TaxTMI 
TaxTMI 
2015 (6) TMI 769
X X X X Extracts X X X X
X X X X Extracts X X X X
....decided on 19.01.2011, while dealing with the aforesaid question, held that if a thing (material) itself is durable but cannot effectively stand alone without functional integration, it would not qualify as a plant and answered the question against the assessee and in favour of the Revenue. The second Division Bench in Commissioner of Income Tax Vs. Live Well Home Finance (P) Limited((MANU/AP/2311/2014))] decided on 27-11-2014 (for short the second judgment), however, answered the question in favour of the assessee and against the Revenue, applying durability and functional test to hold that every individual thing (material), such as shuttering plate used for formation is a plant. 3. Having noticed the divergent views/opinions expressed by two Division Benches, another Division Bench while dealing with the instant appeal (ITTA No.95 of 2001), as prayed for by learned counsel for the parties, framed the question, as reproduced in the first paragraph, vide order dated 14-02-2015 directed the Registry to place the order along with the proceedings before the Honble the Chief Justice for appropriate orders. Accordingly, the above question has been referred to this Full Bench. 4. T....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lowed 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) 5.1 Section 32 deals with depreciation. For our purpose, it provides that a plant owned by the assessee and used for the purposes of his business or profession, is entitled for certain deductions subject to the provisions of Section 34 and where the actual cost of any plant does not exceed Rs. 5000/-, the actual cost thereof shall be allowed as a deduction in respect of the previous year in which such plant is first put to use by the assessee for the purposes of his business or profession. It is well settled that a proviso is normally used as a legislative tool to carve out an exception from the main provision, which precedes the proviso. Section 32 of the Act, enables deductions in respect of buildings, machinery, plant or furniture owned by the assessee and used for the purpose of his business or profession and the first proviso enables deduction of the actual cost thereof where the actual cost of plant does not exceed Rs. 5,000/-, if such machinery or plant is first put to use by the as....
X X X X Extracts X X X X
X X X X Extracts X X X X
....which people conversant with the subject matter with which the statute is dealing, would attribute to it. The very fact that even books have been included within the definition of plant shows that the meaning intended to be given to plant is wide. The word includes is often used in interpretation clauses in order to enlarge the meaning of the words or phrases occurring in the body of the statute. When it is so used, these words and phrases must be construed as comprehending not only such things as they signify according to their nature and import but also those things which the interpretation clause declares that they shall include. [see Commissioner of Income Tax, Andhra Pradesh Vs. Taj Mahal Hotel (1971) 82 ITR 44 (SC)] 6. To understand the controversy and to decide the question, we deem it appropriate to make a detailed reference to the first and the second judgments. In the first judgment, the Division Bench considered the question whether on the facts and in the circumstances of the case the Tribunal was justified in directing to allow @ 100% depreciation on centering and shuttering material? In that case, the assessee/firm had claimed 100% depreciation of Rs. 3,18,520/-....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 10. 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 plaintat 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 32-A and 32-AB), development rebate (Section 33) and rehabilitation allowance to industrial undertaking in the event of damage or destruction due to calamities (Section 33B). The precedents are galore which distinguish between a building and a Plant. If the business or industrial process is carried on with something, it is a Plant and if business activity or industrial process is carried on in a place or at a place, it is a building. Ramanatha Aiyars Advanced Law Lexicon contains about 30 definitions/descriptions of the term Plant with reference to dictionaries, precedents and statutes. The best possible way is to un....
