| SooperKanoon Citation | sooperkanoon.com/65643 |
| Court | Income Tax Appellate Tribunal ITAT Pune |
| Decided On | Dec-11-1992 |
| Judge | T Natarajachandran, T Bukte, J Member |
| Reported in | (1993)44ITD529(Pune.) |
| Appellant | Parakh Foods (P.) Ltd. |
| Respondent | Deputy Commissioner of |
2. We have heard the learned representative for the appellants, Shri C.V. Khandelwal at great length. He has stressed upon the point to treat and accept the building as plant in which the machines and pipelines are installed for smooth carrying out the business of grinding wheat, chana dal etc. Shri Khandelwal's main argument is that without the help of the building no such work as undertaken by the appellants to manufacture aata, maida and besan by grinding them on the machines fitted with the pipelines cannot be carried out. Therefore he has urged that the same may be treated as plant for allowing depreciation and investment allowance on them. In the ordinary course the depreciation is allowable on the buildings but the investment allowance is not allowable unless the buildings are accepted as plants.
3. The learned departmental representative, Shri Gautam Kar also advanced considerable arguments at great length. His contentions are that there is no doubt that the machines and pipelines installed in the building are of the nature of the plant but according to him the building in which such machines and pipelines are installed neither can be treated as plant nor such contention is acceptable. Therefore he has strongly opposed to treat the building in which the machines and pipelines are installed for the purpose of allowing investment allowance. In this view of the argument it has become necessary to examine the facts relating to the building in which the machines and pipelines are installed.
4. The CIT (Appeals)'s predecessor by his order dated 26-7-1988 had accepted the assessee's contention in part and held that 10 per cent of the factory building was required to be considered as an integral part of cost of investment on actual plant and machinery on the basis of submissions made by the appellants by letter dated 3-7-1986. However, the present CIT (Appeals) refused to accept even 10 per cent of the factory building as integral part of the cost of investment of plant and machinery. The appellants' company's business is of grinding grams, pulses and wheat in the flour mills and selling aata, maida, sooji, rava and besan in the market. For the purpose of manufacturing aata, maida, rava, sooji from wheat and besan from chana the appellants have erected plant and machinery at different places such as Hadapsar, Urili Kanchan and Wasi near New Bombay. It was submitted that the erection of the buildings are made in such a way that various machines used for the purposes of processing and manufacturing are fixed in the structure of the buildings. The structure, prima facie, appears as building but actually and factually functioning as part of the entire plant requires for grinding of the gram, pulses and wheat For these reasons the appellants claimed to allow additional depreciation, extra shift allowance and investment allowance on the cost of such building on the ground that the building forms an integral part of the plant and machinery.
5. The ITO disallowed the appellants' claim on the ground that appellants have submitted to the Maharashtra Industrial Development Corporation for obtaining 'No objection certificate' as factory building only and not treating and claiming them as integral part of plant and machinery. According to the Assessing Officer the 'NOC of small scale industries would not have been granted to the appellants if the cost of the building would have been included in the cost of plant and machinery for treating them as small scale industry. When the Assessing Officer was considering this point the limit for treating a small scale industry was Rs. 10,00,000 or below than that. Today the limit of investment has gone more than Rs. 50,00,000. Therefore what was small scale industry at the time of making assessment cannot hold good at the time of hearing these appeals.
6. It was also submitted before the Assessing Officer that the factory buildings were especially categorised in the schedule of depreciation in the Income-tax Rules, 1962. The copies of the building plans were exactly normal plan's of a factory building. What is factory building is nothing more than erecting walls from four sides from ground floor to the top floor. In the construction of the building having walls from four sides is definitely the normal building. There is no doubt that there are roofs and concrete pillars partitioning floors and halls. The entire floor space on each floor was being utilised for installation of machinery and pipelines. Another point which worked in the mind of the Assessing Officer was that the appellant's claim of depreciation allowance under the head "furniture and fittings". How the appellants have claimed depreciation allowance is not a material point. The material point is whether the claim made by them was proper or not. The Assessing Officer compared the factory buildings erected by the appellants with that of the hotel provided better amenities and facilities like bath rooms and toilets to attract the customers. This comparison even relying on the decision of the Supreme Court in the case of CIT v. Taj Mahal Hotel [1971] 82 ITR 44 does not appear suitable. The sanitary and pipeline fittings in hotel even though treated as plant stands on a different footing. There is no doubt that factory buildings are part of setting in which the business of manufacturing the above referred articles is done. At the same time the erection of building without which the business cannot be carried on is to be considered appropriately. There is no doubt it is a matter of convenience that the machineries and pipelines have been made to rest on some of the walls of the factory building but it would be incorrect to say that the said building do not play any role in the grinding of flour of wheat and chana dal. There is also no doubt that the grinding of wheat and chana dal is carried out by the appellants' company with the help of the fitted machinery. But it would be incorrect to say that the said business does not require the help of the factory building.
