TaxTMI 
TaxTMI 
2011 (1) TMI 698
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....kground in the referred case is as follows. The assessee-firm is a civil contractor. In their return for 1986-87, they claimed depreciation at 100 per cent. on Rs. 3,18,520 towards purchase value of centering and shuttering equipment. Their plea was that the cost of each item was below Rs. 5,000. The Assistant Commissioner-2, Visakhapatnam, allowed 15 per cent. depreciation. The Appellate Commissioner of Income-tax reversed the order of the Assessing Officer agreeing with the assessee that each item of centering, shuttering and scaffolding material costs less than Rs. 5,000 and, therefore, they are entitled to claim depreciation at 100 per cent. under section 32(1)(ii), proviso. The learned Tribunal confirmed the appellate order, dismissed the Revenue appeal, and, thereafter, a reference was sought. 3. I. T. T. A. Nos. 149 and 124 of 2005 are by M/s. Navayuga Engineering Company Ltd. (Navayuga, for short) for the assessment years 1993-94 and 1995-96 respectively. The other appeal I. T. T. A. No. 20 of 1999 is by the Commissioner of Income-tax, Visakhapatnam. For completing the background of the cases, we may also refer to the facts in the Revenue appeal as well as the appeal by Na....
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....ontractor looks at the concept of "plant". This functional test, if applied, each and every unit forming part of centering, shuttering and scaffolding material used for different purposes by the civil contractor is not a "plant". The entire material used as such, as a whole is "plant". He would submit that Sri Krishna Bottlers P. Ltd. [1989] 175 ITR 154 (AP) does not help in determining the applicable depreciation in the case of centering and shuttering material. According to him, the subsequent decisions of the Madras and Rajasthan High Courts did not decide the nature of centering and shuttering material and merely followed Sri Krishna Bottlers P. Ltd. [1989] 175 ITR 154 (AP). 6. The senior counsel for the assessees Sri C. Kodanda Ram and the amicus curiae, Ms. Anjali Agarwal, appointed in the referred case rely on Sri Krishna Bottlers P. Ltd. [1989] 175 ITR 154 (AP). They contend that centering and shuttering material is put to different uses in different shapes depending on the construction taken up. Therefore each component or unit is a `plant'. They would urge that, if the construction work is large, all the units are used for making scaffolding and shuttering and the same b....
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....ew but is a power conferred, "to rectify any mistake apparent on record." It was also observed that, while doing so, the Tribunal may set aside the earlier order and rehear the matter, and that the phrase "to rectify any mistake apparent on record" is wider in its content than the expression "mistake or error apparent on the face of record" occurring in Order XLVII, rule 1 of the Code of Civil Procedure, 1908 (CPC). The relevant observations are as follows (page 234) : "Sub-section (2) thus covers two distinct situations ; `(i) It enables the Tribunal at any time, within four years from the date of the order to amend any order passed under sub-section (1) with a view to rectify any mistake apparent from the record ; and (ii) It requires the Tribunal to make such amendment if the mistake is brought to its notice by the assessee or the Assessing Officer.' It was submitted that so far as the first part is concerned, it is in the discretion of the Tribunal to rectify the mistake which is clear from the use of the expression `may' by the Legislature. The second part, however, enjoins the Tribunal to exercise the power if such mistake is brought to the notice of the Tribunal either b....
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....true that, in I. T. T. A. No. 149 of 2005, the assessment for the year 1993-94 was completed and the same was rectified vide order JAR No. 1/93-94, dated February 13, 1996, disallowing the amount under Rule 6(d) of the Income-tax Rules, 1962 (the Rules). By yet another order No. 1/97-98, dated March 27, 1998, the assessment for the year 1993-94 was again rectified by the Assistant Commissioner after it being noticed. The reasons therefor in the order of the Assistant Commissioner are as below : ". . . A perusal of the bills for purchase of shuttering material reveals that the assessee purchased MS pipe and MS sheets of the value of more than Rs. 1 lakh. The assessee has not furnished the total quantity of material used in obtaining the independent units, cutting, welding and assembling charges incurred, number of units obtained etc., to arrive at the value of each unit. The concept of shuttering material can have only functional definition i.e., it is defined by what it does. Though each nut or bolt in this material (which may cost less than Rs. 5,000) may have individual identity, it loses its identity in the organic whole of the shuttering material. Therefore, it is the cost of ....
