Immovable property test for permanently attached items under income-tax law favoured the assessee in this reference.

Articles permanently attached to structures embedded in the earth for the permanent beneficial enjoyment of the property are treated as immovable property, not movable chattels, for income-tax purposes. Applying section 3 of the Transfer of Property Act and section 3(26) of the General Clauses Act, the Andhra Pradesh High Court read "immovable property" and "attached to earth" as covering property rooted in, embedded in, or attached to what is embedded in the earth for permanent beneficial enjoyment. On that test, the items described in the agreement were found to be immovably attached and therefore fell within immovable property, with the reference answered in favour of the assessee and against the Revenue.

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Issues: Whether the items covered by the agreement dated 27 December 1960 were immovable property and, if so, whether the transaction gave rise to tax liability as profits under section 41(2) or as capital gains under the Income-tax Act, 1961.

Analysis: The expressions "immovable property" and "attached to earth" were read in the light of section 3 of the Transfer of Property Act and section 3(26) of the General Clauses Act. Property is immovable when it is rooted in the earth, embedded in the earth, or attached to what is so embedded for its permanent beneficial enjoyment. By contrast, an attachment made only for the beneficial enjoyment of the chattel itself does not alter its character as movables. On examining the articles described in the agreements, the Court found that they were permanently attached to the structures embedded in the earth and therefore fell within the concept of immovable property.

Conclusion: The items in question were immovable property, and the question referred was answered in the affirmative, in favour of the assessee and against the Revenue.

Ratio Decidendi: Goods or articles permanently attached to something embedded in the earth for the permanent beneficial enjoyment of the property are immovable property, not chattels, for income-tax purposes.

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