. Similarly, as sanitary pipelines and fittings (with
the exception of commodes, seat covers, etc., in each room
for which depreciation at 100% had been allowed) were
intended to serve all rooms as a whole and not any
particular room, they had to be regarded as an integrated
unit and hence there was no possibility of apportioning the
expenditure relating to that with reference to each room.
Thus, it was held that the Tribunal was right in its view that
the allowable depreciation on electrical system and sanitary
pipelines and fittings had to be restricted to 10 per cent.
20. In Assistant Commissioner of Income Tax
Vs. Ravi Construction( ), the Gujarat High Court had an
occasion to consider the question: is centering material to
be viewed as block of assets for the purpose of allowing
deduction in respect of depreciation under Section 32(1)(ii)
of the Act? and further is depreciation allowable at 100%
on the centering material as against normal rate of
depreciation at 33.1/3 % for plant and machinery?.
Gujarat High Court dismissed the appeals filed by the
Revenue answering both the questions infavour of the
assessee.
21. The High Court of Karnataka in Pathange
Poultry Farm Vs. Commissioner of Income Tax [1994
ITR 210 (668)] considered the question whether each cage
was a plant by itself and, therefore, entitled to depreciation
at 100 per cent under Section 32 (1) (ii) of the Act. The
assessee had claimed 100 per cent depreciation on the cost
of cages purchased on the ground that each cage was a
separate plant whose value being less than Rs.750/-. The
assessees claim was, however, disallowed holding that the
cages were not separate but one continuous fabricated unit
in which the partitions are made for a number of birds to be
enclosed in each compartment. In this backdrop, the
matter reached the High Court. The Division Bench
(S.B.Majmudar and T.S.Thakur, JJ) after considering
several judgments of different High Courts
and also English judgments observed that
the position of smaller cages is no better than the
components of an engine which in a knocked down
condition do not perform any function but when assembled
together make a vital contribution towards the functioning
of the engine. It was further observed that just as the
components of an engine cannot be treated as plant in
themselves, so also these cages cannot be termed as plant
to individually qualify for the depreciation allowance claimed
by the assessee. It was further observed that for any article
or thing, component or object to be termed plant itself so
as to qualify for depreciation allowance at 100 per cent of
the cost incurred on the purchase or fabrication thereof, the
article or component, as the case may be, must be used by
the assessee, as a self-contained unit and not as a part or
attachment of a bigger unit as in the case of cages. This,
however, does not mean that the article or object would
cease to be plant for the purpose of depreciation, as a part
of the bigger unit. All that it would mean that while it may
qualify for depreciation as a part or extension of the bigger
plant of which it becomes a part, it would not be entitled to
be termed plant in itself to qualify for the allowance in its
own right.
22. The Supreme Court in Commissioner of
Income Tax, Madras Vs. Mir Mohammad Ali( )
considered the question whether extra depreciation is
admissible under the provisions of Section 10(2)(via) of the
Income Tax Act, 1922 (for short 1922 Act) in respect of a
diesel oil engine fitted to a motor vehicle in replacement of
the existing engine? While dealing with this question, the
Supreme Court extensively quoted and considered the
provisions contained in all clauses of Section 10(2) of the
1922 Act. The Supreme Court also considered the word
machinery used in all the clauses of Section 10(2) and
observed that if a machine is machinery for purposes of
giving an allowance in respect of insurance or for repairs or
in respect of normal depreciation or for the purpose of
paragraph one of Clause (vi), it must also be machinery for
the purpose of the second paragraph of Clause (vi) and
Clause (via). Then after considering the scheme of
paragraph two of Clause(vi) and Clause (via), observed that
it is different from that of paragraph one of Clause (vi)
inasmuch as before it can qualify for extra depreciation, the
machinery must be new and must be installed, and the rate
of depreciation is provided in the Act itself. Keeping in view
this scheme, it was urged before the Supreme Court that
the word machinery must be given a restricted meaning in
paragraph two of Clause(vi) and Clause (via), and the
meaning suggested is that it must be a self contained unit
capable of being put to use in the business, profession or
vocation for the benefit of which it was installed. While
dealing with this contention, the Supreme Court observed
as follows:-
First, we do not think that there is anything in the
scheme of the second paragraph of clause (vi) and clause
(via) that throws any light on the construction of the word
machinery in these clauses. It is true that the machinery
must be new and it must be installed and the rate of
allowance is prescribed in the Act itself. But the
requirement that the machinery must be new does not tell
us what is machinery. Assuming for the present that a
diesel engine is machinery, if an assessee buys and installs
a second hand diesel engine, he will not be given the extra
allowance under the second paragraph of clause (vi), and
the ground would be that the engine is not new and not
that because it is second hand it is not machinery.
Similarly, if it is purchased but not installed, the ground of
refusal would be that it has not been installed and not that
because it has not been installed it has ceased to be
machinery. Suppose a new machinery is purchased but
not installed, it would not qualify for extra depreciation on
the ground that it has not been installed and not because it
has ceased to be machinery due to its non-installation.
The fact that the rate of depreciation is provided for in the
Act has also no bearing on the question of the construction
of the word machinery. This fact only indicates that the
legislature had made up its mind as to the extent of
encouragement to be given to industry and, therefore, it
did not consider it necessary to delegate this to the rule-
making authority.
22.1 The Supreme Court then considered the
judgment of Privy Council in the case of Corporation of
Calcutta Vs.Chairman, Cossipore and Chitpore
Municipality( ) and reproduced the definition of
machinery in the judgment. The Privy Council in that case
hazarded the definition of machinery to mean, some
mechanical contrivances which, by themselves or in
combination with one or more other mechanical
contrivances, by the combined movement and inter-
dependent operation of their respective parts generate
power, or evoke, modify, apply or direct natural forces with
the object in each case of effecting so definite and specific a
result. It was then observed that when the assessee
purchased the diesel engines, they were not plant or part
of a plant: because they had not been installed in any
vehicle. They were, according to the definition given by the
Privy Council, machinery. They were not yet part of a
plant, and, according to the Act, 20% of the cost thereof
was allowable to the assessee. It was further observed that
all the conditions required by the Act satisfied. If we look
at the point of time of purchase and installation, what was
purchased and installed was machinery. Ultimately, the
majority judges in this case (Mir Mohammad Ali)
answered the question in the affirmative.
23. In Taj Mahal (supra) the Supreme Court
considered the question whether sanitary and pipeline
fittings in a building , which is run as a hotel would fall
within the meaning of the word plant in Section
10 (2) (vi-b) of the 1922 Act. Section 10(5) of the 1922
Act defines the word plant, which includes vehicles, books,
scientific apparatus and surgical equipment purchased for
the purpose of the business, profession or vocation. In
paragraph 11 the Supreme Court observed thus:-
11. It cannot be denied that the business of hotelier is
carried on by adapting a building or premises in a suitable
way to be used as a residential hotel where visitors come
and stay and where there is arrangement for meals and
other amenities are provided for their comfort and
convenience. To have sanitary fittings etc. in a bath-room
is one of the essential amenities or conveniences which are
normally provided in any good hotel, in the present times.
If tine partitions in Jarrolds case (supra) could be treated
as having been used for the purpose of the business of the
trader, it is incomprehensible how sanitary fittings can be
said to have no connection with the business of the
hotelier. He can reasonably expect to get more custom
and earn larger profit by charging higher rates for the use
of rooms if the bath-rooms have sanitary fittings and
similar amenities. We are unable to see how the sanitary
fittings in the bath-rooms in a hotel will not be plant
within Section 10 (2) (vi-b) read with Section 10 (5) when
it is quite clear that the intention of the Legislature was to
give it a wide meaning and that is why, articles like books
and surgical instruments were expressly included in the
definition of plant. In decided cases, the High Courts
have rightly understood the meaning of the term plant in
a wide sense. (See Commissioner of Income-tax, U.P. v.
Indian Turpentine and Rosin Co. Ltd.).
MANU/UP/0144/1969 : [1970] 75 ITR 533 (All)]
23.1 Then the Supreme Court observed that the High
Court was right in not accepting the reasoning of the
Tribunal based on the rates relating to depreciation under
Section 10(2)(vi) and the assessee having claimed that the
sanitary and pipe-line fittings fell within the meaning of
furniture and fittings in Rule 8(2) of the Rules. It has been
rightly observed that the Rules were meant only for the
purpose of carrying out the provisions of the Act and they
could not take away what was conferred by the Act or
whittle down its effect. If the assessee had claimed higher
depreciation allowance that would not detract from meaning
of the word plant in Clause (vi-b) of Section 10(2) of the
1922 Act and thus dismissed the appeal filed by the
Revenue.
