Deputy Commissioner of Vs. Satnam Paper Mills (P.) Ltd. - Court Judgment

Excerpt:
1. this is an appeal filed at the instance of revenue against the order passed by the commissioner (appeals) on 1-2-1994 relevant to assessment year 1991-92. the solitary ground projects the grievance of the revenue as under: "the learned commissioner (appeals) has erred in law and on the fads of the case in holding that tubewells are 'plant' and in directing the assessing officer to allow depreciation on 'tubewell' at the rates applicable to plant, when, as per note 1 below the appendix 1 to it rules, 1962, 'tubewell' is included in the term 'building' and accordingly the assessing officer had correctly calculated depreciation on 'tubewell' at the rates applicable to 'buildings'.2. the facts of the case lie in a narrow compass. the assessec included tubewelt in plant and machinery and claimed depreciation at the rate of 33.33%. the assessing officer, while framing assessment under section 143(3), treated the tubewell as apart of building and allowed depreciation accordingly. aggrieved thereby, the assessec filed an appeal before the first appellate authority who accepted the contention of the assessee and reversed the order passed by the assessing officer.before us, the ld. d.r. supported the order of the assessing officer.none appeared on behalf of the assessec.3. we have heard the id. d.r. and perused the relevant records. the only question which falls for our consideration is that whether the tubewcll is part of "building" or "plant and machinery".4. it is the duty of the court to consider all the relevant material which has a bearing on the subject, more so, when the mailer is decided ex parte qua one of the parties before the tribunal. the assesses is a manufacturer of duplex cardboard. in the process of manufacture of duplex cardboard, water plays a very vital role. the ld. d.r. also conceded this fact at the time of hearing before us. admittedly, tubewell is a source of supply of water. the case of the assessing officer is that the tubewells are the part of "building". note 1 to the appendix 1 specifying the rales of depreciation in income-tax rules includes tubewells, wells and roads etc., within the ambit of "building".5. the word "plant" has been defined under seclion 43(3) to include ships, vehicles, books, scientific apparatus and surgical equipment used for the purposes of the business or profession but does not include tea bushes and livestock. a bare perusal of the definition contained in the seclion shows that it is an inclusive one. the term plant may also include anything other than those specified in the section if it is an item which is used for the purpose of the business or profession. in certain circumstances, the items of building can be included in the term 'plant' if these items pass the functional test.it must be seen whether the subject-matter involved that is building or structural part thereof constitutes an apparatus or a tool of taxpayer or whether it is merely a space where the taxpayer carries on his business. in the case of cit v. kanadia warehousing corpn. [1980] 121 itr 9961, their lordships of the allahabad high court have held that if the building or structure, part thereof is the same thing where the activities are carried on, it would amount to a plant. but where the structure plays no part in the carrying on all those activities but merely constitutes a place within which they are carried on, it cannot be regarded as a plant.6. in citv. r.g. ispat ltd.[1994]210 itr. 10182 (raj.) it has been held that ihe definition of plant in section 43(3) is not exhaustive and has a wide meaning. it has been further held that the apparatus of a businessman not by which he is carrying on the business may be termed as plant and the apparatus need not be used by mechanical operation or by any other process. it has been observed that in the case of a building, it has to be seen whether it can be said to be the apparatus by which the business is being carried on. if the building or structure or part thereof is such by which the business activities are carried on, then it would amount to plant. a similar view was taken by the patna high court in the case of citv. lawly enterprises (p.) ltd [1996] 88 taxman 382.7. the crux of the abovecited cases is that the building or any part thereof can be characterised as "plant" if it is of such a nature by which the business activities are carried on. admittedly, tubewells are the part of building but in the case under consideration, as admitted by the learned d.r. these tubewells have a very important role to play in the manufacture of duplex cardboard for the reason that the water in this particular typo of manufacturing process is required at number of stages of manufacture in a large quantity. applying the functional test, we are of the considered opinion that the tubewell is to be included under the head "plant and machinery" and the asscssee was justified in claiming depreciation @ 33.33%. under these circumstances, we uphold the order of commissioner (appeals) on this issue.