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....ed in contract works 11. The next question relates to I. T. T. A. No. 124 of 2005 (assessment year 1995-96) wherein the assessee claimed higher rate of depreciation at 40 per cent. on the vehicles hired out to Navayuga as per item (2)(ii) of heading III of Appendix I to Income-tax Rules. The Assessing Officer disallowed on the ground that a higher rate of depreciation can be availed of in a business of running vehicles on hire, and that the assessee is not engaged in such a business. The Appellate Commissioner allowed the appeal of the assessee holding that the business of the assessee did not change the character of hiring the vehicle for consideration. Accordingly the disallowance of excess depreciation was deleted. The Tribunal, however, agreed with the Assessing Officer and held that the assessee, as a civil contractor, used buses, taxis and lorries on hire but did not use them for giving on hire. Though a plea is raised, finding fault with the Assessing Officer and the finding of the Tribunal, senior counsel for the assessee does not pursue the argument in view of the binding precedent in CIT v. Gupta Global Exim P. Ltd. [2008] 305 ITR 132 (SC) ; 17 SCC 87. 12. In Gupta Glob....
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.... actual cost of any machinery or plant does not exceed five thousand rupees, the actual cost thereof shall be allowed as a deduction in respect of the previous year in which such machinery or plant is first put to use by the assessee for the purposes of his business or profession." (emphasis supplied) 14. "Plant" is described with an inclusive definition. Anything, "used for the purpose of business or profession" is a "plant". Whether a thing, a building, a vehicle, a contrivance or a contraption is a plant-at least in Tax jurisprudence-is a vexed question. The term "plant" appears in many places in sections 28 to 41 of the Act, which deal with computation of profits and gains from business or profession. Determination of "plant" is relevant in computing the chargeable income from business or profession in allowing depreciation (section 32), investment allowance (sections 32A and 32AB), development rebate (section 33) and rehabilitation allowance to industrial undertaking in the event of damage or destruction due to calamities (section 33B). 15. The precedents are galore which distinguish between a "building" and a "plant". If the business or industrial process is carried on "wit....
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....tocks etc. but also covers investments in house property or other income yielding property. In determining the commercial sense of an expression in a statute directed to commercial men but not containing any definition of that expression, it may be relevant to refer to the normal rules of accountancy prevailing in commerce and industry." 17. In the building engineering construction industry, how does a businessman, or one connected with construction, understand shuttering material. For this purpose, it is necessary to indicate engineering and other aspects of shuttering material in the construction industry. 18. The word "centering" or "shuttering" is a false work erected to give temporary support to "concrete structure" and it is removed after the concrete structure gains strength. The concerned IS code for this work is IS 14687 : 1999. 19. In Wikipedia*, the false work in construction is elucidated as follows : "Falsework consists of temporary structures used in construction to support spanning or arched structures in order to hold the component in place until its construction is sufficiently advanced to support itself. Falsework also includes temporary support structures for....
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....lar work in the process of construction of a building and hence it would constitute a plant . . .". 22. In CIT v. Mohta Construction Co. [2005] 273 ITR 276, 277 the Rajasthan High Court took the view that, "shuttering being a necessary component for construction of the building, is a plant and each shuttering in itself is an independent unit, as that depends upon the use of shuttering in different places . . .". In Express Newspapers Ltd. v. Deputy CIT [2006] 280 ITR 452, 457, the Madras High Court, while referring to Cripps v. Judge [1884] 13 QBD 583 (CA), held that "scaffolding is a plant . . ." and observed that, "each machinery or plant, has to be taken individually for the purpose of considering the computation of depreciation and not the organization of the unit as a whole by treating each and other apparatus necessary for the function of the factory as forming integral part of the factory". 23. From the case law available, it is clear that shuttering is not an integrated component forming a plant. It consists of metal and non-metal props, pipes, right angles, sewer clamps, fixed base plates, wooden poles, wooden planks, plates, steel and aluminium boxes, wooden shapes and ....
