Bottles and shells as plant under tax law -- functional and durability tests allow depreciation for returnable containers.

Whether bottles and shells used in a softdrink business qualify as plant for depreciation under section 32(1)(ii) was decided by reference to function and durability: because bottles and shells are not stockintrade, are returned after use, perform an essential trade function jointly with the contents, and have sufficient useful life, they meet the functional and durability tests for plant. Analogies to silos and gas cylinders support treating returnable containers as plant. Outcome: depreciation allowance held admissible for bottles and shells in favour of the assessee, against the revenue.

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Issues: Whether bottles and shells used in the assessee's soft-drinks business constitute "plant" and depreciation is admissible thereon under section 32(1)(ii) of the Income-tax Act, 1961 for the assessment year 1976-77.

Analysis: The Court applied the statutory definition in section 43(3) and the established judicial principles for deciding what amounts to "plant", emphasising the decisive "functional test" (whether the article performs a function in the trader's operations and is a tool of the trade), the exclusion of mere "setting in which business is carried on", the requirement of a degree of durability, the permissibility of passive function, the single-unit approach for structures or units, and the recognition that gross materiality or tangibility is not necessary (including the concept of an "intellectual storehouse"). The Court reviewed relevant authorities and applied these principles to the facts: the bottles and shells are not stock-in-trade because they are returned after use; they perform an essential trade function by enabling distribution and return; they satisfy the durability requirement; and they form discrete units performing a trade function rather than mere setting.

Conclusion: The bottles and shells are "plant" within the meaning of section 43(3) and depreciation/deduction under the proviso to section 32(1)(ii) of the Income-tax Act, 1961 is admissible; the reference is answered affirmatively in favour of the assessee.

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