X X X X Extracts X X X X
X X X X Extracts X X X X
....they are arranged qualify for 100 per cent depreciation under Section 32 of the Act. The matter was discussed in detail, obviously because the subject was almost untouched by that time. The judgment of the Supreme Court in CIT v. Taj Mahal Hotel [ (1971) 82 ITR 44(SC) ] and various judgments of the courts in India and foreign countries were discussed at length to draw support for the conclusions. The purpose of almost each and every judgment that was cited before their Lordships was taken note of. As regards bottles and shells, their Lordships observed : The bottles containing the soft drink cannot be stock- in-trade inasmuch as the bottle by itself is not the subject of sale. The customer or the retailer returns back the bottle to the assessee after the soft drink is consumed. Likewise, the shells which are sent to the customer or dealer also come back with the empty bottles and they cannot also be stock-in-trade. What is the function these bottles and shells perform in the assessees trade? Are they essentially tools in the assessees business?. In our opinion, yes. The bottles are essential tools of the trade for it is through them that the soft drink is passed on from th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....bottle or each shell would also be a plant for the purpose of Section 32(1)(ii). 13. It was proceeded as though in Sri Krishna Bottlers Pvt. Ltd.s case (supra), each bottle and shell was not treated as unit qualifying for depreciation under Section 32(1)(ii) of the Act. This does not appear to be correct. The underlined portion of the Judgment in Krishna Bottlers Pvt. Ltd.s case (supra) makes this clear. 7.1 Then, the Division Bench (in the second judgment) after referring to the judgment in Krishna Bottlers (supra) in paragraphs 15, 16 and 27 observed thus:- 15. The precedents can be treated as having been rendered sub silentio, if an otherwise binding precedent or a specific provision of law was not taken note of. Generally, we do not come across the instances of a judgment being treated as sub silentio, if the binding precedent is taken note of. However, if the ratio emerging from a binding precedent was treated as non-existing and the judgment was rendered contrary to what was decided in the precedent, a situation may arise, where the judgment so rendered almost resembles, the one done in sub silentio. 16. It has already been demonstrated that the ratio in Sri Krish....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rivate Limited Company manufacturing soft drinks and selling the same at Hyderabad and other places. The Company was claiming breakages in bottles in the respective years as a deduction. For the Assessment Year 1976-77 the Company had claimed deduction under the first proviso to Section 32(1)(ii) of the Act in respect of the bottles and shells purchased and put to use during the year. During the relevant year the Company had purchased bottles to the tune of Rs. 3,25,021/- and claimed that the same should be allowed as outright deduction. The claim was, however, rejected by the Income Tax Officer. In this backdrop, the matter reached this Court. 8.1 Honble Justice Jagannadha Rao, as he then was, speaking for the Division Bench, after considering several English judgments and so also the judgments of the Supreme Court and High Courts carved out the principles or the tests to hold whether an apparatus or thing could be treated as plant thus:- From the aforesaid rulings, the following principles can be gathered: (1) Plant in section 43 (3) of the Act is to be construed in the popular sense, namely, in the sense in which people conversant with the subject matter with which the sec....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e empty bottles and they cannot also be stock-in-trade. What is the function these bottles and shells perform in the assessees trade? Are they essentially tools in the assessees business? In our opinion, yes. The bottles are essential tools of the trade for it is through them that the soft drink is passed on from the assessee to the customer. Without these bottles, the soft drink cannot be effectively transported, like the silos in Schofield v. R. and H. Hall LTd. [1974] 49 TC 538 (CA), which are used to store grain and to empty the same, performing a trade function. As pointed out in Dixon v. Fitchs Garage Ltd. [1975] 50 Tc 509 (Ch D), the bottles and the contents are totally interdependent. So are the shells, The bottles and shells also satisfy the durability test for it is nobodys case that their life is too transitory or negligible to warrant an interference that they have no function to play in the assessees trade. They are therefore plant for the purposes of the Act. The principle that a setting in which the trade is conducted is not attracted to the facts of the case at all. The bottles and shells have nothing to do with the building in which the trade is conducted nor wi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e from the factory. Functional test was held to be a decisive test. 8.5 It may be noticed that the question before the Division Bench in Krishna Bottlers (supra) was not as quoted in the second judgment in para.10, viz., whether each bottle that is used for serving a soft drink and the shells, in which they are arranged, qualify for 100% depreciation under Section 32 of the Act. The only question in Krishna Bottlers (supra) was, at the cost of repetition, whether on the facts and in the circumstances of the case, bottles and shells constitute plant and depreciation is admissible thereon under Section 32(1)(ii) of the Income Tax Act, 1961 for the Assessment Year 1976-77? 9. An identical question as in Krishna Bottlers (supra) came up for consideration before another Division Bench in The Commissioner of Income Tax, Central, Hyderabad v. M/s. Margadarsi Chit Fund (P) Ltd.,( (1997) 227 ITR 646 (AP)) which was decided on 13.03.1997. The questions of law that were considered by the Division Bench were as follows: 1. Whether on the facts and in the circumstances of the case, the ITAT is correct in law in holding that the assessee is entitled for 100% depreciation on bottles and ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... or business and depreciation could be claimed in respect of that, is obiter in nature. The said issue did not arise for consideration nor elaborate arguments were advanced on the said point before the Division Bench. Hence, in our opinion, the observations in Margadarsi (supra) cannot be construed as laying down a ratio. 10. We would also like to make a brief reference to the judgments relied upon by the learned counsel for the parties in support of their contentions. In Commissioner of Income Tax Vs. Prem Nath Monga Bottles(P) Ltd.,( [(1977) 226 ITR 865 (Delhi)]), the Delhi High Court considered almost identical question in respect of Bottles and after referring to Krishna Bottlers (supra) answered the question in favour of the assessee and against the Revenue. In yet another judgment of the Delhi High Court in Joint Commissioner of Income Tax Vs. Anatronics General Co.(P) Ltd.,( [(2001) 247 ITR 25 (Delhi)]) similar view was taken while dealing with the question as regards the rate of depreciation on the bottles given on lease to another concern. Though ultimately, the Delhi High Court held that no question of law much less substantial question of law arose out of the order of....
