Commissioner of Income-tax Vs. Electronics Research Industries Pvt. Ltd. - Court Judgment

Excerpt:
direct taxation - plant and machinery - whether tribunal right in upholding order of commissioner of income tax (appeals) that internal telephone system should be considered as 'plant' of assessee's factory and investment allowance has to be granted - concept of plant cannot be limited to actual installation of machinery which produces goods by itself - anything which is used for purpose of business including any installation which facilitates production or increases efficiency of business will be plant - held, internal telephone system should be considered as 'plant' of assessee's factory and investment allowance has to be granted - question answered in affirmative. head note: income tax investment allowance--plant--internal telephone system amounts to--investment allowance thereon allowable. held: the concept of plant cannot be limited to the actual installation of machinery which produces goods by itself. anything which is used for the purpose of business including any installation which facilitates the production or increases the efficiency of the business will be a plant. the question for the purpose of s. 32a(1) is not whether the installation is a scientific apparatus or not, but the question is whether plant is defined under s. 43(3). the definition is an inclusive definition, as the very definition indicates. the articles like the books are also included in the definition of plant. further it cannot be ruled out that a telephone installation for internal communication is not a scientific apparatus. therefore the tribunal was right in upholding the order of the cit (appeals) that the internal telephone system should be considered as a `plant' of the assesse's factory and investment allowance has to be granted. income tax act 1961 s.32a investment allowance--plant--storage tank used by assessee, edible oil manufacturer, amounts to, hence entitled to investment allowance. held: under s. 32a an assessee is given certain benefits by way of allowance in respect of the investments made by the assessee to earn the income. the allowance granted has a close nexus to the means employed to earn the income, which is charged to tax under the act. whatever may be the objectives behind s. 32a, there can be no doubt that the grant of allowance is closely linked with the subject or the thing employed to earn the income. an object or a thing which is beneficial to the carrying on the business of the assessee to earn the taxable income could be treated as a `plant'. in the instant case, the assessee is carrying on the business of producing oil. a storage tank is absolutely necessary for the activities of the assessee. in these circumstances, the tribunal was fully justified in upholding the claim of the assessee and treated the storage tank as a `plant'. -chitpore golabari co. p. ltd. v. cit (and vice versa) (1971) 82 itr 753 (cal), cit v. warner hindustan ltd. (1979) 117 itr 15 (ap), cit v. hindustan motors ltd. (1988) 170 itr 431 (cal) and cit v. taj mahal hotel (1971) 82 itr 44 (sc) applied. income tax act 1961 s.32a - code of criminal procedure, 1973 [c.a. no. 2/1974]. section 181 (4): [n.ananda, j] jurisdiction to try the offence under held, under section 181(4) of cr.p.c., if any offence relates to misappropriation or of criminal breach of trust may be inquired into or tried by a court within whose local jurisdiction the offence was committed or any part of the property which was subject to the offence was received or retained, or was required to be returned or accounted for, by the accused person. on facts held, the six wind operated electricity generators were leased to petitioners and petitioners had to account for the same at manipal. the lease was accepted by petitioners at manipal. therefore, trial of a case of criminal breach of trust before jurisdiction court at udupi is in conformity with provisions under section 181(4) of cr.p.c., -- section 482: quashing of proceedings offences under sections 406, 409 and 420 o f i.p.c., - rejection of application made under section 227 of cr.p.c., - held, it is well settled law when a petition filed under section 482 cr.p.c. seeking quashing of charges framed against accused, the high court should not interfere with the order unless there are strong reasons. such an order could be passed only in exceptional cases or rare cases. moreover, once the trial court has framed charges against the accused persons, trial must proceed with necessary assistance. - if some of these appliances are put in the offices of technical and managerial executives, or even at their residences, that would not make any difference because these technical executives and managers are expected to see that the machines installed in the factories are efficiently working and giving proper production. this concept is totally outdated if it is found that the plant or machinery in question is helpful in making the other machines run properly and efficiently. [1986]162itr662(bom) .learned counsel for the parties as well as the bench proceeded after accepting the principal stated in the aforesaid himachal pradesh high court decision and consequently no elaborate discussion is found. [1974]96itr672(guj) :on reviewing these authorities, a broad consensus emerges from which the essential characteristics of plant can be clearly gleaned. the question for the purpose of section 32a(1) is not whether the installation is a scientific apparatus or not, but the question is whether the plant is as defined under section 43(3). the definition is an inclusive definition, as the very definition indicates that articles like books are also included in the definition of plant.k. shivashankar bhat, j.1. the following question has been referred to us for consideration under the provisions of the income-tax act, 1961 : 'whether, on the facts and in the circumstances of the case, the appellate tribunal was right in law in upholding the order of the commissioner of income-tax (appeals) that the internal telephone system should be considered as 'plant' of the assessee's factory and investment allowance has to be granted ?' 