23.2 It is necessary to notice that in Taj Mahal
(supra) the judgment in J.Lyons and Company Limited
Vs. Attorney General( ) was relied upon by the Revenue
and while dealing with the submission based on these
judgments, the Supreme Court observed that it is
distinguishable and it hardly supports the contention of the
Revenue. In that case, it was held that electric lamps and
fittings in a tea shop were not part of the apparatus used
for carrying on the business but were part of the setting in
which the business was carried on and, therefore, were not
plant, within the meaning of certain provisions of the War
Damage Act, 1943. It was further observed if these
articles are plant, it can only be by reason that they are
found on premises exclusively devoted to trade purposes.
Trade plant alone need be considered.
24. In St.Johns School (Mountford and
Another) Vs. Ward( ) the High Court of Justice (Chancery
Division), the question that was considered was whether
the expenditure incurred in the accounting years ended on
31-01-1968 and 03-01-1969 respectively of structures for
use in trade were in whole or part expenditure on the
provisions of machinery or plant within the meaning of
Sections 18 & 19 of the Capital Allowances Act, 1968.
Templeman, J speaking for the Bench after considering
the observations made in Yarmouth (supra) as to what is
plant, proceeded to consider the judgment in
Commissioners of Inland Revenue Vs. Guthrie( ).
That case concerned a motor car and the question was
whether the taxpayer was entitled to an initial allowance in
respect of the expenditure, which he paid for that Car in
order that it might be used for business purposes. He had
the misfortune to pay his money and never get the motor
car owing to default of the company from which it had been
ordered. It was held that the purchase price was paid for
the provision of plant i.e., the motor car and the relief was
granted accordingly.
24.1 The Supreme Court in Taj Mahal (supra)
though held that sanitary and pipeline fittings in a building
which is run as a hotel would fall within the meaning of the
word plant, distinguished the case J.Lyons and
Company Limited (supra) and held that electric lamps
and fittings in a tea shop were not part of the apparatus
used for carrying on the business and they were the part of
setting in which the business was carried on and, therefore,
were not plant. Thus, the functional test assumes
importance. One can use the car for his business and not
spare parts. Even if spare parts are held to be plant, but if
they are not used for his business independently, they
cannot be treated as plant. The light and pipeline fittings in
a hotel building are plant but the light and pipeline fittings
cannot be treated as plant if they are not used for
business independently as seen from the judgment of the
Supreme Court in Taj Mahal (supra).
Shuttering/centering is undoubtedly a plant, but its
components which cannot be put to use in the business
independently, cannot be treated as plant.
25. The Bombay High Court in Commissioner of
Income Tax, Bombay Vs. Tata Hydro Electric Power
Supply Company Limited( )considered the question
whether on the facts and in the circumstances of the case,
it was rightly held that the assessee was entitled to
development rebate on the expenditure incurred by the
assessee for the Assessment Year 1962-63 and 1963-64 on
anchoring Walawhan Dam and cement grouting of
Shirawata Dam. The question was answered in the
affirmative after considering several judgments including
the judgment of the Supreme Court in Taj Mahal (supra).
The relevant observations in the judgment read thus:-
It should not be overlooked that Walawhan Dam and
Shirawata Dam were constructed in the years 1911 and
1916. At that time, the modern technique for construction
of dams was not so much advanced. In the two years,
with which we are concerned, lakhs of rupees have been
spent in anchoring Walawhan Dam and Shirawata Dam. It
is undoubtedly true that by incurring this expenditure no
independent asset has come into existence but in order to
entitle an assessee to claim development rebate creation of
an independent asset is not essential. If by incurring this
expenditure the existing dams have been so strengthened
as to prolong their lives for a sufficiently long duration,
then by incurring this expenditure a new plant can be said
to have been installed so as to entitle the assessee to claim
development rebate. Instead of demolishing the old dams
and constructing new ones in their place, what has been
done by the assessee by modern scientific technique is
that huge expenditure has been incurred as a result of
which the lives of the existing dams will be prolonged for a
sufficiently long period. This will result in a new plant
being installed within the meaning of s.33 of the Act, even
though by the incurring of the expenditure, the dams are
not having any independent existence apart from the old
dams themselves. Thus, by adopting the Coyne method of
anchoring the two dams the new plant can be said to have
been installed within the meaning of s.33 of the Act, and
the Tribunal was right in allowing the claim of the assessee
for development rebate.
25.1 Then the Bombay High Court referred to the
judgment of the Gujarat High Court in CIT Vs. Elecon
Engineering Company Limited( ) wherein it was held
that the drawings and patterns, which constitute know-how
and are fundamental to the assessees manufacturing
business, are plants. It is further observed that it is well
settled in view of the judicial pronouncements that neither
the word plant nor the word machinery is confined to a
self-contained unit plant includes part of a plant, e.g., the
engine of a vehicle; machinery includes part of a
machinery, and building includes part of a building.
25.2 With respect to the Honble Judges for making
such observations, we did not find any judgment so far
holding that the plant includes part of a plant. To support
we would like to state that a Car is a plant or engine of the
vehicle is a machinery but in any case spare parts of the car
or of the machinery cannot be treated as a plant because
the same cannot be used in the business/profession of the
assessee independently. Similarly, every single
component/unit forming a shuttering or centering cannot be
used independently in the business of construction. In other
words, unless every component/unit of shuttering is
combined with one or more similar or dissimilar
components/units, it cannot put to use in shuttering which
is the plant in itself.
26. The Karnataka High Court in Pathange Poultry
Farm (supra) took similar view that any article or thing,
component or object to be termed plant itself so as to
qualify for depreciation allowance at 100 per cent of the
cost incurred on the purchase or fabrication thereof, the
article or component, as the case may be, must be used by
the assessee, as a self-contained unit and not as a part or
attachment of a bigger unit. In a given case a
component/article being used as a shuttering/centering
material could be treated as plant, but it cannot be
treated as a plant if it is part of shuttering, which is a plant
in itself. In other words, a component/article being used for
shuttering, which is a plant in itself, would not qualify for
depreciation under proviso to Section 32 (1) (ii) of the Act
as a part or extension of the bigger plant of which it
becomes a part and it would not be entitled to be termed as
a plant in itself to qualify for the allowance in its own
right.
27. In this backdrop, it would be relevant to know
what does the words centering and shuttering exactly
mean, or how they are understood in common parlance or
in civil engineering, and what exactly centering or
shuttering materials mean. This is necessary, since in the
present case what falls for our consideration is whether
materials or components collectively or individually, used
for centering or shuttering could also be treated as plant.
At the out set, in our opinion, as observed earlier,
shuttering-which is a supporting structure, used to shape
and support the concrete until it attains strength, is a plant
within the meaning of section 43 of the Act. The question,
however, is whether every unit/component (thing) used for
forming shuttering or centering could be treated as plant.
The words centering or shuttering are not defined in any
enactment or elsewhere, and therefore, it would be
necessary to find out how they are understood in civil
engineering.
27.1 Dictionary meaning of the word centering is a
temporary frame used to support an arch, dome etc., while
under construction and the word shuttering means a
temporary structure of wood/steel used to hold concrete
during setting. Shuttering or centering is also known as
formwork. It is a temporary structure to confine and
support the concrete till it gains strength for self-
supporting. As fresh concrete is in a plastic state when it is
placed for construction purposes, it becomes necessary to
provide some temporary structure. A complete study of
formwork or shuttering can be divided into several sub-
heads, such as, requirements of formwork; economy in
formwork; materials and sizes for forms; types of formwork
and removal of formwork. The materials used for
shuttering/formwork, most commonly used, are timber,
plywood, steel and aluminum. For erecting temporary
structure, apart from timber, plywood, steel sheets and
aluminum, several other articles/components are also used
namely steel or wooden poles or bamboo sticks, cleats,
braces, yokes, bevel strip boalts, ribbon, ledgers, wooden
joists, hanger, wedges etc. All these articles are used to
support and join timber plank, plywood, steel sheets, etc.
For instance, formwork for stairs consists of plank sheeting
(to receive concrete), risers (to give height to the steps),
stiffer risers (to keep risers in position), wooden boards on
wall side and stingers on the open side of stair.
27.2 In construction activity, the vertical formwork is
usually called shuttering, whereas horizontal formwork is
called centering. The components or units (things) put to
use for shuttering and centering are similar or common.