X X X X Extracts X X X X
X X X X Extracts X X X X
....uttering material is not plant or machinery. In our opinion, with which the Karigars and masons work would be. The assessee is, therefore, entitled to depreciation on shuttering material and the same be allowed to it. Under section 43 of the Act, plant includes ships, vehicles, books, scientific apparatus and surgical equipment used for the purposes of the business or profession but does not include tea bushes or livestock. The word plant has come up for interpretation before various courts on numerous occasions in the context of different statutes and the catena of judicial decisions shows that it is word of wide and varied import, susceptible of diverse meanings of depending upon its setting in the scheme of the statute. 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 equipment 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 the businessman for carrying on his business. It is not necessarily confined to an apparatus which is used for mechanical operation or pro....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ottles. 14. In Commissioner of Income Tax Vs. Mohta Constructions Co.( (2005) 273 ITR 276 (Rajasthan)), the Rajasthan High Court also took similar view while dealing with a use of shuttering materials relying upon the judgment of Allahabad High Court in Harijan Evam Nirbal Varg Avas Nigam Ltd(supra). 15. In Express Newspapers Ltd., Vs. Deputy Commissioner of Income Tax ( (2006) 280 ITR 452 (Madras) ), the Madras High Court while dealing with the similar question in respect of scaffolding material, relying upon, among the other, the judgment in Harijan Evam Nirbal Varg Avas Nigam Ltd(supra) took similar view. 16. The High Court of Delhi in Commissioner of Income Tax Vs. Ansal Housing Finance and Leasing Company ((2013) 354 ITR 180(Delhi)) dealt with the question of 100% depreciation on shuttering and scaffolding materials and relying upon several judgments including the judgment of the Allahabad High Court in Harijan Evam Nirbal Varg Avas Nigam Ltd(supra) answered the question in favour of the assessee. For taking this view, the Delhi High Court also placed reliance upon its Judgment in Anatronics General Company (supra) and the judgment of the Rajasthan High Court in Mohat....
X X X X Extracts X X X X
X X X X Extracts X X X X
....pe for dissecting the electrical system into different component parts for each room and working out depreciation under the proviso to section 32(1)(ii) of the Act. Similarly, as sanitary pipelines and fittings (with the exception of commodes, seat covers, etc., in each room for which depreciation at 100% had been allowed) were intended to serve all rooms as a whole and not any particular room, they had to be regarded as an integrated unit and hence there was no possibility of apportioning the expenditure relating to that with reference to each room. Thus, it was held that the Tribunal was right in its view that the allowable depreciation on electrical system and sanitary pipelines and fittings had to be restricted to 10 per cent. 20. In Assistant Commissioner of Income Tax Vs. Ravi Construction (MANU-GJ-1163-2014), the Gujarat High Court had an occasion to consider the question: is centering material to be viewed as block of assets for the purpose of allowing deduction in respect of depreciation under Section 32(1)(ii) of the Act? and further is depreciation allowable at 100% on the centering material as against normal rate of depreciation at 33.1/3 % for plant and machinery....