Judgment:
1. This is an appeal filed at the instance of revenue against the order passed by the Commissioner (Appeals) on 1-2-1994 relevant to assessment year 1991-92. The solitary ground projects the grievance of the revenue as under: "The learned Commissioner (Appeals) has erred in Law and on the fads of the case in holding that tubewells are 'Plant' and in directing the Assessing Officer to allow depreciation on 'tubewell' at the rates applicable to plant, when, as per note 1 below the appendix 1 to IT Rules, 1962, 'tubewell' is included in the term 'building' and accordingly the Assessing Officer had correctly calculated depreciation on 'tubewell' at the rates applicable to 'buildings'.

2. The facts of the case lie in a narrow compass. The assessec included tubewelt in plant and machinery and claimed depreciation at the rate of 33.33%. The Assessing Officer, while framing assessment under section 143(3), treated the tubewell as apart of building and allowed depreciation accordingly. Aggrieved thereby, the assessec filed an appeal before the first appellate authority who accepted the contention of the assessee and reversed the order passed by the Assessing Officer.

Before us, the ld. D.R. supported the order of the Assessing Officer.

None appeared on behalf of the assessec.

3. We have heard the Id. D.R. and perused the relevant records. The only question which falls for our consideration is that whether the tubewcll is part of "building" or "plant and machinery".

4. It is the duty of the Court to consider all the relevant material which has a bearing on the subject, more so, when the mailer is decided ex parte qua one of the parties before the Tribunal. The assesses is a manufacturer of Duplex Cardboard. In the process of manufacture of duplex cardboard, water plays a very vital role. The ld. D.R. also conceded this fact at the time of hearing before us. Admittedly, tubewell is a source of supply of water. The case of the Assessing Officer is that the tubewells are the part of "building". Note 1 to the Appendix 1 specifying the rales of depreciation in Income-tax Rules includes tubewells, wells and roads etc., within the ambit of "building".

5. The word "plant" has been defined under seclion 43(3) to include ships, vehicles, books, scientific apparatus and surgical equipment used for the purposes of the business or profession but does not include tea bushes and livestock. A bare perusal of the definition contained in the seclion shows that it is an inclusive one. The term plant may also include anything other than those specified in the section if it is an item which is used for the purpose of the business or profession. In certain circumstances, the items of building can be included in the term 'plant' if these items pass the functional test.

It must be seen whether the subject-matter involved that is building or structural part thereof constitutes an apparatus or a tool of taxpayer or whether it is merely a space where the taxpayer carries on his business. In the case of CIT v. Kanadia Warehousing Corpn. [1980] 121 ITR 9961, their Lordships of the Allahabad High Court have held that if the building or structure, part thereof is the same thing where the activities are carried on, it would amount to a plant. But where the structure plays no part in the carrying on all those activities but merely constitutes a place within which they are carried on, it cannot be regarded as a plant.

6. In CITv. R.G. Ispat Ltd.[1994]210 ITR. 10182 (Raj.) it has been held that Ihe definition of plant in section 43(3) is not exhaustive and has a wide meaning. It has been further held that the apparatus of a businessman not by which he is carrying on the business may be termed as plant and the apparatus need not be used by mechanical operation or by any other process. It has been observed that in the case of a building, it has to be seen whether it can be said to be the apparatus by which the business is being carried on. If the building or structure or part thereof is such by which the business activities are carried on, then it would amount to plant. A similar view was taken by the Patna High Court in the case of CITv. Lawly Enterprises (P.) Ltd [1996] 88 Taxman 382.

7. The crux of the abovecited cases is that the building or any part thereof can be characterised as "plant" if it is of such a nature by which the business activities are carried on. Admittedly, tubewells are the part of building but in the case under consideration, as admitted by the learned D.R. these tubewells have a very important role to play in the manufacture of duplex cardboard for the reason that the water in this particular typo of manufacturing process is required at number of stages of manufacture in a large quantity. Applying the functional test, we are of the considered opinion that the tubewell is to be included under the head "Plant and Machinery" and the asscssee was justified in claiming depreciation @ 33.33%. Under these circumstances, we uphold the order of Commissioner (Appeals) on this issue.