1984 (11) TMI 86 - AT - Income Tax

GC sheets deemed 'plant' under Income-tax Act for full depreciation benefit

The Tribunal held that galvanized corrugated (GC) sheets qualify as 'plant' under Section 32(1)(ii) of the Income-tax Act, 1961. As the individual value ... Plant - functional test / tool of trade - durability requirement for plant - proviso to section 32(1)(ii) - deduction of cost for lowvalue assets - stockintrade versus assets let on hirePlant - functional test / tool of trade - durability requirement for plant - proviso to section 32(1)(ii) - deduction of cost for lowvalue assets - Galvanized corrugated (GC) sheets purchased and used by the assessee were plant and the entire cost was deductible under the proviso to section 32(1)(ii) as each sheet cost less than the prescribed limit. - HELD THAT: - Applying the ordinary/popular meaning of 'plant' and the authorities cited (including Hinton v. Maden & Ireland Ltd. and Elecon Engg. Co. Ltd.), the tribunal applied the functional test - whether the articles function as apparatus or tools in carrying on the taxpayer's business. The GC sheets were used in the assessee's hiring business as instruments by which the business was carried on and thus fulfilled the function of plant. The Court rejected the shortdurability objection: some degree of durability is required but items with an effective life of roughly 21/2 to 4 years fall within the concept of plant (the durability here was comparable to cases where knives/lasts were held to be plant). The agreement showing separate hire rates and compensation on loss further indicated their use as units of plant. As each sheet's individual cost did not exceed the limit in the proviso to section 32(1)(ii), the entire cost was allowable in the relevant year. The tribunal confirmed the Commissioner (Appeals)'s allowance of full cost as deduction, but on the ground that the sheets are plant rather than on the Commissioner (Appeals)'s alternative reasoning that they formed temporary buildings. [Paras 12, 17]Each GC sheet is plant; since individual cost fell below the proviso threshold, entire cost allowed as deduction in the year.Stockintrade versus assets let on hire - plant - The GC sheets were not stockintrade merely because they were let on hire and sometimes bought/sold by weight; they remained plant used in the business of hiring. - HELD THAT: - The tribunal rejected the department's submission that items let on hire must be treated as stockintrade. Citing authority that stockintrade depends on whether goods are held for sale or for letting on hire as part of trading in that commodity, the Court accepted that items acquired for letting on hire as tools of the business do not become stockintrade. The separate hire rates per sheet and contractual treatment of sheets as hire units supported treating each sheet as an asset (plant) rather than merchandise. The convenience of purchase/sale by weight did not change their character as plant nor did it displace the applicability of the proviso or section 32. [Paras 15, 16]Sheets are not stockintrade; sale/purchase by weight does not prevent treating individual sheets as plant.Final Conclusion: The Tribunal held that the GC sheets constituted 'plant' under the functional test and, as each sheet's cost was below the proviso threshold, the entire cost was allowable as a deduction in the year; consequently the assessee was not entitled to investment allowance, and the revenue's contrary contentions were rejected. Issues Involved:1. Whether galvanized corrugated (GC) sheets qualify as 'plant' under Section 32(1)(ii) of the Income-tax Act, 1961.2. Eligibility for depreciation and investment allowance on GC sheets.3. Classification of GC sheets as 'plant' or 'building' material for depreciation purposes.Issue-wise Detailed Analysis:1. Whether GC Sheets Qualify as 'Plant':The assessee, a firm engaged in the business of tent merchants and suppliers, claimed that GC sheets used for constructing movable partitions, fences, and removable fittings should be classified as 'plant' under Section 32(1)(ii) of the Income-tax Act, 1961. The Income Tax Officer (ITO) rejected this claim, arguing that the business of the assessee did not involve any industrial process, thus GC sheets could not be treated as 'plant'. The Commissioner (Appeals) also initially rejected the claim, stating that the GC sheets did not have enough durability to be classified as 'plant'. However, the Tribunal found that GC sheets fulfilled the function of a plant in the assessee's trading activities, acting as tools of the trade. The Tribunal referred to various judicial precedents, including the Supreme Court's decision in CIT v. Taj Mahal Hotel [1971] 82 ITR 44 and the Gujarat High Court's decision in CIT v. Elecon Engg. Co. Ltd. [1974] 96 ITR 672, which broadly construed the term 'plant' to include any apparatus used by a businessman for carrying on his business.2. Eligibility for Depreciation and Investment Allowance:The assessee claimed full depreciation on the GC sheets, stating that each sheet's value was less than Rs. 750, thus qualifying for a deduction of the entire cost under the proviso to Section 32(1)(ii). The ITO allowed only 10% depreciation, treating the GC sheets as fittings. The Commissioner (Appeals) allowed 100% depreciation, treating the GC sheets as temporary buildings. The Tribunal, however, concluded that since the GC sheets were classified as 'plant' and their individual value was less than Rs. 750, the entire cost should be allowed as a deduction. Consequently, the assessee's claim for investment allowance was not applicable as the entire cost was already deductible.3. Classification of GC Sheets as 'Plant' or 'Building' Material:The Commissioner (Appeals) initially classified the GC sheets as building material used for erecting temporary structures, thereby allowing 100% depreciation. However, the Tribunal disagreed with this classification, emphasizing that the GC sheets were tools of the assessee's trade and should be considered 'plant'. The Tribunal referred to the functional test applied in previous cases, which determined whether an item was used as an apparatus in the business. The Tribunal found that GC sheets were used by the assessee for carrying on its business, fulfilling the function of a plant. The Tribunal also addressed objections raised by the department, including the argument that GC sheets were stock-in-trade, and rejected them based on judicial precedents.Conclusion:The Tribunal concluded that GC sheets should be classified as 'plant' under Section 32(1)(ii) of the Income-tax Act, 1961. Since the individual value of each sheet was less than Rs. 750, the entire cost was deductible in the computation of the assessee's income. The Tribunal confirmed the Commissioner (Appeals)'s decision to allow full depreciation, albeit for different reasons, and ruled out the applicability of investment allowance.