7. The CIT (Appeals) has considered the part of air-conditioning plant at the cold storage as part of plant and machinery, but held that the factory building of the appellants is not an integral part of the machinery. According to him they do not fall within the ambit of term "plant". The Bombay High Court has held in the case of CIT v. Caltex OH Refining (I) Ltd. [1976] 102 ITR 260 that the refinery processing could not be put into use without protective fencing and from that point of view the fencing could be regarded as part of the processing unit. The fencing was required to be installed as per the approval of the Chief Inspector of the Factories. Therefore the CIT (Appeals) considered that there was no such legal obligation on the appellants to erect particular type of building to install machinery and pipelines and therefore they cannot be considered as an integral part of the plant.
It is immaterial to find whether there is statutory obligation or not.
A question involved is whether a particular type of erection of building is required to carry on particular type of business or not. He has also distinguished the decision of the Bombay High Court in the case of CIT v. Tata Hydro Electric Power Supply Co. Ltd. [ 1980] 122 ITR 288'. According to him strengthening of the Dam resulted in a new plant installed in terms of the provisions of Section 33 of the Income-tax Act, 1961. According to him the facts of the case were different from the facts of the appellants' case. He has further held that the construction of the cold storage plant was an essential part of the machinery as held by the Delhi High Court in the case of CIT v.Pure Ice Cream Co. [1981] 129 ITR 3942. Again he arrived to a conclusion that factory building of the appellants was not an integral part of plant and machinery and that it is only a setting in which the manufacturing process is carried out by the assessee's company.
8. While distinguishing the decisions cited on behalf of the appellants' company the CIT (Appeals) has relied on the decision of the Bombay High Court in the case of CIT v. Sandvik Asia Ltd. [1983] 144 ITR 5853. He has considered whether it can be determined that the business carried on by the appellants in the building can be treated as apparatus for carrying on the business. The functioning test was applied in that case by agreeing with the principles laid down by the Gujarat High Court in the case of CIT v. Elecon Engg. Co. Ltd. [1974] 96 ITR 672. It is laid down by the Gujarat High Court that the relevant test to be applied isDoes it fulfil the function of plant in the assessees" 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 purposes. By applying the tests laid down by the Bombay and Gujarat High Courts, the CIT (Appeals) held that the factory buildings are places where the appellants carry on its manufacturing activity. Therefore, according to him the factory buildings are not integral part of plant and machinery and they are not entitled to any normal depreciation, additional depreciation and extra shift allowance and investment allowance which are allowable in the case of plant and machinery. Therefore, he differed from the view taken by his predecessor vide his appellate order dated 26-7-1988. He has also given a finding that merely because some portions of the machineries passed through other floors of the factory building it does not mean the buildings are to be accepted as an integral part of plant and machinery.
9. Again it has become necessary to consider the actual working of the plant and machinery in the factory buildings especially erected and constructed to suit the purpose of carrying on of the business of grinding of wheat into aata, maida, soji, rava and chana into besan. As per the requirements of the appellants' company the raw material in the nature of wheat and chana dal is brought to the factory building and the said raw material is unloaded in the place on the ground floor known as hondi. From there the said raw material is carried on with the help of elevator's for storing in silos. The silos are nothing but concrete conical beams built with special concrete. The raw material is again removed from silos on the ground floor upto fourth floor with the help of elevators. The raw material fed to separators for separating impurities kown as cleaning process. In simple words wheat, chana or dal is cleaned by removing dust, earth and stones or other dirt from said raw material. This cleaned raw material then taken to third floor with the help of pipes with gravitational force to de-stoner which removes any other small stones, if any, from the raw material.