Generally, there are two main types of shuttering, namely
steel and wooden plank/plywood shuttering. Apart from
steel and wood, plastics and biboglass are also used in
formwork. Thus, the shuttering could be classified as a
structure, erected temporarily, designed to cast fresh fluid
concrete of the required shape and dimensions, and support
it until it becomes self supporting. After the cement
concrete is set or gets hardened, the formwork is removed
and it is known as stripping. Stripped formwork can be
reused. A good formwork should satisfy the following
requirements: i) it should be strong enough to withstand all
types of dead and live loads; ii) it should be rigidly
constructed and efficiently propped and braced both
horizontally and vertically, so as to retain its shape; and iii)
it should permit removal of various parts in desired
sequences without damage to the concrete. Steel sheets
and/or timber/wood planks can also be used as shuttering
material. They can be fabricated in large number in any
desired modular shapes and sizes. Steel forms are used in
large number of projects and in situation where large
numbers of reuse of the shuttering is possible. Steel forms
are stronger, durable and have longer life than the timber
formwork. They can be installed and dismantled with
greater ease and speed. Steel plates/wooden planks used
as shuttering material need support of wooden poles or
steel rods or bamboo sticks, with braces or batten to keep it
in its place till they are stripped after setting off or
hardening off cement concrete. Without support with the
poles/rods or braces or batten, they cannot be used
independently. Even for joining more than one shuttering
sheet/wooden planks, they required to be efficiently braced
both horizontally and vertically so as to retain its shape. In
short, the shuttering sheets can be used with the support of
one or more other units/components such as poles, braces,
yokes, ledgers, bevel strip boalts, ribbons, etc.. The
shuttering materials would not mean a single unit or
component, which can be put to use and make it functional.
No single unit or component of the shuttering/centering
materials can be used and make function and that it has to
be used only with the support of other components
(things). It is true that individual plates or planks used for
providing support for slab or for providing support to the
beam or pillars, can be treated as individual units or
components of shuttering material, but it can be put to use
and make it functional only with the support of other
units/components such as poles/rods, braces, battens, etc.
28. Having so understood the meaning of the word
shuttering or centering, which is also known as formwork,
we would now like to have a glance at the definition of the
word plant, as defined under Section 43 of the Act. The
word plant is described with an inclusive definition. It
includes ships, vehicles, books, scientific apparatus and
surgical equipment used for the purposes of business or
profession but does not include tea bushes or live stock.
The word plant in its ordinary meaning is a word of wide
import and it must be broadly construed having regard to
the fact that articles like books and surgical instruments are
expressly included in the definition of plant in Section
43(3) of the Act. It includes any article or object, fixed or
movable, live or dead, used by a businessman for carrying
on his business. An article to qualify as plant must have
some degree of durability and that which is quickly
consumed or worn out in the course of a few operations or
within a short time cannot properly be called plant. The
size or value or quantity of an article, used in carrying on
business, would not have any effect on calling it a plant.
The relevant test to be applied is whether it fulfils the
function of plant in the assessees business/trading
activity? Is it a tool of the assessees business/trade? If it
is, then it is plant, no matter that it is not very long lasting
or does not contain working parts such as a machine does
and plays a merely passive role in the accomplishment of
the trading purposes. In other words, the test would be
does the article fulfill the function of a plant in the
assessees trading activity? Is it a tool of his trade with
which he carries on his business? If the answer to these
questions is in the affirmative, it would be a plant. We
have no doubt that centering and shuttering fulfill the
function of a plant, which the assessee use it as a tool for
carrying on his business and hence it is a plant.
29. In this backdrop, it is necessary to consider
whether each article/unit/component used in shuttering or
centering could also be treated/termed as a plant. The
best possible way is to understand the nature of the
business and the purpose of such article/unit/component in
such a business. It is also necessary to find out whether
any single article/unit/component can be put to use as
shuttering material and if the answer is in the negative, in
our opinion, a single article/unit/component cannot be
treated as a plant or it would not fall within the meaning of
the word plant as defined under Section 43(3) of the Act.
The test is if one single article/unit/component itself is
sufficient to fulfill the functioning of shuttering, it could be
called or treated as a plant but if not it is certainly not a
plant. We do not wish even indirectly to suggest that
shuttering materials when put to use for laying cement
concrete, is not a plant. When shuttering materials or
units/components/articles are put to use together which are
dependent on each other, it is considered as a plant.
Thus, in our opinion, the functional test is the test, apart
from the other tests, if applied, no individual
article/unit/component could be considered as a plant.
Merely because these articles are durable, they cannot
effectively stand alone without functional integration with
other similar or dissimilar article/unit/component so as to
qualify as plant. Functional utility of each
article/unit/component of the shuttering material to a
Builder or Contractor in construction activity is the relevant
test so as to consider it a plant and as observed earlier
none of the article/unit/component of the shuttering
material could be put to use without support of other
similar or dissimilar article/unit/component. To test, what
we are holding is correct, we may add that a car is a plant
but not its spare parts, a book is a plant but not its pages, a
ship is a plant but not its parts.
30. From bare reading of the definition of plant
under Section 43(3) of the Act, it is clear that each of the
items/articles mentioned therein is an independent
article/item, which fits-in the functional test for the use.
None of the articles/items mentioned in the definition or
even for that matter a bottle is dependent on any other
article or they need not be put to use with other similar or
dissimilar items/articles so as to make it functional. Having
so observed, in our opinion, the judgment of Krishna
Bottlers (supra) would not come in our way to hold that
shuttering materials though is a plant every individual
article/unit/component of the shuttering materials cannot
be treated as plant. The benefit arising out of every
individual article/unit/component of the shuttering material
is not confined to any particular part of the construction
activity. Temporary structure, used for moulding cement
concrete may be for a very small portion of construction
activity, is also not confined to the use of any particular
article/unit/component of shuttering material. In other
words, in any case unless two or more
articles/units/components, similar or dissimilar, are put to
use together, it cannot be made functional and no cement
concrete can be laid in the process of construction activity.
31. We also need to understand what does
apparatus means. The Judicial Dictionary by
Justice L.P.Singh and Justice P.K.Majumdar, third edition,
reprint 2012 with reference to a judgment of Kerala High
Court in K.N.Achuthan Pillai v. Union of India( )
described the word apparatus to include a telephone
receiver. It further states if any extension is taken from
such a receiver, it becomes an appliance or part of that
apparatus.
31.1 As stated in the New Oxford Dictionary of English
edited by Judy Pearsall the word apparatus means the
equipment needed for a particular activity or purpose. The
other meaning of the word given in the dictionary is a
complex structure within an organization or system: the
apparatus of Government. The third meaning in the
dictionary is collection of notes, variant readings and other
matter accompanying a printed text.
31.2 The Supreme Court in Words and Phrases by
Justice M.L.Singhal with reference to a Commissioner of
Customs v. C-Net communication(I) Pvt.Ltd., [2007 (11) JT
329] stated the word apparatus would mean the
compound instrument or chain of series of instruments
designed to carry out specific function or for a particular
use.
31.3 The Chambers Dictionary, 10th Edition, described
the word apparatus to mean things prepared or provided,
material; a set of instruments, tools, natural organs, etc; a
machine or piece of equipment with a particular purpose;
materials for the critical study of a document; an
organization or system that enables something to function.
31.4 Thus, from the meaning of the word apparatus
given in different dictionaries would, in our opinion,
definitely not mean only a single piece of some instrument
but it would also include compound instrument or chain of
series of instruments designed to carry out specific function
or for a particular use.
32. Our line of thinking is also supported by the
interpretative process of enquiry. One has to determine
whether each item of heterogeneous material comes under
the definition of Plant mentioned in Sec.32 (1) or not.
Then, if it is a plant one has to go to proviso to see
whether any item of such Plant utilized by the assessee
for the purpose of his business or profession falls therein.
In this case the centering and shuttering material is a
homogenous qualitative material, though it is divisible. In
such a case, one should not allow the assessee to claim
higher rate of depreciation by application of proviso to such
homogenous material. For example, the Supreme Court
was considering in Appropriate Authority and
Commissioner, Income Tax v. Smt.Varshaben
Bharatbhai Shah( ) a case of pre-emptive purchase of
immovable property by Central Government. It was held
that the application of provisions to pre-emptive purchase
cannot be avoided by taking technical view of agreement
that share received by each co-owner was less than the
prescribed value, as the apparent consideration stated in
the agreement exceeded the value prescribed for
applicability of provision of pre-emptive purchase. It was
held that the subject-matter of transfer and its apparent
consideration has to be decided by taking realistic view and
not in technical manner. The judgments of Madras,
Karnataka, Delhi and Calcutta High Court were overruled
and the view taken by Bombay High Court in Jodhram
Daulatram Arora v. M.B.Kodnani( ) was upheld.
