Cold storage depreciation classification: building treated as non-factory, but refrigeration equipment qualified for the specific plant rate.

For depreciation purposes, a cold storage building was not treated as a factory building because the statutory meaning of "factory" under the then applicable law did not cover cold storage merely by reason of refrigeration or a factory licence, and the later inclusion of cold storage in the Factories Act was prospective only. The building therefore qualified only for the general building rate. By contrast, switchgear and motors found as a fact to form part of the refrigeration plant attracted the specific depreciation rate for refrigeration plant, and the general rate for electrical machinery could not be applied. The reference was thus answered partly for the Revenue and partly for the assessee.

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Issues: (i) Whether the cold storage building was a factory building entitled to depreciation at the special rate applicable to factory buildings, or a godown/building falling under the general building rate; (ii) Whether electrical machinery and equipment forming part of the refrigeration plant were entitled to depreciation at the special rate applicable to refrigeration plant rather than the general rate for electrical machinery.

Issue (i): Whether the cold storage building was a factory building entitled to depreciation at the special rate applicable to factory buildings, or a godown/building falling under the general building rate.

Analysis: The expression "factory" in the relevant depreciation schedule had to be understood in the light of the statutory meaning and not by reference only to the fact that a licence had been obtained under the Factories Act, 1948. The definitions of "factory" and "manufacturing process" under the Factories Act, 1948, as then in force did not show that a cold storage plant, as such, involved a manufacturing process merely because goods were stored in refrigeration. The special deduction provision for industrial undertakings operating cold storage plants in section 80J(4)(iii) of the Income-tax Act, 1961, did not enlarge the meaning of "factory". A later amendment specifically including cold storage plants in the Factories Act was prospective and did not govern the years in question.

Conclusion: The cold storage building was not a factory building for depreciation purposes and was not entitled to the factory rate; this issue was decided against the assessee and in favour of the Revenue.

Issue (ii): Whether electrical machinery and equipment forming part of the refrigeration plant were entitled to depreciation at the special rate applicable to refrigeration plant rather than the general rate for electrical machinery.

Analysis: The Tribunal had found as a fact that the switchgear and motors constituted part of the refrigeration plant. That finding was not challenged. Once the items were part of the refrigeration plant, the specific rate prescribed for refrigeration plant governed their depreciation, and the general rate for electrical machinery could not be applied.

Conclusion: The electrical machinery and equipment were entitled to depreciation at the special rate applicable to refrigeration plant; this issue was decided in favour of the assessee and against the Revenue.

Final Conclusion: The reference was answered partly for the Revenue and partly for the assessee, with the building allowed only the general building depreciation rate and the refrigeration machinery allowed the special rate for refrigeration plant.

Ratio Decidendi: For depreciation classification, a cold storage building is not a factory building unless the statutory definition of factory is satisfied, while equipment forming an integral part of a refrigeration plant attracts the specific depreciation rate applicable to that plant rather than the general electrical machinery rate.

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