2. the assessee is engaged in the manufacture of electronic equipment. it has an internal telephone system with about 20 lines. this installation is claimed to be a plant and investment allowance was claimed by the assessee. however, the original authority did not grant the allowance but, on appeal, the same was granted by the commissioner (appeals). this order of the first appellate authority was affirmed by the appellate tribunal. hence, this reference at the instance of the revenue. 3. the question arose under section 32a of the income-tax act. as per this section : section 32a. - (1) in respect of a ship or an aircraft or machinery or plant specified in sub-section (2), which is owned by the assessee and is wholly used for the purposes of the business carried on by him, there shall, in accordance with and subject to the provisions of this section, be allowed a deduction, in respect of the previous year in which the ship or aircraft was acquired or the machinery or plant was installed or, if the ship, aircraft, machinery or plant is first put to use in the immediately succeeding previous year, then, in respect of that previous year, of a sum by way of investment allowance equal to twenty-five per cent of the actual cost of the ship, aircraft, machinery or plant to the assessee : 4. the second proviso to this section says that : 'no deduction shall be allowed under this section is respect of (a) any machinery or plant installed in any office premises or any residential accommodation, including any accommodation in the nature of a guest house; (b) any office appliances or road transport vehicles;' (other clauses not necessary here) 5. the other relevant provision will be the definition of plant found in clause (3) of section 43 of the act wherein the definition of plant is an inclusive one, including ships, vehicles, books, scientific apparatus and surgical equipment used for the purpose of business or profession. 6. mr.chanderkumar, learned counsel for the revenue, contended that the internal telephone system is only a facility which is on par with office equipment which does not by itself produce any goods and, therefore, this system cannot be considered as plant. according to learned counsel, any installation to fall within section 32a(1) should be of such a nature which by itself produces the goods or aids in production of goods. a mere facility which facilitates communication does not result in any production of goods or aid the production of goods and, therefore, it cannot be said to be 'used for the purpose of business.' learned counsel advanced a theory of direct nexus between production and installation. mr.chanderkumar also contended that telephone installations are office appliances which fall under clause (b) of section 32a and just because they are installed in the place of production, they do not cease to be office appliances. 7. this question directly came up for consideration before the himachal pradesh high court and the decision is reported in cit v. mohan meakin breweries ltd. . after referring to sections 33 and 43 of the act, the bench observed at page 215 : 'internal telephone system is undoubtedly a scientific apparatus used for the purpose of the business of the assessee. there is, therefore, no difficulty in concluding that it is a plant. that, however, would not conclude the matter because even if particular item is a plant it would not earn development rebate if it is found to be an office appliance. therefore, the real question to be considered is whether the internal telephone system is an 'office appliance'. there is no statutory definition of the expression 'office appliance'. however, the plain meaning of this expression suggests that an 'office appliance' is an appliance which is primarily used for office purposes. the question, therefore, is whether the internal telephone system which is installed by the assessee in its factories in the complex is for the purpose of office. it is evident that this internal telephone system installed in the factories is for the purpose of efficient organisation of the manufacturing process carried on by these factories. if some of these appliances are put in the offices of technical and managerial executives, or even at their residences, that would not make any difference because these technical executives and managers are expected to see that the machines installed in the factories are efficiently working and giving proper production. therefore, if it is found that a particular plant or machinery is substantially and essentially for the purpose of production, such plant and machinery cannot be taken as covered by the expression 'office appliances'. the appellate assistant commissioner has taken a view that this internal telephone system cannot earn development rebate because by itself it produces nothing. this concept is totally outdated if it is found that the plant or machinery in question is helpful in making the other machines run properly and efficiently. it cannot be doubted that the internal telephone system installed in the different factories of the complex would be quite essential in harmonising and coordinating the manufacturing process undertaken by the assessee. we are, therefore, of the opinion that the installation of the internal telephone system cannot be construed as 'office appliances'. it can, therefore, earn