33. In Commissioner of Income Tax v. Vijaya
Enterprises( ), it was wrongly quoted that they were
dealing with the proviso to Section 32 (1) (ii), but in fact, it
is a proviso to Section 32 (1) only. In Krishna Bottlers
(supra), the proviso was not considered and what was
considered was whether the bottles and shells constitute
plant and depreciation is admissible thereon under
Section 32 (1) (ii) of the Act. The decisions of English law
which dealt with plant are of no avail for interpreting the
section. Thus, it is clear that where the actual cost of any
plant does not exceed Rs.5000/-, the assessee is entitled
to claim 100% depreciation. Merely because cost of every
single item is less than Rs.5000/-, if we hold that every
single item used for shuttering can be treated as plant
perhaps that will create a very strange situation. For
instance, a Car is a plant within the meaning of Section 43
of the Act, however the owner of the Car is not entitled to
claim 100% depreciation on its spare parts since the cost of
the Car is more than Rs.5000/-. Therefore, if we ask
question to ourselves whether all spare parts of the Car
including tyres costing less than Rs.5000/- individually or
separately by the assessee, whether he is entitled to claim
100% depreciation on those items, our answer to this
question is in the negative. Similarly, centering/shuttering,
erected temporarily, even it is assessed costing less than
Rs.5000/-, in a given case, perhaps the Contractor may be
able to claim 100% depreciation but cannot claim that
every single unit/article/component used for shuttering is
costing less than Rs.5000/- and is, therefore, entitled to
claim 100% depreciation. In the circumstances, the
question referred to must be answered in the negative.
JUDGMENT (per Honble Sri Justice M.S.Ramachandra Rao) :
34. I have seen the opinion of the Honble the Acting
Chief Justice for himself and my brother Justice
A.Ramalingeswara Rao, but for the following reasons, I
regret to defer from their opinion:
I. THE BRIEF FACTS OF THE CASE :
35. The assessee is the proprietor of a concern by
name M/s Vijaya Nirman Co. which is engaged in the
business of Civil Contracts. It had filed a return of income
on 4.11.1991 admitting a taxable income of Rs.9,87,690/-.
It had claimed 100% depreciation on centring and
shuttering equipment worth Rs.13,19,434/- invoking the
first proviso to Sec.32(1) (ii) of the Income Tax Act,1961
(for short the Act). It was not disputed by the Revenue
that if the said proviso is not attracted, the assessee would
still be entitled to claim 33 1/3 % depreciation on the
centering and shuttering equipment under Sec.32(1) of the
Act.
36. By order dt.31.3.1994, the Dy. Commissioner of
Income Tax held that the assessee cannot claim 100%
depreciation on centering and shuttering equipment and he
is entitled to only 33 1/3 % depreciation thereon. He held
that, unlike in the case of certain single equipments like
bottle, centering and shuttering equipment/materials are
usable only collectively, and therefore the question of
allowing depreciation on such materials with reference to
cost of one or two such material/s cannot arise. He rejected
the assessees submissions that he is entitled to
depreciation thereon at 100% by taking purchase value of
each unit thereof into account. He also rejected the
assessees plea that although sometimes centering and
shuttering equipment/materials might be used in whole
lots, at other times a few of these materials or even a
single one could be put to use. He also held that
depreciation can be allowed on centering and shuttering
equipment/materials, not on entire amount of
Rs.13,19,434/ claimed by assessee, but only on
Rs.11,46,124/.
37. The assessee filed an appeal to the
Commissioner of Income Tax. By order dt.25.11.1994, the
Commissioner partly allowed the appeal of the assessee
and following his earlier order dt.2.8.1994 in the case of
one M/s Bharti Builders, Vishakhapatnam (wherein he had
taken a view that centering and shuttering
equipment/materials acquired by assessee each costing
less than Rs.5000/- were used individually or under various
combinations in construction work), he held that the
assessing officer should allow 100% depreciation to the
assessee.
38. The Revenue filed a further appeal to the
Income Tax Appellate Tribunal. The Tribunal, by order
dt.14.02.2001 dismissed the appeal of the Revenue relying
upon its order dt.13.11.1998 in ITA.No.435/HYD/1997 in
the case of M/s.Raghavendra Constructions, Visakhapatnam
vs. ACIT, Circle-II, Visakhapatnam in which, on similar
facts, it had allowed depreciation at 100% on shuttering
and centering materials.
39. This is questioned by the Revenue in the present
appeal.
40. This appeal was admitted in 2001 to consider
the following substantial questions of law :
(A) Whether on the facts and in the circumstances of the
case, the Appellate Tribunal was justified in law in holding
that the assessee is entitled to claim 100% depreciation on
the shuttering/centring materials ?
(B) Whether on the facts and in the circumstances of the
case, the order of the ITAT suffers from perversity by reason
of there being no material placed before the Appellate
Tribunal to hold that each of the shuttering plate was used
independently and individually by the assessee on the basis
of functional test ?
41. When the appeal came up for consideration on
14.02.2015 before a Division Bench of this Court, the said
Division Bench had opined that there was a conflict
between two Division Bench judgments of this court, the
first, in Commissioner of Income Tax v. Raghavendra
Constructions( ) and the second, in The Commissioner
of Income Tax v. Live Well Home Finance (P) Ltd( )
and the matter was required to be decided by a larger
Bench.
42. The Honble Chief Justice then constituted this
Full Bench to consider the following question of law:
Whether on the facts and in the circumstances of the case,
the Appellate Tribunal is justified in law in holding that the
assessee is entitled to claim 100% depreciation on the
centring/shuttering materials?
II. THE APPLICABLE PROVISIONS OF LAW :
43. In both the above decisions first proviso to
Sec.32(1)(ii) of the Act thereto as it existed in assessment
year 1991-92 was considered. As it stood then, the said
provision stated as under:
32. Depreciation : -- (1) In respect of depreciation of
buildings, machinery, plant or furniture owned by the
assessee and used for the purposes of the business or
profession, the following deductions shall, subject to the
provisions of Section 34, be allowed.
(i) Omitted by TL (Amend Misc. Provisions) Act,
1986, w.e.f.01.04.88;
(ii) in the case of any block of assets, such
percentage on the written down value thereof as may be
prescribed:
Provided that where the actual cost of any machinery
or plant does not exceed five thousand rupees, the actual
cost thereof shall be allowed as a deduction in respect of the
previous year in which such machinery or plant is first put to
use by the assessee for the purposes of his business or
profession.
44. It appears that Sub-section (1) of Sec.32 was
substituted by Finance (no.2) Act, 1998 w.e.f 1.4.1999 and
the proviso thereto was deleted. However we are not
concerned with the substituted provision.
45. Sec.43 (3) of the Act as it stood in 1991-92
assessment year stated:
Sec.43. Definitions of certain terms relevant to income from
profits and gains of business or profession :
In Sec.28 to 41 and in this section, unless the context
otherwise requires---
(3) Plant includes ships, vehicles, books, scientific
apparatus and surgical equipment used for the purposes of
the business or profession but does not include tea bushes
or live stock;
III. DICTIONARY MEANING OF SHUTERING/CENTRING
46. The Concise Oxford Dictionary (9th Edition)
defines centering as a temporary frame used to support an
arch, dome, etc., while under construction. It defines
shuttering as a temporary structure, usually of wood, used
to hold concrete during setting.
IV. MOST OF THE HIGH COURTS IN INDIA HAVE ACCEPTED THAT
SHUTTERING/CENTERING MATERIAL IS PLANT :
47. That centering and shuttering material would
come within the definition of plant as defined in Section
43 (3) of the Act has been accepted by Madras High Court
in Commissioner of Income Tax v. Alagendran
Finance Ltd.( ) and in Express Newspapers Ltd. v. Dy.
Commissioner of Income Tax( ), by the Allahabad High
Court in Harijan Evam Nirbal Varg Avas Nigam Ltd. v.
C.I.T.( ), by the High Court of Punjab and Haryana in
C.I.T. v. Akal Construction and Engineering
Company( ), by the Rajasthan High Court in C.I.T. v.
Mohta Construction Company( ), by the Delhi High
Court in C.I.T. v. Ansal Housing Finance and Leasing
Company Ltd( )., by the Madhya Pradesh High Court in
C.I.T. vs. Singhania Enterprises( ), and by the Gujarat
High Court in Assistant Commissioner of Income Tax v.
Ravi Construction( ).
V. THE VIEW IN RAGHAVENDRA CONSTRUCTIONS:
48. Contrary to the consistent view of the above
High Courts, in Raghavendra Constructions (29 supra),
the Division Bench had taken the view that shuttering is not
an integrated component forming a plant; that it consists
of metal and non-metal props, pipes, right angles, sewer
clamps, fixed base plates, wooden poles, wooden planks,
plates, steel and aluminum boxes, wooden chairs and
anything which can be used to support a suspended wall,
reinforced cement concrete stand, an arch, a sunshade, a
cantilever cement structure as support when such
structures are being built with cement concrete; the
purpose of shuttering is only till the setting of the cement
concrete or cement material and the moment the cement
concrete achieves the required setting, the shuttering
material is removed and used or re-used in other
constructions. It held that in the very nature of things, and
as understood in the construction industry, a single metal
or wooden pole or supporting material is never understood
as forming shuttering material and that it is understood
only as an integrated unit consisting of more than a few
metal or wooden poles, planks and other props used to
support the cement construction stage of a building. It
held that the Courts in India had applied the durability
and/or functional tests; if a thing itself is durable (in the
sense it can be used and re-used as non-interdependent,
interconnected a non-consumable thing) and has functional
utility in the trade or business of the assessee to advance
his business interest, such a thing would be a plant; if it is
durable, but cannot effectively stand alone without
functional integration with other similar or dissimilar
components or unit, it would not qualify as a plant. It held
that a single unit of centering or shuttering material by
itself though durable may not have functional value;
similar units form one integrated part which can be used as
shuttering material; and therefore, it is not possible to
accept the plea of the assessees that each similar or
dissimilar component or unit, forming part of the whole
integrated shuttering material, is entitled for 100%
depreciation as a plant. It held that each item of shuttering
material cannot be treated as one whole shuttering material
forming one plant eligible for 100% depreciation under the
proviso to Section 32 (1) (ii) of the Act.
