1994 (12) TMI 11 - HC - Income Tax

High Court ruling on classification of assets for development rebate

The High Court held in favor of the assessee regarding the classification of tube-well, plumbing, drainage, cable laying, and installation work as plant ... Development Allowance, Expenditure Incurred, Weighted Deduction Issues Involved:1. Whether items of tube-well, plumbing, drainage, cable laying, and installation work constitute plant and machinery and are entitled to development rebate.2. Whether items consisting of furniture and fixtures, which were later reclassified as plant and machinery, are entitled to development rebate.Summary:Issue 1: Tube-well, Plumbing, Drainage, Cable Laying, and Installation Work as Plant and MachineryThe assessee contended that boring of a tube-well, plumbing, drainage, cable laying, and installation work should be classified as plant and machinery, thus qualifying for development rebate. The Income-tax Appellate Tribunal, however, classified these items as part of the factory building, not as plant, and directed the Income-tax Officer to allow depreciation accordingly. The High Court applied the 'functional test' and 'premises test' to determine the classification. The court held that considering the function of these items in the context of the business carried on by the assessee, the expenditure on tube-well, plumbing, drainage, cable laying, and installation work constitutes 'plant.' Therefore, the assessee is entitled to development rebate for these items. The first question was answered in the affirmative and in favor of the assessee.Issue 2: Reclassification of Furniture and Fixtures as Plant and MachineryThe assessee had originally classified certain items as 'furniture and fixtures' but later reclassified them as 'plant and machinery' to claim development rebate. The Tribunal and lower authorities rejected this reclassification, maintaining that these items did not qualify as plant. The High Court noted that the character of an item is essentially a question of fact, and the Tribunal's finding is final unless it is perverse. Moreover, even if some items were used in carrying on the business, they were more appropriately part of the premises or place upon which the business was conducted, satisfying the 'premises test.' Consequently, these items cannot qualify as 'plant.' The second question was answered in the negative, against the assessee and in favor of the Revenue.Conclusion:The High Court ruled in favor of the assessee for the first issue, recognizing the items as plant and machinery eligible for development rebate. For the second issue, the court upheld the Tribunal's decision, denying the reclassification of furniture and fixtures as plant and machinery. The reference was disposed of with no order as to costs.