Thereafter, the cleaned raw material comes to the second floor by gravitational force and feeded to cookie cylinder which removes round sized impurities from the wheat, chana. Then the material is again brought back to first floor for feeding to a machine where the material is stored and then again sent to the first floor. The material is again brought down to second floor for washing in the washer wizzer machine.
10. The said washed out wheat or chana dal is again taken up to the 4th floor with the help of elevators and stored in silos. The goods are stored for 24 hours in the silos and the said process is called as conditioning and after conditioning the material is removed from silos and fed to the roller machine to first floor. Grinding of wheat into small sized pieces is done in the roller machine and then the material goes on ground floor with the help of said elevators and then sent to second floor. At this stage the raw material is grinded. This grinded raw material is taken to the second floor and supplied to plant shiftors which separate husk and other materials from wheat, chana etc.
Again the husk separated material goes down to the first floor to roller mill for further grinding. After grinding the said material it is taken down with the help of pipes to the ground floor and again from ground floor to the third floor with the help of pneumatic power. On the third floor the material at this stage passes through a purifier machine which separates round granulated particulars which is called soji. This soji comes to ground floor from third floor as one of the final product. The remaining material after separation of the soji comes to third floor and second floor for further processing.
11. The material is skimmed through plant shiftors on the second floor and then it is separated into fine maida, aata and besan which ultimately comes to the ground floor for packing the said items. The residue material which is semi finished is supplied to roller machine on first floor and further grinding is done for extracting fine maida, aata etc. Grinded material is again taken to second floor with the help of pneumatic power system in plant shifters for skimming the same.
Final skimming takes place and the items such as maida, aata, soji, rava etc. again brought down to ground floor for packing purposes.
Pneumatic system is installed on the fourth floor consisting of high pressure elevators which are responsible for taking material upward.
The dust collector is also located on the second floor which collects dust from the machines and other places. This is actual working of the machines and pipelines installed in the building having only walls from all the four sides as explained by the learned representative for the appellants.
12. It is further submitted that there are no rooms or offices in the said building used for the purposes of manufacturing of the above referred items. There are no office rooms except the research and testing rooms. Therefore it was submitted that the entire factory building is a part and parcel of the plant and machinery and therefore it has become integral part of the plant and machinery. Therefore it was submitted that the depreciation, additional depreciation and investment allowance, extra shift allowance is allowable on the said building at the rates prescribed for the plant and machinery.
13. So far the manufacturing of besan from chana is concerned the washed raw material is conditioned for a period of 12 to 24 hours in the silos which are special vertical concrete structures in conical shape. The chana is taken to pulverising process from silos. The rollers are installed on the ground floor. The flow of goods to silos is done with the help of pipes, some water is also added to the grams after the pulverising process is over to soak the material and to loose covers of grams. Thereafter this material is carried away to the top floor for drying purposes on the platform with the help of sun's heat.
This soaked materials are dried at least for 5 to 6 hours. Thereafter the goods are brought down with the help of pipes to the ground floor and supplied to splitters for splittings (de-husking) purposes. Then goods are brought down with the help of gravitational force without any help of power. After completion of the de-husking process the material is again taken to the fourth floor, and given to centrifugal machine for removing powder from the de-husked material. Then the material is passed on to the third floor in separator machine for removing dust.
From here with the help of the gravitational force the husk is sent to ground floor for packing. This process does not require any power.
14. Then the material is passed on the the second floor where separators separate dal and other impurities. This again goes down by gravitational force without use of any power. The pulveriser are fixed on the ground floor to which the cleaned dal is feeded from first floor and the besan is thus manufactured. The pulverised material is taken up with the help of elevator or Pneumatic system on first floor and passed through the centrifugal machine which separates the material on the basis of fineness from the quality of the material. This fine powder which is now known as besan comes down to the ground floor and packed as a finished product. The material which is not fine is again sent back to pulverisers on the ground floor for re-grinding. This is how the functioning of the entire machinery and pipeline with the help of elevators, centrifugal force and power has been explained. This entire process goes on within the four walls. The four walls are not used for any other purpose other than the purpose to bring out the required fine product for use. Therefore, it is vehemently argued that without the help of these four walls right from ground floor to the top floor in which the entire machinery and the pipelines are installed is nothing but it is a part and parcel of the plant and machinery and on which the depreciation, additional depreciation, extra shift allowance and investment allowance is allowable. Mostly the arguments advanced are that the investment allowance need not be disallowed as the building in which the plant and machinery are involved has become the part and parcel of the plant and machinery itself.
