TaxTMI 
TaxTMI 
TaxTMI 
2008 (10) TMI 275
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....us places in Tamil Nadu as per agreement entered into with the Government of Tamil Nadu. It entered into an agreement of concession on 22-12-2000 with the State of Tamil Nadu for development of project in the roads owned by the Government of Tamil Nadu between Kudiniyandithoppu (Sholinganallur Junction), Kizputtuputtu, Cheravedy near Pondicherry, measuring nearly 113.2 Kms., more specifically known as East Coast Road System. 3. During the year under consideration, it claimed depreciation amounting to Rs. 12,09,08,953 as depreciation on plant and machinery at the rate of 25 per cent comprising of the following items:- ----------------------------------------------------- Particulars Depreciation Percentage Claimed ----------------------------------------------------- Roads Rs....
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....ads under construction had been built to exploit the same as commercial assets and not intended for transportation of material or men relating to the business of the assessee. It was argued that classification of 'asset' must be determined on merits and circumstances and by the exploitation of the asset based on application of principle of commercial prudence. It was further contended that what the assessee had constructed was not merely a kutcha road "connecting various sections of a factory but it was 'road system' with infrastructure facility consisting of optic fibre power cable, pipe gas network, water supply and sewerage pipelines beside the Toll Plaza on automated equipment so as to make it eligible for claim of depreciation on such road system which is treated by the assessee as a plant and not as an ordinary road. It was also contended that the decision of Indore Municipal Corpn.'s case relied upon by the Assessing Officer was not applicable to this case. 6. Without prejudice to the above it was also contended that the Assessing Officer has disallowed the entire expenditure which was claimed as revenue expenditure and in this regard reliance was placed on the decision of ....
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....rprise in which the contractor has spent substantial amount of money on a reconstruction of roads and the expenses are being recovered in the form of toll money on a daily basis. 2.6 On the basis of the above-mentioned facts and circumstances, I am of the considered view that the appellant does not fulfil the basic requirements for the claim of depreciation under section 32 of the Act. The case laws cited by the appellant have been examined and it has been found that the ratio of the said decisions is not directly applicable on the facts of the appellant. On the contrary, the decision of Hon'ble Supreme Court in the case of Indore Municipal Corporation 247 ITR 803 relied upon by the Assessment Order is directly applicable on the facts of the case. I am further of the view that the distinction drawn by the appellant with respect to the "roads" and "roads system" does not help the case of the appellant because the nature of the asset will not affect the applicability of the basic conditions prescribed in section 32 of the Act for the allowance of depreciation. The infrastructure facility stated to be included in the road system is also owned by the Government and not the appellant. ....
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....s, but would also include article or object, fixed or movable, live or dead, used by businessmen for carrying out the business. He also relied on the decision in the case of Karnataka Power Corpn. where the generation building was construed as a plant. He further relied on the decision of Hon'ble Gauhati High Court in the case of Nowrangroy Metals (P.) Ltd. wherein it was observed that if a building was an apparatus or tool of taxpayer, then such building would constitute a plant. He further relied on the decision of the Hon'ble Jurisdictional High Court in the case of Kamala Selvaraj where, even the Nursing Home was held to be a plant. 9. The ld. Departmental Representative, on the other hand, submitted that the assessee before the Assessing Officer never claimed it as revenue expenditure and, therefore, at this stage there is no question of claiming the cost of project as revenue expenditure. He submitted that the decision in the case of Madras Auto Service (P.) Ltd. was rendered by the Apex Court for the assessment year 1968-69 and after that the Act has been amended by insertion of Explanation (1) to section 32 of the Act with effect from 1-4-1988 by the Taxation Laws (Amendme....
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....iture was made before the CIT (Appeals) for the first time. However, the CIT (Appeals) rejected the claim by holding that the decision of the Hon'ble Madras High Court in the case of Madras Auto Service (P.) Ltd. was distinguishable. We further find that the decision of the Hon'ble Madras High Court in the case of Madras Auto Service (P.) Ltd. was rendered for the assessment year 1968-69, after which the following Explanation (1) to section 32 of the Income-tax Act was inserted with effect from 1-4-1988 by Taxation Laws (Amendment and Miscellaneous Provisions) Act, 1986:- "Explanation 1.- Where the business or profession of the assessee is carried on in a building not owned by him but in respect of which the assessee holds a lease or other right of occupancy and any capital expenditure is incurred by the assessee for the purposes of the business or profession on the construction of any structure or doing of any work in or in relation to, and by way of renovation or extension of, or improvement to the building, then, the provisions of this clause shall apply as if the said structure or work is a building owned by the assessee." The above Explanation makes it clear that in case, th....