X X X X Extracts X X X X
X X X X Extracts X X X X
....provisions of Section 10(2)(via) of the Income Tax Act, 1922 (for short 1922 Act) in respect of a diesel oil engine fitted to a motor vehicle in replacement of the existing engine? While dealing with this question, the Supreme Court extensively quoted and considered the provisions contained in all clauses of Section 10(2) of the 1922 Act. The Supreme Court also considered the word machinery used in all the clauses of Section 10(2) and observed that if a machine is machinery for purposes of giving an allowance in respect of insurance or for repairs or in respect of normal depreciation or for the purpose of paragraph one of Clause (vi), it must also be machinery for the purpose of the second paragraph of Clause (vi) and Clause (via). Then after considering the scheme of paragraph two of Clause(vi) and Clause (via), observed that it is different from that of paragraph one of Clause (vi) inasmuch as before it can qualify for extra depreciation, the machinery must be new and must be installed, and the rate of depreciation is provided in the Act itself. Keeping in view this scheme, it was urged before the Supreme Court that the word machinery must be given a restricted meaning in paragra....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the object in each case of effecting so definite and specific a result. It was then observed that when the assessee purchased the diesel engines, they were not plant or part of a plant: because they had not been installed in any vehicle. They were, according to the definition given by the Privy Council, machinery. They were not yet part of a plant, and, according to the Act, 20% of the cost thereof was allowable to the assessee. It was further observed that all the conditions required by the Act satisfied. If we look at the point of time of purchase and installation, what was purchased and installed was machinery. Ultimately, the majority judges in this case (Mir Mohammad Ali) answered the question in the affirmative. 23. In Taj Mahal (supra) the Supreme Court considered the question whether sanitary and pipeline fittings in a building , which is run as a hotel would fall within the meaning of the word plant in Section 10 (2) (vi-b) of the 1922 Act. Section 10(5) of the 1922 Act defines the word plant, which includes vehicles, books, scientific apparatus and surgical equipment purchased for the purpose of the business, profession or vocation. In paragraph 11 the Supreme Court o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the Revenue and while dealing with the submission based on these judgments, the Supreme Court observed that it is distinguishable and it hardly supports the contention of the Revenue. In that case, it was held that electric lamps and fittings in a tea shop were not part of the apparatus used for carrying on the business but were part of the setting in which the business was carried on and, therefore, were not plant, within the meaning of certain provisions of the War Damage Act, 1943. It was further observed if these articles are plant, it can only be by reason that they are found on premises exclusively devoted to trade purposes. Trade plant alone need be considered. 24. In St.Johns School (Mountford and Another) Vs. Ward([Tax Cases Vol.49] ) the High Court of Justice (Chancery Division), the question that was considered was whether the expenditure incurred in the accounting years ended on 31-01-1968 and 03-01-1969 respectively of structures for use in trade were in whole or part expenditure on the provisions of machinery or plant within the meaning of Sections 18 & 19 of the Capital Allowances Act, 1968. Templeman, J speaking for the Bench after considering the observations ma....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ked that Walawhan Dam and Shirawata Dam were constructed in the years 1911 and 1916. At that time, the modern technique for construction of dams was not so much advanced. In the two years, with which we are concerned, lakhs of rupees have been spent in anchoring Walawhan Dam and Shirawata Dam. It is undoubtedly true that by incurring this expenditure no independent asset has come into existence but in order to entitle an assessee to claim development rebate creation of an independent asset is not essential. If by incurring this expenditure the existing dams have been so strengthened as to prolong their lives for a sufficiently long duration, then by incurring this expenditure a new plant can be said to have been installed so as to entitle the assessee to claim development rebate. Instead of demolishing the old dams and constructing new ones in their place, what has been done by the assessee by modern scientific technique is that huge expenditure has been incurred as a result of which the lives of the existing dams will be prolonged for a sufficiently long period. This will result in a new plant being installed within the meaning of s.33 of the Act, even though by the incurring of t....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... for shuttering, which is a plant in itself, would not qualify for depreciation under proviso to Section 32 (1) (ii) of the Act as a part or extension of the bigger plant of which it becomes a part and it would not be entitled to be termed as a plant in itself to qualify for the allowance in its own right. 27. In this backdrop, it would be relevant to know what does the words centering and shuttering exactly mean, or how they are understood in common parlance or in civil engineering, and what exactly centering or shuttering materials mean. This is necessary, since in the present case what falls for our consideration is whether materials or components collectively or individually, used for centering or shuttering could also be treated as plant. At the out set, in our opinion, as observed earlier, shuttering-which is a supporting structure, used to shape and support the concrete until it attains strength, is a plant within the meaning of section 43 of the Act. The question, however, is whether every unit/component (thing) used for forming shuttering or centering could be treated as plant. The words centering or shuttering are not defined in any enactment or elsewhere, and therefor....