VI. THE OPPOSITE VIEW IN M/S LIVE WELL HOME FINANCE
(P) LTD
49. On the other hand, in Live Well Home Finance
(P) Ltd. (30 supra) another Division Bench disagreed with
the above view in Raghavendra Constructions
(29 supra). It held that in the context of availing the
benefit under Section 32(1)(ii) of the Act, identification of a
unit of plant becomes essential and though the Act and
the precedents on the subject are silent about this, the
safest way is to identify the irreducible minimum of the
plant or machinery, which in turn can be put to
independent use. It held that mere fact that number of
such units can be clubbed together to achieve the result in
a greater magnitude by itself does not result in the merger
into the larger one or loss of their identity. It held that
individual plates of sizes of about 3 ft x 3 ft. for providing
support for slab or 10 ft. x 3 ft. or 2 ft. for providing
support to the beams or pillars can safely be treated as
units. It held that the irreducible minimum for the
shuttering material is the individual plates, for providing
support to the reinforced concrete and cement or the poles
and bars that are used at the time of formation.
VII. THE RIVAL CONTENTIONS
50. While the Revenue contends that this view in
Live Well Home Finance (P) Ltd. (30 supra) is not the
correct view and that the view in Raghavendra
Constructions (29 supra) is the correct view, the assessee
contends to the contra.
51. The contention of the Revenue is that it was not
the intention of Parliament while enacting the proviso to
Section 32 (1) (ii) to permit 100% depreciation on the
primary tools used by the assessee in the course of his
trading activity and that since individual
shuttering/centering material cannot function on stand
alone basis without functional integration with other similar
items, they would not qualify as plant.
52. The Revenue does not seriously dispute that the
assessee would be entitled to 33 1/3 % depreciation on the
shuttering/centring material. In fact, neither before the
assessing officer, the Commissioner of Income Tax or
before the Income Tax Appellate Tribunal, was it the plea of
the Revenue that shuttering/centering material is not
entitled to be treated as a plant at all.
53. Its contention is that since each of the
centring/shuttering material cannot be used on stand
alone basis, the assessee cannot claim 100% depreciation.
According to it, the Division Bench in Raghavendra
Constructions (29 supra) has rightly applied stand alone
test and came to the conclusion that individual
components of centering/shuttering material would not be
eligible for 100% depreciation even though they are of
value less than Rs.5,000/-.
VIII. THE INTERPRETATION OF THE TERM PLANT BY THE
SUPREME COURT
54. Section 43 (3) defines a plant as including
ships, vehicles, books, scientific apparatus and surgical
equipment used for the purposes of the business or
profession . This being an inclusive definition, it
indicates that the definition of the term plant is intended
to be extensive.
55. First in 1972, the Supreme Court while
construing the said definition in CIT, A.P. v. Tajmahal
Hotel, Secunderabad( ) held that sanitary and pipeline
fittings in a building which is run as a hotel fall within the
word plant in Section 10 (2) (vi-b) of the Income Tax Act,
1922 (which is in pari materia with Section 43 (3) of the
Income Tax Act, 1961) for grant of depreciation allowance
and observed :
9. Now it is well settled that where the
definition of, a word has not been given, it must be
construed in its popular sense if it is a word of every
day use. Popular sense means that sense which people
conversant with the subject matter with which the
statute is dealing, would attribute to it. In the present
case, Section 10(5) enlarges the definition of the word
plant by including in it the words which have already
been mentioned before. The very fact that even books
have been included shows that the meaning intended to
be given to plant is wide. The word includes is often
used in interpretation clauses in order to enlarge the
meaning of the words or phrases occurring in the body
of the statute. When it is so used these words and
phrases must be construed as comprehending not only
such things as they signify according to their nature and
import but also those things which the interpretation
clause declares that they shall include.
10. The meaning of plant as
given in Yarmouth v. France( ) was accepted as
correct. According to that meaning plant includes
whatever apparatus or instruments are used by a
businessman in carrying on his business.
11. We are unable to see how the
sanitary fittings in the bath-rooms in a hotel will not be
plant within Section 10(2)(vi-b) read with Section
10(5) when it is quite clear that the intention of the
Legislature was to give it a wide meaning and that is
why, articles like books and surgical instruments were
expressly included in the definition of plant. In
decided cases, the High Courts have rightly understood
the meaning of the term plant in a wide sense. (See
Commissioner of Income-tax, U.P. v. Indian
Turpentine and Rosin Co. Ltd.) MANU/UP/0144/1969
: [1970] 751 ITR 533 (All)...
56. In the year 1986, in Scientific Engineering
House P. Ltd. v CIT, A.P.( ), the Supreme Court
considered Section 43 (3) of the Act and declared that
technical know-how in the shape of drawings, designs,
charts, plans, processing data and other literature falls
within the definition of plant and is therefore, a
depreciable asset. It declared that the term plant would
include any article or object fixed, movable, live or dead,
used by a business 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. It held that in order to
qualify as plant, the article must have some degree of
durability and held that the test would be :
Does the article fulfill the function of a plant in the
assessees trading activity ? Is it a tool of his trade with
which he carries on his business ? If the answer is in the
affirmative, it will be a plant.
IX. THE SUPREME COURT DEALING WITH THE WORD
MACHINERY HELD SOME MECHANICAL CONTRIVANCES
EITHER BY THEMSELVES OR IN COMBINATION WITH ONE OR
MORE OTHER MECHANICAL CONTRIVANCES COULD BE
MACHINERY
57. Coming to the point in issue in this case , in
Commissioner of Income Tax v Mir Mohd Ali( ), the
Supreme Court was considering the claim by an assessee, a
bus owner and a transport operator, who had replaced
petrol engines in two of his buses by new diesel engines for
not only normal depreciation under first proviso of
clause (vi) of Section 10 (2) of the Income Tax Act, 1922
but also depreciation under the second para of clause (vi)
and clause (via) of the said Act. The I.T.O. allowed only
25% depreciation under the first para of clause (vi). The
assessee appealed to the Assistant Commissioner and also
to the I.T.A.T. Both of whom rejected his claims for further
depreciation. The Tribunal held that he is not entitled to
extra depreciation under clause 10 (2) (vi) or 10 (2) (via)
on the ground that even if an engine is important for
running a motor, it is after all part of an equipment and
cannot itself be machinery for claiming extra depreciation
as envisaged in those sub sections. It referred the matter
to the High Court which held in favour of the assessee.
While dealing with the question whether a new diesel
engine in a Bus amounts to machinery, Sikri, J of the
Supreme Court (speaking for himself and Justice Subba
Rao), posed the question
What then is the test for determining whether a mechanical
contrivance is machinery for the purposes of second para
of cl.(vi) and (via) 9of sec.10(2)) ?
The Court then quoted with approval, the following passage
from the judgment of the Privy Council in Corporation of
Calcutta v Chairman v Chairman, Cossipore and
Chitpore Municipality( ):
The word machinery, when used in ordinary language prima-
facie, means some mechanical contrivances which, by
themselves or in combination with one or more other
mechanical contrivances, by the combined movement and
inter dependent operation of their respective parts generate
power, or evoke, modify, apply, or direct natural forces with the
object in each case of effecting so definite and specific a result.
(emphasis supplied)
It upheld the contention of the assessee and affirmed the
decision of the Madras High Court that the assessee is
entitled to extra depreciation admissible under Section 10
(2) (vi) and 10 (2) (via) of the Act.
X. THE SUPREME COURTS ABOVE INTERPRETATION W.R.T.
MACHINERY APPLIED TO PLANT BY HIGH COURTS.
58. The above interpretation regarding single
contrivances in a machinery has been applied by the
Madras High Court in Sundaram Motors Pvt. Ltd., v
CIT( ), to the meaning of the word plant also to say that
contrivance can be a plant if it is used by itself or along
with other contrivances. The Madras High Court held that
the word plant also should be given the same popular
meaning as machinery and held:
if a plant in combination with other appliances in the
business effectuate and perpetuate the trade or
commerce in question, then such induction or
introduction of such plant to be deemed to be such that
they are placed in a position for service or use in
business.