15. Shri C.V. Khandelwal has cited two examples of treating the hotel building and a cinema theatre as a plant. He has cited the judgment of the Supreme Court in the case of Taj Mahal Hotel (supra) and pointed out certain observations from pages 44 to 46. Supporting his arguments that as the building in the case of Taj Mahal Hotel (supra) and in a cinema theatre is treated as plant his case also stands on the same footing to treat the factory building as plant. He has also advanced an argument that definition of the word "plant" is of mechanical power and the plant would include building in which the mechanical power is considerably used. His main argument is that the building is nothing but an apparatus for the purpose of income-tax. In support of this contention he has relied on the decision of the Supreme Court in the case of Scientific Engg. House (P.) Ltd. v. CIT [1986] 157 ITR86. While advancing arguments to apply a functional test to treat the factory building as a plant he took us through the provisions of Section 32A for granting investment allowance relying on the decision of the Allahabad High Court in the case of S.K. Tulsi & Sons v. CIT [1991] 187 ITR 685 and also in the case of Tulsi Theatre v. CIT[ 1991] 190 ITR 575 wherein it is held that the building constructed has been used as cinema theatre alongwith its fittings and futures and the cinema building constituted 'plant' and the same was therefore entitled to depreciation and development rebate. In the case of Tulsi Theatre the Allahabad High Court held that the assessee was entitled to depreciation at 10 per cent on it. He has also cited the third decision of the Allahabad High Court in the case of Leela Movies v. CIT [1991]191 ITR 113 wherein the Allahabad High Court has held that the cinema building constituted 'plant' within the meaning of Section 43(3) of the Income-tax Act, 1961 and depreciation could be claimed at 10 per cent in respect of such cinema building. He has also pointed out the dictionary meaning of the 'plant' relying on the decision of the Bombay High Court in the case of Tata Hydro Electric Power Supply Co. Ltd. (supra) and another decision of the Bombay High Court in the case of CIT v. Mazagaon Dock Ltd. [1991] 191 ITR 460 and read over some pages from 466 and 467 of the said decision. The Bombay High Court in that case held that the Tribunal has found as a fact that the concrete walls on the sides for which excavation and masonary work were necessary were as much a part of the plant as were the cranes or winches. The Tribunal had stated that these were integral parts of the plant as such. Without anyone of them the plant could not have worked. The assessee was entitled to depreciation and development rebate on the entire expenditure incurred on the wet dock.
16. Shri Khandelwal while arguing on the point that the factory building and the machines and pipelines installed in it are used together for manufacturing a thing or article, stated that they cannot be separated from each other. In support of this contention he has relied on the decision of the Madras High Court in the case of Addl.
CIT v. Madras Cements Ltd. [1977] 110 ITR 281 and two decisions of the Allahabad High Court in the cases of (1) CIT v. Kanodia Cold Storage [1975] 100 ITR 155 and (2) CIT v. Dev Jaimehi Ice & Cold Storage [1985] 156 ITR 825 wherein fibre glass is treated as a 'plant'. He has also cited the decision of the Bombay High Court in the case of CIT v. Bank of India Ltd. [1979] 118 ITR 809 and pointed out relevant observations from pages 818 and 819. He also took us through schedule of granting the depreciation and investment allowance. Another decision in the case of Tata Hydro Electric Power Supply Co. Ltd. (supra) was also cited. A dictionary meaning from Webster, 3rd International Dictionary page 1731 on factory or work shop for manufacturing product is sought to be followed. He has contended that the ratio of various decisions cited above is to apply the functional test to establish that the factory building is an integral part of plant and machinery.
17. The learned departmental representative. Shri Gautam Kar has contended that a depreciation schedule is given for office building and factory building and the rates of depreciation are separately shown.