X X X X Extracts X X X X
X X X X Extracts X X X X
....pes of dead and live loads; ii) it should be rigidly constructed and efficiently propped and braced both horizontally and vertically, so as to retain its shape; and iii) it should permit removal of various parts in desired sequences without damage to the concrete. Steel sheets and/or timber/wood planks can also be used as shuttering material. They can be fabricated in large number in any desired modular shapes and sizes. Steel forms are used in large number of projects and in situation where large numbers of reuse of the shuttering is possible. Steel forms are stronger, durable and have longer life than the timber formwork. They can be installed and dismantled with greater ease and speed. Steel plates/wooden planks used as shuttering material need support of wooden poles or steel rods or bamboo sticks, with braces or batten to keep it in its place till they are stripped after setting off or hardening off cement concrete. Without support with the poles/rods or braces or batten, they cannot be used independently. Even for joining more than one shuttering sheet/wooden planks, they required to be efficiently braced both horizontally and vertically so as to retain its shape. In short, t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nt in the assessees trading activity? Is it a tool of his trade with which he carries on his business? If the answer to these questions is in the affirmative, it would be a plant. We have no doubt that centering and shuttering fulfill the function of a plant, which the assessee use it as a tool for carrying on his business and hence it is a plant. 29. In this backdrop, it is necessary to consider whether each article/unit/component used in shuttering or centering could also be treated/termed as a plant. The best possible way is to understand the nature of the business and the purpose of such article/unit/component in such a business. It is also necessary to find out whether any single article/unit/component can be put to use as shuttering material and if the answer is in the negative, in our opinion, a single article/unit/component cannot be treated as a plant or it would not fall within the meaning of the word plant as defined under Section 43(3) of the Act. The test is if one single article/unit/component itself is sufficient to fulfill the functioning of shuttering, it could be called or treated as a plant but if not it is certainly not a plant. We do not wish even indirectly....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rocess of construction activity. 31. We also need to understand what does apparatus means. The Judicial Dictionary by Justice L.P.Singh and Justice P.K.Majumdar, third edition, reprint 2012 with reference to a judgment of Kerala High Court in K.N.Achuthan Pillai v. Union of India ([AIR 1988 Kerala 140] ) described the word apparatus to include a telephone receiver. It further states if any extension is taken from such a receiver, it becomes an appliance or part of that apparatus. 31.1 As stated in the New Oxford Dictionary of English edited by Judy Pearsall the word apparatus means the equipment needed for a particular activity or purpose. The other meaning of the word given in the dictionary is a complex structure within an organization or system: the apparatus of Government. The third meaning in the dictionary is collection of notes, variant readings and other matter accompanying a printed text. 31.2 The Supreme Court in Words and Phrases by Justice M.L.Singhal with reference to a Commissioner of Customs v. C-Net communication(I) Pvt.Ltd., [2007 (11) JT 329] stated the word apparatus would mean the compound instrument or chain of series of instruments designed to carry o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he proviso to Section 32 (1) (ii), but in fact, it is a proviso to Section 32 (1) only. In Krishna Bottlers (supra), the proviso was not considered and what was considered was whether the bottles and shells constitute plant and depreciation is admissible thereon under Section 32 (1) (ii) of the Act. The decisions of English law which dealt with plant are of no avail for interpreting the section. Thus, it is clear that where the actual cost of any plant does not exceed Rs. 5000/-, the assessee is entitled to claim 100% depreciation. Merely because cost of every single item is less than Rs. 5000/-, if we hold that every single item used for shuttering can be treated as plant perhaps that will create a very strange situation. For instance, a Car is a plant within the meaning of Section 43 of the Act, however the owner of the Car is not entitled to claim 100% depreciation on its spare parts since the cost of the Car is more than Rs. 5000/-. Therefore, if we ask question to ourselves whether all spare parts of the Car including tyres costing less than Rs. 5000/- individually or separately by the assessee, whether he is entitled to claim 100% depreciation on those items, our answer to th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....essee, but only on Rs. 11,46,124/. 