1993 (4) TMI 126 - AT - Income Tax

Air-conditioning system qualifies for investment allowance as essential plant machinery.

The Tribunal upheld the CIT (Appeals) decision that the air-conditioning system was essential for the manufacturing process of hearing aids. They relied ... Investment Allowance Issues:Grant of investment allowance on air-conditioner.Analysis:The issue in this case revolves around the eligibility of an air-conditioner for investment allowance. The departmental representative cited a judgment by the Calcutta High Court to argue that for investment allowance, machinery or plant must be closely connected with the business of construction, manufacture, or production. The High Court in that case held that certain equipment like fire extinguishers and time-office equipment were not eligible for investment allowance as they were not directly linked to production activities. The representative contended that the same logic applied to air-conditioners.However, the assessee's counsel relied on a different judgment by the Calcutta High Court, which defined 'plant' broadly to include air-conditioning plants. They also cited a Bombay High Court decision where air-conditioning equipment in a bank's vault was considered plant and entitled to development rebate. The counsel applied a functional test, arguing that air-conditioners advance business performance and should be classified as plant. The Gujarat High Court's decision was also referenced, emphasizing that air-conditioners and electric fans installed in office premises are entitled to depreciation and development rebate.The Tribunal, after careful consideration, upheld the decision of the CIT (Appeals) that the air-conditioning system in question was essential for the manufacturing process of hearing aids. They agreed with the Gujarat High Court's view that air-conditioners and electric fans, even in office premises, are plant entitled to depreciation and development rebate. The Tribunal applied various functional tests to determine the classification of the air-conditioner, emphasizing the importance of considering the nature and function of each machinery before deciding on investment allowance eligibility.Ultimately, the Tribunal found that the judgments from the Bombay, Calcutta, and Gujarat High Courts supported the assessee's case. Therefore, they upheld the CIT (Appeals) order and rejected the revenue's grounds. The appeal was dismissed, affirming the eligibility of the air-conditioner for investment allowance.