It held that the assessees by introduction of apparatus or
appliances such as electric fans, bicycles, motorcycles,
office cars, jeeps, tractors, type writer and office appliances
etc in their business as dealers in motor cars, trucks, jeeps,
motor parts and accessories, tractors etc. are entitled to
claim development rebate under Section 10 (2) (vib) of the
Income Tax Act, 1922.
59. The judgment in Sundaram Motors (44 supra)
was followed by the same High Court in Express
Newspapers Limited (32 supra). There the Court while
holding that scaffolding materials are entitled to 100%
depreciation, held:
Under the scheme of the statutory provision,
each apparatus conforming to the definition of
machinery or plant, as the case may be, has to be
taken individually for the purpose of considering
the computation of depreciation and not the
organization or the unit as a whole by treating each
and every apparatus necessary for the function of
the factory as forming an integral part of the
factory vide CIT v. Kiran Crimpers( ). In Cripps
v. Judge( ), scaffolding has been held to be a
plant.
XI. THE A.P. HIGH COURT DECISIONS
60. In 1989, the decision in Scientific Engineering
House P. Ltd (41 supra) was followed in Commissioner
of Income-Tax v. Sri Krishna Bottlers Pvt. Ltd( ). In
that case, the Division Bench was considering the case of
an assessee who was manufacturing and selling soft drinks.
The assessee had claimed for the assessment year 1976-77
deduction under the 1st proviso to Section 32 (1) (ii) of the
Act in respect of bottles and shells purchased and put to
use during the year. The Income Tax Officer deducted the
claim for outright deduction on the ground that bottles
cannot be treated as plant on which depreciation can be
claimed; bottle and cool drinks therein put together form
stock-in-trade and cannot be separated from the drink for
the purpose of sale and that the assessee, having
manufactured the cool drinks supplied them along with the
bottles. On appeal, the Commissioner accepted the
assessees claim that the bottles constitute plant and
therefore held that the entire cost of purchase of glass
bottles should be allowed as deduction under proviso to
Section 32 (1) (ii) and the same would also be the position
in respect of the shells which were simple wooden
equipment for carrying the bottles. The Tribunal confirmed
the same. Questioning the same, the Revenue appealed to
the High Court. The Bench reviewed a number of cases of
Courts in India as well as England and held as under:
31. From the aforesaid rulings, the following
principles can be gathered; (1) "Plant" in
section 43(3) of the Act is to be construed in the
popular sense, namely, in the sense in which people
conversant with the subject-matter with which the
section is dealing, would attribute to it. The word
"plant" is to be given a "very wide" meaning. In its
ordinary sense, it includes whatever "apparatus" is
used by a businessman for carrying on his business
but it does not include his stock-in-trade which he
buys or makes for sale. It, however, includes all goods
and chattels, fixed or movable, live or dead which the
tradesman keeps for permanent employment in his
business. (2) But the building or the "setting" in which
the business is carried on cannot be plant. (3) The
thing need not be part of the machine used in the
manufacturing process but could be merely an
apparatus used in carrying on the business but having
a "degree of durability". (4) Merely because the asset
has a passive function in the carrying on of the
business, it cannot be said that it is not plant. It may
have a passive operation and if it has, it is prima facie
a plant unless there was good reason to exclude it
from that category. It must be a "tool in the trade" of
the businessman. (6) Gross materiality or tangibility is
not necessary and, in fact, intangible things like ideas
and designs contained in a book could be "plant". They
fall under the category of "intellectual storehouse". (7)
In considering whether a structure is plant or
premises, one must look at the finished product and
not at the bits and pieces as they arrive from the
factory. The fact that a building is part of a building
holds the plant in position does not, convert the
building into plant. A piecemeal approach is not
permissible and the entire matter must be considered
as a single unit unless of course, the component parts
can be treated as separate units having different
purposes. (8) The functional test is a decisive test.
32. Bearing these principles in mind, we shall
approach the facts of the present case. The bottles
containing the soft drink cannot be stock-in-trade
inasmuch as the bottle by itself is not the subject of
sale. The customer or the retailer returns back the
bottle to the assessee after the soft drink is consumed.
Likewise, the shells which are sent to the customer or
dealer also come back with the empty bottles and they
cannot also be stock-in-trade. What is the function
these bottles and shells perform in the assessee's trade
? Are they essentially tools in the assessee's business ?
In our opinion, yes. The bottles are essential tools of
the trade for it is through them that the soft drink is
passed on from the assessee to the customer. Without
these bottles, the soft drink cannot be effectively
transported, like the silos in Schofield v. R. and H. Hall
Ltd. [1974] 49 TC 538 , which are used to store grain
and to empty the same, performing a trade function. As
pointed out in Dixon v. Fitch's Garage Ltd. [1975] 50 TC
509 , the bottles and the contents are "totally
interdependent." So are the shells. The bottles and
shells also satisfy the durability test for it is nobody's
case that their life is too transitory or negligible to
warrant an inference that they have no function to play
in the assessee's trade. They are therefore "plant" for
the purposes of the Act.
33. The principle that a "setting" in which the trade is
conducted in not attracted to the facts of the case of all.
The bottles and shells have nothing to do with the
building in which the trade in conducted nor with the
"setting" in which it is conducted. Each bottle and
each shell is an entity by itself and they cannot be
broken down into pieces for considering whether they
have any part to play in the business of the assessee.
The bottles and shells are gross matter and, in fact,
gross materiality is not a requirement at all for a thing
to be treated as plant. ( emphasis supplied)
In CIT V. Anand Theatres( ) , the Supreme Court
approved this decision and observed that this Court had
exhaustively considered the decisions.
61. In C.I.T. v. Margadarsi Chit Fund (P) Ltd.( ),
the Revenue had specifically raised the contention that
even if for the purpose of business of the assessee (who
purchased bottles for the purpose of leasing them), bottles
are treated as plant within the meaning of Sec.32(1), yet
the deduction is leviable only when the purchase is enblock
and cannot be allowed in respect of a single bottles which
are priced less than Rs.5,000/-. Rejecting the said
contention and following the decision in Sri Krishna
Bottlers (47 supra), the Bench held:
There is no distinction that the purchase on which
the depreciation would be allowed must be bulk purchase
of a large number and that it would be disallowed if the
purchase is of single items. There is no evidence that the
bottles in respect of which depreciation was claimed were
not subject of bulk purchase. Even apart from it, a bulk
purchase is merely individualized purchase made
collectively and we do not find any distinction in the
provisions of Section 32 (1) or the proviso of a distinction
possible to be drawn in the manner suggested. The only
test is whether the article in respect of which depreciation
is claimed is plant for the purpose of the business or
profession. Individual items of purchase would also be
plant if it is integrally involved in the carrying out of the
profession or business and depreciation could be claimed in
respect of that.
(emphasis supplied)
62. Coming back to Raghavendra Constructions
(29 supra), I may state that it referred to the Sri Krishna
Bottlers (P) Ltd. (47 supra), and distinguished it on the
ground that the Division Bench therein nowhere observed
that each bottle or shell would also be a plant for the
purpose of Section 32 (1)(ii) of the Act, erroneously. In
fact, in Sri Krishna Bottlers (P) Ltd. (47 supra), the
Division Bench had categorically held that each bottle and
each shell is an entity by itself. Further, going deeply into
the facts of that case, the issue in Sri Krishna Bottlers
(P) Ltd. (47 supra) was not about whether a group of
bottles are a plant but in fact, whether each bottle was a
plant. Therefore, it is clear that by oversight the Bench in
Raghavendra Constructions (29 supra) overlooked this
passage and the facts in the judgment in Sri Krishna
Bottlers(P) Ltd. (47 supra).
63. Further, in Raghavendra Constructions
(29 supra), the Division Bench did not notice the judgment
in Margadarsi Chit Fund (P) Ltd (49 supra) at all. The
decision in Margadarsi Chit Fund (P) Ltd (49 supra),
particularly the observations set out supra, are binding on
the Bench which decided Raghavendra Constructions
(29 supra) and the view taken therein is diametrically
opposite to the view expressed in Margadarsi Chit Fund
(P) Ltd (49 supra). The Bench which decided
Raghavendra Constructions (29 supra) could not have
taken a view different from that in Margadarsi Chit Fund
(P) Ltd (49 supra) and only a larger bench could have over
ruled it. Therefore, in my opinion, the decision in
Raghavendra Constructions (29 supra) can be said to be
per in curiam.
64. In Live Well Home Finance (P) Ltd.
(30 supra) , the Division Bench held that as between the
two Division Bench decisions in Raghavendra
Constructions (29 supra) and in Sri Krishna Bottlers
(P) Ltd. (47 supra), it would choose to follow the decision
of the latter Division Bench in preference to the former.