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.... Road wherever necessary and possible, including the nine curves identified as critical; (7) Junction/intersection improvement including provision of lighting arrangements and traffic control systems; (8) Minor repair works on Bridges and Culverts; (9) Pavement centre-line marking with reflective paint and edge-line marking with thermo plastic paint; (10) Provision of Cat's Eye and Road Studs; (11) Installation of reflective sign boards/road furniture to improve road safety and enhance user comfort including provision of guide posts with reflectors and delineators at suitable intervals for the entire length; (12) Provision for aesthetically designed primary toll plazas and secondary toll plazas, there shall be 2 Nos. of primary toll plaza and 4 Nos. of secondary toll plaza, but the same could be increased depending on toll strategy and traffic requirements in such numbers as may be required depending on traffic pattern and flow; (13) Provision of road-side arboriculture and landscaping including tree plantation; (14) Embankment repairs and turning for stabilising the slopes; (15) Provision of bus bays/bus-stops and passenger shelters along Project Road; (16) Optional esta....
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....ude any article or object fixed or movable, live or dead, used by a businessman for carrying on his business and it is not necessarily confined to an apparatus which is used for mechanical operations or processes or is employed in mechanical or industrial business. In order to qualify as plant, the article must have some degree of durability, as for instance, in Hinton v. Maden & Ireland Ltd. [1960] 39 ITR 357 (HL), knives and lasts having an average life of three years used in manufacturing shoes were held to be plant. In CIT v. Taj Mahal Hotel [1971] 82 ITR 44 (SC), respondent, which ran a hotel, installed sanitary and pipeline fittings in one of its branches in respect whereof it claimed development rebate and the question was whether the sanitary and pipeline fittings installed fell within the definition of plant given in section 10(5) of the 1922 Act which was similar to the definition given in section 43(3) of the 1961 Act and this Court after approving the definition of plant given in Lindley L.J. in Yarmouth v. France (1887) 19 QBD 647, as expounded in Jarrold v. John Food & Sons Ltd. (1962) 40 TC 681 (CA), held that sanitary and pipeline fittings fill within the definition....
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....sis of the business of manufacturing the instruments in question. True, by themselves, these documents did not perform any mechanical operations or processes but that cannot militate against their being a plant since they were in a sense the basic tools of the assessee's trade having a fairly enduring utility, though owning to technological advances, they might or would in course of time become obsolete. We are, therefore, clearly of the view that the capital asset acquired by the assessee, namely, the technical know-how in the shape of drawings, designs, charts, plans, processing data and other literature falls within the definition of "plant" and is, therefore, a depreciable asset." 13. Again in the case of the Karnataka Power Corpn., the issue was whether power generation building would constitute plant for the purpose of investment allowance and the Hon'ble Court has noted the following facts:- "It was the case of the assessee that it was entitled to investment allowance as applicable to a plant in respect of power generating station building. In a note filed before the Commissioner (Appeals) it stated that it had included for the purpose the value of its potential transforme....
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....ate a building for grant of additional depreciation by holding it to be a "plant" in one case where a building is specially designed and constructed with some special features to attract the customers and the building not so constructed but used for the same purpose, namely, as a hotel or theatre would be unreasonable: This observation is, in our view, limited to buildings that are used for the purposes of hotels or cinema theatres and will not always apply otherwise. The question, basically, is a question of fact, and where it is found as a fact that a building has been so planned and constructed as to serve an assessee's special technical requirements, it will qualify to be treated as a plant for the purposes of investment allowance. In the instant case, there is a finding by the fact-finding authority that the assessee's generating station building is so constructed as to be an integral part of its generating system. It must, therefore, be held that it is a "plant" and entitled to investment allowance accordingly. The third question is answered in the affirmative and in favour of the assessee." 14. In the case of Nowrangroy Metals (P.) Ltd., before the Hon'ble Gauhati High Cou....
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....atres, the following observations were made by the Hon'ble Supreme Court:- "There is well-established distinction, in general terms, between the premises in which the business is carried on and the plant with which the business is carried on. The premises are not plant. It is proper to consider the function of the item in dispute. If it functions as part of the premises it is not plant. The fact that the building in which a business is carried on is, by its construction particularly well-suited to the business, or indeed was specially built for that business is carried on there. But it remains the place in which the business is carried on and is not something with which the business is carried on except in some rare cases where it plays an essential part in the operations which take place. Hotel premises are not considered to be an apparatus or tool for running the hotel business but are merely a shelter or home or setting in which business is carried on. The same would be the position with regard to a theatre in which cinema business is carried on. Therefore, even the functional test is not satisfied. Moreover, to differentiate between buildings for grant of additional depreciat....
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.... order dated 5-8-1983. Though the assessment year is not mentioned in the judgment but from the order regarding Special Leave, it becomes clear that it must be related to the earlier years because it would take some time for the matter to travel to the Supreme Court. A careful perusal of various Appendices which prescribe the table of rates by which depreciation is admissible would show that old Appendix I, which was applicable to the assessment years 1984-85 to 1987-88 did not mention in the Notes that buildings include roads, bridges, culverts, wells and tubewells. In the later Appendices which is applicable from assessment years 1988-89 to 2002-03 and 2003-04 and 2005-06 and the latest Appendix which is applicable for the assessment year 2006-07 contain the following Note:- Note: Building includes roads, bridges, culverts, wells and tube-wells. Therefore, it is absolutely clear that the Hon'ble Supreme Court has held in the case of Indore Municipal Corpn. that the buildings would not include roads because Appendix I did not clarify that roads would be included in the building. As pointed out, after the assessment year 1988-89, all the Appendices have the note that building wou....