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.... definition of "plant". Further it was held that the apparatus employed in carrying on trade or industrial business is a plant. In CIT v. Elecon Engineering Co. Ltd. [1974] 96 ITR 672 (Guj), the word/expression "plant", as defined in section 43(3) of the Income-tax Act, was explained as follows : "The word `plant' in its ordinary meaning is a word of wide import and it must be broadly construed having regard to the fact that articles like books and surgical instruments are expressly included in the definition of plant in section 43(3) of the Act. It includes any article or object, fixed or movable, live or dead, used by a businessman for carrying on his business. It is not necessarily confined to an apparatus which is used for mechanical operations or processes or is employed in mechanical or industrial business. It would not, however, cover the stock-in-trade, that is, goods bought or made for sale by a businessman. It would also not include an article which is merely a part of the premises in which the business is carried on. An article to qualify as `plant' must furthermore have some degree of durability and that which is quickly consumed or worn out in the course of a few oper....
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....he machine used in the manufacturing process but could be merely an apparatus used in carrying on the business but having a "degree of durability". (4) Merely because the asset has a passive function in the carrying on of the business, it cannot be said that it is not plant. It may have a passive or an active role. (5) The subject matter have a `function' in the trader's operation and if it has, it is prima facie a plant unless there was good reason to exclude it from that category. It must be a "tool in the trade" of the businessman. (6) Gross materiality or tangibility is not necessary and, in fact, intangible things like ideas and designs contained in a book could be "plant". They fall under the category of "intellectual store-house". (7) In considering whether a structure is plant or premises. One must look at the finished product and not at the bits and pieces as they arrive from the factory. The fact that a building or part or a building holds the plant in position does not, convert the building into plant. A piecemeal approach is not permissible and the entire matter must be considered as a single unit unless of course, the component parts can be treated as separate unit....
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....h cage being admittedly less than Rs. 750. A clear finding of fact which the income-tax authorities and the Appellate Tribunal have returned is that the cages are not used as independent units, but are utilised by the assessee for fabrication of bigger compartments to have a larger number of birds, with common facilities of lighting and feeding and watering, etc." (emphasis supplied) 29. The Division Bench further noticed that smaller poultry cages are integrated with a bigger unit ; they lose their identity on such integration and become part of the bigger plant and cease to perform any function independent of what is performed by the entire unit as one complete plant and machinery ; and, therefore, it was held that each smaller cage would not qualify for depreciation as plant. 30. In Harijan Evam Nirbal Varg Avas Nigam Ltd. [1998] 229 ITR 776, the Allahabad High Court was concerned with the question whether shuttering material is a plant and whether depreciation can be allowed on it. The question whether each component of shuttering material is eligible for 100 per cent. depreciation was not before the Allahabad Bench. Dealing with the question as to whether shuttering material....
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....y or filled. In the event of any damage it is the bottle which has suffered the damage that has to be discarded, and not all the bottles bought along with particular bottle. The use of one bottle is not interconnected with the use of the other bottles." (emphasis1 supplied) 32. In all the decisions, to our mind, the courts have applied the durability and/or functional tests. If a thing itself is durable (in the senseit can be used and re-used as non-interdependent, interconnected a non-consumable thing) and has functional utility in the trade or business of the assessee to advance his business interest, such thing would be a plant. If it is durable, but cannot effectively stand alone without functional integration with other similar or dissimilar components or units, it would not qualify as a plant. As is understood in the engineering construction industry, a single unit of centering or shuttering material by itself -though durable-may not have functional value. Similar units form one integrated part which can be used as shuttering material. Therefore, it is not possible to accept the plea of the assessees that each similar or dissimilar component or unit, forming part of the whol....