37. The assessee filed an appeal to the Commissioner of Income Tax. By order dt.25.11.1994, the Commissioner partly allowed the appeal of the assessee and following his earlier order dt.2.8.1994 in the case of one M/s Bharti Builders, Vishakhapatnam (wherein he had taken a view that centering and shuttering equipment/materials acquired by assessee each costing less than Rs. 5000/- were used individually or under various combinations in construction work), he held that the assessing officer should allow 100% depreciation to the assessee. 38. The Revenue filed a further appeal to the Income Tax Appellate Tribunal. The Tribunal, by order dt.14.02.2001 dismissed the appeal of the Revenue relying upon its order dt.13.11.1998 in ITA.No.435/HYD/1997 in the case of M/s.Raghavendra Constructions, Visakhapatnam vs. ACIT, Circle-II, Visakhapatnam in which, on similar facts, it had allowed depreciation at 100% on shuttering and centering materials. 39. This is questioned by the Revenue in the present appeal. 40. This appeal was admitted in 2001 to consider the following substantial questions of law : (A) Whether on the facts and in the circumstanc....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nd the proviso thereto was deleted. However we are not concerned with the substituted provision. 45. Sec.43 (3) of the Act as it stood in 1991-92 assessment year stated: Sec.43. Definitions of certain terms relevant to income from profits and gains of business or profession : In Sec.28 to 41 and in this section, unless the context otherwise requires--- (3) Plant includes ships, vehicles, books, scientific apparatus and surgical equipment used for the purposes of the business or profession but does not include tea bushes or live stock; III. DICTIONARY MEANING OF SHUTERING/CENTRING 46. The Concise Oxford Dictionary (9th Edition) defines centering as a temporary frame used to support an arch, dome, etc., while under construction. It defines shuttering as a temporary structure, usually of wood, used to hold concrete during setting. IV. MOST OF THE HIGH COURTS IN INDIA HAVE ACCEPTED THAT SHUTTERING/CENTERING MATERIAL IS PLANT : 47. That centering and shuttering material would come within the definition of plant as defined in Section 43 (3) of the Act has been accepted by Madras High Court in Commissioner of Income Tax v. Alagendran Finance Ltd.( AIR 1986 S....
X X X X Extracts X X X X
X X X X Extracts X X X X
..... It held that 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; and therefore, it is not possible to accept the plea of the assessees that each similar or dissimilar component or unit, forming part of the whole integrated shuttering material, is entitled for 100% depreciation as a plant. It held that each item of shuttering material cannot be treated as one whole shuttering material forming one plant eligible for 100% depreciation under the proviso to Section 32 (1) (ii) of the Act. VI. THE OPPOSITE VIEW IN M/S LIVE WELL HOME FINANCE (P) LTD 49. On the other hand, in Live Well Home Finance (P) Ltd. (30 supra) another Division Bench disagreed with the above view in Raghavendra Constructions (29 supra). It held that in the context of availing the benefit under Section 32(1)(ii) of the Act, identification of a unit of plant becomes essential and though the Act and the precedents on the subject are silent about this, the safest way is to identify the irreducible minimum of the plant or machinery, which in turn can be put to independent use. It ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sive definition, it indicates that the definition of the term plant is intended to be extensive. 55. First in 1972, the Supreme Court while construing the said definition in CIT, A.P. v. Tajmahal Hotel, Secunderabad( ) held that sanitary and pipeline fittings in a building which is run as a hotel fall within the word plant in Section 10 (2) (vi-b) of the Income Tax Act, 1922 (which is in pari materia with Section 43 (3) of the Income Tax Act, 1961) for grant of depreciation allowance and observed : 9. Now it is well settled that where the definition of, a word has not been given, it must be construed in its popular sense if it is a word of every day use. Popular sense means that sense which people conversant with the subject matter with which the statute is dealing, would attribute to it. In the present case, Section 10(5) enlarges the definition of the word plant by including in it the words which have already been mentioned before. The very fact that even books have been included shows that the meaning intended to be given to plant is wide. The word includes is often used in interpretation clauses in order to enlarge the meaning of the words or phrases occurring in the body....