development rebate under section 33, and, therefore, we answer question no. 2 by saying that the tribunal was justified in allowing the deduction by way of development rebate to the extent of rs. 7,731 in respect of the telephone exchange installed in the factory area.' 8. the said decision was accepted by the bombay high court in the decision in cit v. tata chemicals ltd. : [1986]162itr662(bom) . learned counsel for the parties as well as the bench proceeded after accepting the principal stated in the aforesaid himachal pradesh high court decision and consequently no elaborate discussion is found. however, the fact remains that the bench of the bombay high court has accepted the principle as a correct one. 9. in the decision in cit v. tarun commercial mills ltd. : [1985]151itr75(guj) , the bench of the gujarat high court has considered the concept of plant. at page 78, the bench has quoted an earlier decision which is quite relevant here, i.e., cit v. elecon engineering co. ltd. : [1974]96itr672(guj) : 'on reviewing these authorities, a broad consensus emerges from which the essential characteristics of plant can be clearly gleaned. the word 'plant', in its ordinary meaning, is a word of wide import and in the context of section 32 it must be broadly construed. it includes any article or object, fixed or movable, live or dead, used by a businessman for carrying on his business. 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 would not, however, cover the stock-in-trade, that is, goods bought or made for sale by a businessman. it would also not include an article which is merely a part of the premises in which the business is carried on as distinguished from a part of the plant with which the business is carried on. an article to qualify as plant must furthermore 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'. but an article would not be any the less plant because it is small in size or cheap in value or a large quantity thereof is consumed while being employed in carrying on the business. in the ultimate analysis the inquiry which must be made is as to what operation the apparatus performs in the assessee's business. the relevant test to be applied is : does it fulfill the function of plant in the assessee's trading activity is it the tool of the taxpayer's 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 purpose.' (this decision was affirmed by the supreme court in the decision in cit v. elecon engineering co. ltd. : [1987]166itr66(sc) .) 10. the gujarat high court also referred to the supreme court decision in taj mahal hotels' case : [1971]82itr44(sc) wherein the supreme court has observed that the word 'plant' will have to be liberally understood. 11. the contention of learned counsel for the revenue that the installation in question by itself should produce goods or should aid directly the production of goods cannot be accepted having regard to the opening clause in section 32a where the phraseology used is that the plant should be owned by the assessee and should be wholly used for the purpose of business and the purpose of the business is again a phrase of wide import as has been stated by the supreme court in cit v. malayalam plantations ltd. : [1964]53itr140(sc) . it was observed by the supreme court thus (headnote) : 'the expression 'for the purpose of the business' is wider in scope that the expression 'for the purpose of earning profits'. its range is wide; it may take in not only the day to day running of a business but also the rationalisation of its administration and modernisation of its machinery; it may include measures for the preservation of the business and for the protection of its assets and property from expropriation, coercive process or assertion of hostile title; it may also comprehend payment of statutory dues and taxes imposed as a pre-condition to commence or for carrying on a business; it may comprehend many other acts incidental to the carrying on of the business.' 12. from the aforesaid decision, it is clear that the concept of plant cannot be limited to the actual installation of machinery which produces goods by itself. anything which is used for the purpose of business including any installation which facilitates the production or increase the efficiency of the business will be plant. it is in this context that the act includes certain varieties of plant and machinery for the benefit of allowance as is clear from the second proviso to section 32a(1). 13. mr.chanderkumar, learned counsel for the revenue, however, contended that the installation in question is not a scientific apparatus at all and, therefore, the basis of the himachal pradesh high court decision cannot be accepted as a correct provision of law. the question for the purpose of section 32a(1) is not whether the installation is a scientific apparatus or not, but the question is whether the plant is as defined under section 43(3). the definition is an inclusive definition, as the very definition indicates that articles like books are also included in the definition of plant. further, it cannot be ruled out that a telephone installation for internal communication is not a scientific apparatus. mr.chanderkumar's contention is based on the definition of scientific research found in section 43(4). but that is an entirely different definition which has nothing to do with the concept of plant or scientific apparatus. the aforesaid decisions no doubt arise under section 33 of the act but the principles will be equally applicable to cases falling under section 32a. the concept of plant will be the same whether it falls under section 32a or 33(1). 14. in these circumstances, we have no doubt that the answer will have to be in the affirmative and against the revenue. reference is answered accordingly.