2015 (9) TMI 758 - SC - Income Tax

Supreme Court: Prawn Rearing Ponds Qualify as 'Plant' for Income Tax Depreciation

The Assistant Commissioner of Income Tax & COMMISSIONER OF INCOME-TAX Versus Victory Aqua Farm Ltd.

The Supreme Court ruled that a 'natural pond' specially designed for rearing prawns qualifies as a 'plant' under Section 32 of the Income Tax Act, 1961 ... Depreciation claim - whether 'natural pond' which as per the assessee is specially designed for rearing prawns would be treated as 'plant' within Section 32? - Held that:- An attempt was made by the learned counsel for the Revenue to the effect that the pond in question was natural and not constructed/specially designed by the assessee. We do not find it be so. In the judgment of the High Court [2004 (10) TMI 84 - KERALA High Court], which is decided in favour of the assessee, the High Court has specifically mentioned that the prawns are grown in specially designed ponds. Further this very contention that these are natural ponds has been specifically rejected as not correct. Moreover, from the order passed by the Assessing Officer we find that this was not the reason given by the Assessing Officer to reject the claim. Therefore, finding of fact on this aspect cannot be gone into at this stage. See Commissioner of Income Tax, Karnataka vs. Karnataka Power Corporation [2000 (7) TMI 72 - SUPREME Court] We find that the judgment dated 14.10.2004 rightly rests this case on 'functional test' and since the ponds were specially designed for rearing/breeding of the prawns, they have to be treated as tools of the business of the assessee and the depreciation was admissible on these ponds. - Decided in favour of the assessee Issues:1. Whether a 'natural pond' specially designed for rearing prawns qualifies as a 'plant' under Section 32 of the Income Tax Act, 1961 for depreciation purposes.Analysis:The Supreme Court addressed the issue of whether a 'natural pond' specially designed for rearing prawns could be considered a 'plant' for the purpose of allowing depreciation under Section 32 of the Income Tax Act, 1961. The Court noted that there were conflicting decisions by different Division Benches of the High Court regarding this matter. One Bench had ruled against considering the pond as a 'plant,' while another Bench, in the impugned judgment, took a contrary view. The Court expressed dissatisfaction with the failure of the latter Bench to refer the matter to a larger Bench considering the earlier judgment. However, since appeals were filed against both decisions and the validity of the first judgment was also challenged, the Supreme Court proceeded to decide the appeals on their merits rather than remanding the case back to the High Court for consideration by a larger Bench.The facts of the case involved an assessee engaged in the business of 'Aqua Culture,' specifically growing prawns in specially designed ponds. The assessee claimed depreciation on these ponds, arguing that they were essential tools for the business and therefore qualified as 'plant' under Section 32 of the Act. The Assessing Officer initially disallowed the claim, leading to divergent views by different High Court Benches.The Supreme Court referred to a previous judgment involving a power generating station to establish the concept that certain structures integral to a business operation could be considered 'plant' for depreciation purposes. The Court emphasized that if the ponds in question were deemed 'plants,' they would be eligible for depreciation at rates applicable to plant and machinery, citing the relevant provisions of Section 32 of the Act. The Court highlighted the functional aspect, emphasizing that since the ponds were specially designed for rearing and breeding prawns, they could be considered tools of the assessee's business, thus justifying the allowance of depreciation on these ponds.The Court rejected the argument that the ponds were natural and not constructed or specially designed by the assessee. It noted that the High Court's judgment in favor of the assessee explicitly stated that the prawns were grown in specially designed ponds, refuting the claim that these were natural ponds. The Court found that the functional test applied by the High Court decision dated 14.10.2004 was appropriate, as the ponds were indeed designed for the specific purpose of rearing and breeding prawns. Consequently, the Court ruled in favor of the assessee, dismissing the appeals of the Revenue and allowing those of the assessee.