65. More clinchingly, Raghavendra Constructions
(29 supra) did not refer to the judgment of the Supreme
Court in Mir Mohd Ali (42 supra) where the Supreme
Court followed observations of the Privy Council that a
contrivance can be a machinery either by itself or
along with other contrivances and that the said principle
has been applied by the Madras High Court for
interpretation of the word plant. Thus Mir Mohd Ali
(42 supra) had accepted in principle that an apparatus by
itself or in combination with other , if used in the business
of an assessee, would qualify as plant. Raghavendra
Constructions (29 supra) therefore runs counter to the
judgment in Mir Mohd Ali (42 supra) in so far as it took
the view that only if an apparatus fulfils the stand alone
use test, it is a plant and it would not be a plant if it is
used in combination with others.
XII. WHETHER A SINGLE PIECE OF SHUTTERING/CENTRING
MATERIAL CAN BE A PLANT WHETHER USED BY ITSELF OR IN
COMBINATION WITH OTHERS ?
66. It is pertinent to note that both Sec.32(1) and
proviso thereto use the words plant and machinery. It is
not disputed that if the plant is valued more than
Rs.5000/- , the main provision i.e Sec. 32(1) applies and
the assessee would get only 33 1/3 % depreciation only.
But if its value is less than Rs.5,000/-, then the assessee
can claim 100% depreciation.
67. As stated in the beginning, it is not disputed by
the Revenue that if the said proviso is not attracted, the
assessee would still be entitled to claim 33 1/3 % on the
centering and shuttering equipment under Sec.32(1) of the
Act.
68. Once it is accepted that for claiming
depreciation under Sec.32(1), centring and shuttering
material would constitute a plant, it is difficult to agree
with the Revenues plea that for purpose of 1st proviso to
Sec.32 (1), each piece of the centring and shuttering
material will not be a plant on the mere ground that they
cannot be used on a stand alone basis but only in
combination with other items thereof.
69. As stated above in Mir Mohd. Ali (42 supra),
the Court while dealing with the question whether a new
diesel engine in a Bus amounts to machinery, posed the
question:
What then is the test for determining whether a mechanical
contrivance is machinery for the purposes of second para
of cl.(vi) and (via) 9of sec.10(2)) ?
The Court then quoted with approval, the following passage
from the judgment of the Privy Council in Corporation of
Calcutta (43 supra):
The word machinery, when used in ordinary language
prima-facie, means some mechanical contrivances which,
by themselves or in combination with one or more
other mechanical contrivances, by the combined
movement and inter dependent operation of their
respective parts generate power, or evoke, modify,
apply, or direct natural forces with the object in each case
of effecting so definite and specific a result.
(emphasis supplied)
70. I have already stated that this interpretation of
term machinery has been applied by the Madras High
Court to the word plant in Sundaram Motors (44 supra)
which was followed in Express Newspapers Limited
(32 supra). I completely agree with the view therein that
the word plant also should be interpreted in a like manner
as was done by the Supreme Court in Mir Mohd. Ali
(42 supra) with regard to the word machinery.
71. The Madras High Court in Alagendran
(31 supra) held while dealing with centring material that
the benefit of the proviso to Section 32 (1) (ii) of the Act is
not confined only to units in bulk; that it does not refer to
the number of units, but refers to the value of individual
units; and if the individual unit is regarded as plant and if
it is valued below Rs.5,000/-, it would qualify for 100%
depreciation. It held that there is no question of how many
units are normally used for the business and the test is as
to whether one centering sheet can be identified as a plant
or machinery. It observed that while erecting scaffoldings
for a building, centering sheets are usually arranged in
different shapes and sizes and a single sheet also is used
for a particular work.
72. The Rajasthan High Court in Mohta
Construction Company (35 supra) held that without
shuttering, construction work cannot be executed and since
shuttering is a necessary component for construction of the
building, it is a plant; each shuttering itself is an
independent unit; and since each shuttering costs less than
Rs.5,000/-, it is entitled for 100% depreciation.
73. The Delhi High Court in Ansal Housing Finance
and Leasing Co. Ltd. (36 supra) has held that 100%
depreciation can be claimed in respect of parts of
scaffolding and shuttering and followed its earlier decision
dt.16.08.2010 in ITR No.241 / 1992 and also the decisions
in Mohta Construction Co. (35 supra) and Alagendran
Finance Ltd. (31 supra).
XIII. THE STAND ALONE USE TEST IS NOT THE ONLY TEST
FOR A CONTRIVANCE TO BE A PLANT AND SUCH A VIEW IS
CONTRARY TO THE JUDGMENTS OF THE SUPREME COURT
74. As previously mentioned, the Supreme Court in
Tajmahal Hotel (39 supra) has held that the word plant
as defined in Section 43 (3) would include any article or
object fixed, moveable, live or dead, used by a
businessman for carrying on his business. It held that
sanitary fittings in the bathrooms in a hotel would be plant
and they cannot be said to have no connection with the
business of hotelier.
75. Similarly, in Scientific Engineering House
P. Ltd. (41 supra) the Supreme Court has reiterated this
and further held that in order to qualify as a plant an article
is not necessarily confined to an apparatus which is used
for mechanical operations or processes or is employed in
mechanical or industrial business, but it must have some
degree of durability. It approved the functional test laid
down in IRC v. Barclay, Curle and Co. Ltd( ). wherein
Lord Guest held that in order to decide whether a particular
subject is an apparatus, enquiry has to be made as to
what operation it performs. The Supreme Court held that
the test would be : Does the article fulfill the function of a
plant in the assessees trading activity ? Is it a tool of his
trade with which he carries on his business ? If the answer
is in the affirmative, it will be a plant. In that case, the
Supreme Court held that drawings, designs, charts, plans,
processing data and other literature comprised in the
documentation service would constitute a book and would
fall within the definition of plant.
76. The Supreme Court has no where indicated in
both the above decisions, that to qualify as plant, the
article in question used by the businessman for carrying on
his business should be capable of being put to use only on
a stand alone basis. Thus the view taken in
Raghavendra Construction (29 supra) goes beyond the
test laid down by the Supreme Court and super-adds a new
requirement that the article in question should also be
capable of being used only on a stand alone basis. Thus, in
my opinion, the Bench did not follow the law laid down by
the Supreme Court as to interpretation of the term plant
as defined in Section 43 (3) of the Act. In my opinion, in
view of the judgment of the Supreme Court in Mir Mohd
Ali (42 supra), a single contrivance can be a plant by itself
or in combination with other contrivances. This judgment is
binding on this Court.
77. In my opinion, the Supreme Court judgments
referred to above should be understood as referring to
functional test as function of the article in question qua
the business of the assessee. They do not refer to the
function of the article as such whether it is used by itself
or in combination with others. Since the Bench in
Raghavendra Construction (29 supra) , instead of
looking at the function of the shuttering/centering material
qua the business of the assessee, had looked at the
function of the shuttering/centering material en bloc or solo
(the stand alone use test), it does not lay down the correct
law.
78. Further as pointed out above, the Madras High
Court in Algendran (31 supra), the Rajasthan High Court
in Mohta Constructions (35 supra) and the Delhi High
Court in Ansal Housing (36 supra) have granted 100%
depreciation even in respect of a single unit of stuttering
material.
XIV. WHY SINGLE CENTRING/SHUTTERING MATERIALS
SHOULD BE TREATED AS PLANT
79. In my opinion, individual components of
shuttering/centering material do not lose their individuality
merely because they are used in combination with other
similar or dissimilar units in the construction activity of the
assessee. They can be and are normally dis-assembled
after their use in combination and revert back to their
individual status. Since they are durable and have a
function in the assessees business, merely because they
are not capable of being used individually on a stand alone
basis and have to be used in combination with other units
thereof, they do not cease to be a plant.
80. In Munby v. Furlong Munby( ) , the tax-
payer, a barrister started to practice at a Bar in 1972.
During the following year, he bought textbooks and law
reports for the purpose of his practice. In making
assessments for income tax, the Inspector of Taxes refused
to allow the taxpayer deductions in respect of the
expenditure which he had incurred in buying the books.
The taxpayer appealed against the assessments on the
ground that the books were plant qualifying for capital
allowances in Chapter I of Part III of the Finance Act, 1971.
The appeal was dismissed and was upheld by a single
Judge of the High Court but the tax payer succeeded before
the Court of Appeal. The Court of Appeal declared that in
the context of a profession, the provision of plant should
be so interpreted that a lawyers books his set of law
reports and his text books are plant. It held that the
word plant had acquired special meaning and in the
interests of fairness, it extends virtually to a mans tools of
trade and to the things which he uses day by day in the
exercise of his profession; that the said term should not be
confined to things which are used physically by a barrister
like a typewriter but should be extended also to the
intellectual storehouse which a barrister or a solicitor or any
other professional man has in the course of carrying on his
profession. This decision was approved and followed in Sri
Krishna Bottlers (47 supra).