The efficiency of production to be maintained with the help of the building is not disputed. A specialised planning of the building to put the entire fixing of the pipelines on the walls of the building is also not disputed. He has contended that the technical expert's opinion should be objective to help the process of functioning. According to Shri Gautam Kar the use of the entire factory building for the purpose of working of the business is not an exclusive proof. He urged to interpret the entire functioning by applying the functional test objectively. He urged that specialised construction of the building is not proved and it is a general argument. He has contended that various decisions cited on behalf of the appellants are distinguishable on facts. According to him the decision of the Bombay High Court in the case of Sandvik Asia Ltd. (supra) is binding and the same should be followed. He has contended that the decisions cited above by the appellants are contrary to the meaning of plant as contemplated under Section 43(3) of the Act. There is no doubt that the plant includes scientific apparatus and surgical equipments used for purposes of business or profession. He has urged that in the case of Mazagaon Dock Ltd. (supra) by reading the last paragraph on page 466. The apppellant's case not eligible to the claim made. Relying on the decision of the Delhi High Court in the case of R.C. Chemical Industries v. CIT [1982] 134 ITR 330. Shri Gautam Kar contended that the factory building cannot qualify as plant for the purpose of investment allowance. He has urged that the decision of the Delhi High Court in the case of R.C. Chemical Industries (supra) giving preference to the decision of the Bombay High Court in the case of Mazagaon Dock Ltd. (supra) he has tried to distinguish that the manufacture of screen with particular specifications depends on expert opinion. He has relied on the decision of the Andhra Pradesh High Court in the case of CIT v.Sri Krishna Bottlers (P.) Ltd. [1988] 40 Taxman 15, CIT v. Gwalior Rayon Silk Mfg. Co. Ltd. [1992] 196 ITR 1492 (SC) and Sandvik Asia Ltd. (supra) on the point of having direct decision on the roads and buildings. He has urged that even a specialised construction itself does not assume the character of a 'plant'. The specialised construction itself is not sufficient to treat the building as a 'plant'. He has urged to follow the decision in the case of CIT v. Smt.
Godavaridevi Sara/[1978] 113 ITR 598 (Bom.) and lastly contended that the lower authorities have considered all aspects of the matter not to treat the factory building as an integral part of plant and machinery for allowing investment allowance.
18. Shri Khandelwal in his reply has reiterated his arguments to apply the functional test. While distinguishing the decision of the Bombay High Court in the case of Sandvik Asia Ltd. (supra) he has submitted that the Bombay High Court has not laid down any principle that the factory building cannot be treated as a 'plant'. According to him the said decision is not a guideline for not considering the factory building as a plant. He has urged that the decision in the case of Sandvik Asia Ltd. (supra) is distinguishable on facts. According to him when the photographs and certificates construe the apparatus of manufacturing, cinema theatre and cold storage then why not factory building cannot be construed as a apparatus. He has contended that the last paragraph from page 466 in Mazagaon Dock Ltd. 's case (supra) supports his case and he has further urged that the decision of the Madras High Court in the case of Madras Cements Ltd. (supra) supports this case. He has also pointed out a commentary from Kanga & Palkhiwala. 8th Edition on Income-tax and relied on the said commentary wherein it is commented that how the factory building becomes the integral part of the plant and machinery. Lastly he has relied on the decision of the Supreme Court in the case of CIT v, Vegetable products Ltd. [1973] 88 ITR 192 on the point that if two sets of decisions are available in respect of the dispute on the same point then the set of decisions favourable to the assessee should be followed.
19. After examining the facts and circumstances and particularly the explanation furnished regarding the actual working of the machinery and pipelines installed in the factory building completely on the four walls of the building itself cannot be treated separately as a building only though the machinery and pipelines installed in it. Without the support of the walls neither the machinery nor the pipelines can be put to actual working for manufacturing of aata, maida, rava, soji, besan etc. Therefore from the explanation furnished on behalf of the appellants and by applying the functional test held in the above quoted certain decisions, there is no alternative except to come to a conclusion that the factory building is not the building but is an integral part of plant and machinery eligible for allowing investment allowance as allowable to plant and machinery itself. It is also eligible for other claims as made before the authorities below.
20. to 26. [These paras are not reproduced here as they involve minor issues].