81. Therefore an apposite example to our case
would be law books in an Advocates office which though
each individually may not by themselves contribute to the
Advocates performance in a legal profession, yet
collectively, without losing their individuality, make a very
important contribution in his career and have rightly been
held to be a plant.
82. Therefore, I hold that it is possible for the
assessee to claim depreciation on individual items thereof
under the proviso to Section 32 (1) (ii) of the Act and that
it is not necessary for him to prove that each such
individual item is capable of being used on a stand alone
basis.
83. It is only necessary for the assessee to establish
that the unit of shuttering/centering material performs an
operation in his business and trading activities and that it is
a tool in his trade. He has to show that it is such that
without it, he cannot carry on business.
84. I would approve of the view in Margadarsi Chit
Fund (P) Ltd (49 supra) that there is no distinction that
the purchase on which depreciation would be allowed must
be a bulk purchase of a large number and it would be
disallowed if the purchase is of single items; and that
individual items of purchase would also be plant if it is
integrally involved in the carrying out of the profession or
business and depreciation could be claimed in respect of
that.
85. I also agree with the view in Alagendran
Finance Ltd. (31 supra) insofar as it was held therein that
a single sheet of centering or scaffolding is also useful to an
assessee; the benefit of the proviso to Section 32 (1)(ii) of
the Act is not confined only to units in bulk; that it does not
refer to the number of units, but refers to the value of
individual units; and if the individual unit is regarded as a
plant, and if it is valued below Rs.5,000/-, it would qualify
for 100% depreciation. There is no question of how many
units are normally used for the business and the test is as
to whether one centering/shuttering material is a tool of
the assessees trade with which he carries on business.
86. No doubt, in Pathange Poultry Farm v.
Commissioner of Income-Tax( ), a Division Bench of
the Karnataka High Court, while dealing with a case of an
assessee engaged in poultry business who claimed 100%
depreciation on the cost of individual cages (which were
then fabricated in such a manner to form a bigger unit)
disallowed such a claim. But, the basis of such
disallowance was that once the smaller cages are
integrated into a bigger unit, they lose their individuality;
and that they become a part of the bigger plant and cease
to either perform or remain capable of performing any
function independent of what is performed by the entire
unit as one complete plant or machine. It is this judgment
which was followed in Raghavendra Constructions
(29 supra), by the Division Bench therein to come to the
conclusion that in the engineering construction industry, a
single unit of centering or shuttering material by itself,
though durable, may not have functional value; that it must
also effectively stand alone without functional integration
with other similar or dissimilar components or units, in
order to qualify as a plant.
87. In my opinion, the Division Bench in
Raghavendra Constructions (29 supra) appears to have
overlooked the fact that unlike in the case of individual
cages which have been fabricated into one bigger unit and
thereafter lose their individuality, individual components of
shuttering/centering material do not lose their individual
identity merely because they are used in combination with
other similar or dissimilar units in the construction activity
of the assessee. They will be dis-assembled after each use
and reused again as such in combination with same or
different units thereof. Thus the decision in Pathange
Poultry Farm (52 supra) cannot be applied to the present
case.
88. The principle that each of the assets owned by
the assessee for the purpose of his business is to be taken
individually and independent of each other [for considering
a claim of depreciation under first proviso to Sec.32(1)],
though one may be necessary for the functioning of the
other, has one exception.
89. As explained in Kiran Crimpers (45 supra) by
the Gujarat High Court (which was followed in Express
Newspapers (32 supra)), this principle would not apply if
it is an integral part of another asset as such. Once an
apparatus becomes an integral part of another asset as
such, it loses its identity as an asset and the asset of which
it becomes an integral part is only to be considered as an
asset. For example, when the assessee owns a motor car
for the purposes of his business, necessarily it includes all
the parts which go into the making of the car and
necessary for its running. Notwithstanding the fact that
individually taken some of the parts by themselves may be
treated as machine or plant if used independently, once it is
fitted in another, it loses its identity as a machine
independent of the machine in which it is fitted.
90. However as held by me in para 79 supra
individual components of shuttering/centering material do
not lose their individuality merely because they are used in
combination with other similar or dissimilar units in the
construction activity of the assessee. They can be and are
normally dis-assembled after their use in combination and
revert back to their individual status. They are then reused
in different combinations. Unlike parts of a motor car, the
shuttering/ centring material do not lose their identity.
Parts of a motor car once integrated are not dis-assembled
after each use of the car like shuttering/centring material.
So centring/shuttering material stand on a truly different
position from parts of a motor car.
91. In fact in Commissioner of Income Tax v.
Indian Turpentine and Rosin Co. Ltd( ), which
was approved and followed by the Supreme Court in Taj
Mahal Hotel (39 supra), poles, cables, conductors
and switch boards used by a Company engaged in
manufacturing and selling rosin and turpentine to change
over power from D.C to A.C, have been held to be a plant.
The court held:
The Tribunal described the change over from
D.C. system to A.C. system thus :
" This involved new installations of poles, cables,
conductors, switchboards for distribution to various
feeders."
8. In Commissioner of Income Tax v. Mir
Mohammad Ali, the Supreme Court explained
that the expression "installed" in the second
paragraph of Clause (vi) and Clause (via), did
not necessarily mean "fixed in position" but was
also used in the sense of induct or introduce or
placing an apparatus in position for service or
use. Where an engine was fixed in a vehicle it
was installed within the meaning of the
expression in Clauses (vi) and (via) of Section
10(2) of the Act. The word "installed" must
carry the same sense in Clause (vib) of Section
10(2) of the Act.
9. The word "plant" as used in Sub-section (2)
of Section 10 of the Act has been defined in
Sub-section (5) of Section 10 :
"Plant includes vehicles, books, scientific apparatus
and surgical equipment purchased for the purposes
of the business, profession or vocation."
10. The definition of plant contained in Sub-
section (5) of Section 10 is very wide. The term
"plant" includes such articles as books and
scientific apparatus. There should, therefore, be
no difficulty in treating poles, cables, conductors
and switch-boards for distribution of electricity
as plant within the meaning of Clause (vib) of
Section 10(2) of the Act.
11. It is significant that the Income Tax Officer
allowed normal depreciation on these very
articles under Clause (vi) of Section 10(2) of the
Act. He must have allowed depreciation on the
footing that these articles constitute machinery
or plant within the meaning of Clause (vi) of
Section 10(2) of the Act. If the poles, cables,
conductors and switch-boards constituted
"machinery or plant" within the meaning of
Clause (vi), there is no reason why they should
not constitute "machinery or plant" within the
meaning of Clause (vib) of Section 10(2) of the
Act. Even if there is some difficulty in looking
upon poles, cables, conductors and switch-
boards as machinery, there is no difficulty in
accepting the assessee's case that these articles
constitute a plant within the meaning of Clause
(vib) of Section 10(2) of the Act. The Tribunal
was, therefore, right in holding that the
assessee is entitled to development rebate
under Clause (vib) of Section 10(2) of the Act.
We answered the question referred to this court
as follows :
" On the facts and in the circumstances of the case,
the electrical installations installed by the assessee-
company as a result of a change over from D.C. to
A.C. system constitute plant. Consequently,
development rebate was admissible in respect of
expenditure incurred in connection therewith."
92. Thus electric poles used in an industry for
change of power from D.C to A.C would constitute a plant.
It cannot be disputed that poles support the
shuttering/centring material used by the assessee. On the
same parity of reasoning, poles used in shuttering/ centring
work would also be plant no matter that they cannot be
used on a stand alone basis.
93. I, therefore, answer the reference in favour of
the assessee that the Appellate Tribunal was justified in law
in holding that the assessee is entitled to claim 100%
depreciation on the centering/shuttering materials. I also
hold that the decision of the Division Bench of this Court in
Sri Raghavendra Constructions (29 supra) is not
correctly decided in so far as it held that individual units of
centring/shuttering material would not be plant are not
entitled to 100% depreciation under the first proviso to
Sec.32 (1) since they cannot be used on a stand alone
basis. It is accordingly overruled. I hold that the view
taken in Live Well Home Finance (P) Ltd (30 supra) is
the correct one for the reasons above given.
94. In the result, we answer the question in the
negative. The Registry is directed to place the appeal
before the Bench which is assigned to hear such Appeals for
its decision on the basis of the majority opinion expressed
in this judgment.
__________________
DILIP B.BHOSALE, ACJ
_____________________
M.S.RAMACHANDRA RAO, J
_______________________
A.RAMALINGESWARA RAO, J
5th June, 2015.
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