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... and a transport operator, who had replaced petrol engines in two of his buses by new diesel engines for not only normal depreciation under first proviso of clause (vi) of Section 10 (2) of the Income Tax Act, 1922 but also depreciation under the second para of clause (vi) and clause (via) of the said Act. The I.T.O. allowed only 25% depreciation under the first para of clause (vi). The assessee appealed to the Assistant Commissioner and also to the I.T.A.T. Both of whom rejected his claims for further depreciation. The Tribunal held that he is not entitled to extra depreciation under clause 10 (2) (vi) or 10 (2) (via) on the ground that even if an engine is important for running a motor, it is after all part of an equipment and cannot itself be machinery for claiming extra depreciation as envisaged in those sub sections. It referred the matter to the High Court which held in favour of the assessee. While dealing with the question whether a new diesel engine in a Bus amounts to machinery, Sikri, J of the Supreme Court (speaking for himself and Justice Subba Rao), posed the question What then is the test for determining whether a mechanical contrivance is machinery for the purpos....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he case may be, has to be taken individually for the purpose of considering the computation of depreciation and not the organization or the unit as a whole by treating each and every apparatus necessary for the function of the factory as forming an integral part of the factory vide CIT v. Kiran Crimpers ((1997) 225 ITR 84 (Guj)). In Cripps v. Judge( ), scaffolding has been held to be a plant. XI. THE A.P. HIGH COURT DECISIONS 60. In 1989, the decision in Scientific Engineering House P. Ltd (41 supra) was followed in Commissioner of Income-Tax v. Sri Krishna Bottlers Pvt. Ltd ([(1989) 175 ITR 154 (AP)]). In that case, the Division Bench was considering the case of an assessee who was manufacturing and selling soft drinks. The assessee had claimed for the assessment year 1976-77 deduction under the 1st proviso to Section 32 (1) (ii) of the Act in respect of bottles and shells purchased and put to use during the year. The Income Tax Officer deducted the claim for outright deduction on the ground that bottles cannot be treated as plant on which depreciation can be claimed; bottle and cool drinks therein put together form stock-in-trade and cannot be separated from the drink for t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nto 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 units having different purposes. (8) The functional test is a decisive test. 32. Bearing these principles in mind, we shall approach the facts of the present case. The bottles containing the soft drink cannot be stock-in-trade inasmuch as the bottle by itself is not the subject of sale. The customer or the retailer returns back the bottle to the assessee after the soft drink is consumed. Likewise, the shells which are sent to the customer or dealer also come back with the empty bottles and they cannot also be stock-in-trade. What is the function these bottles and shells perform in the assessee's trade ? Are they essentially tools in the assessee's business ? In our opinion, yes. The bottles are essential tools of the trade for it is through them that the soft drink is passed on from the assessee to the customer. Without these bottles, the soft drink cannot be effectively transported, like the silos in Schofield v. R. and H. Hall Ltd. [1974] 49 TC 538 , which are used to store grain and to empty the s....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nt for the purpose of the business or profession. Individual items of purchase would also be plant if it is integrally involved in the carrying out of the profession or business and depreciation could be claimed in respect of that. (emphasis supplied) 62. Coming back to Raghavendra Constructions (29 supra), I may state that it referred to the Sri Krishna Bottlers (P) Ltd. (47 supra), and distinguished it on the ground that the Division Bench therein nowhere observed that each bottle or shell would also be a plant for the purpose of Section 32 (1)(ii) of the Act, erroneously. In fact, in Sri Krishna Bottlers (P) Ltd. (47 supra), the Division Bench had categorically held that each bottle and each shell is an entity by itself. Further, going deeply into the facts of that case, the issue in Sri Krishna Bottlers (P) Ltd. (47 supra) was not about whether a group of bottles are a plant but in fact, whether each bottle was a plant. Therefore, it is clear that by oversight the Bench in Raghavendra Constructions (29 supra) overlooked this passage and the facts in the judgment in Sri Krishna Bottlers(P) Ltd. (47 supra). 63. Further, in Raghavendra Constructions (29 supra), the Divisi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nning, it is not disputed by the Revenue that if the said proviso is not attracted, the assessee would still be entitled to claim 33 1/3 % on the centering and shuttering equipment under Sec.32(1) of the Act. 68. Once it is accepted that for claiming depreciation under Sec.32(1), centring and shuttering material would constitute a plant, it is difficult to agree with the Revenues plea that for purpose of 1st proviso to Sec.32 (1), each piece of the centring and shuttering material will not be a plant on the mere ground that they cannot be used on a stand alone basis but only in combination with other items thereof. 69. As stated above in Mir Mohd. Ali (42 supra), the Court while dealing with the question whether a new diesel engine in a Bus amounts to machinery, posed the question: What then is the test for determining whether a mechanical contrivance is machinery for the purposes of second para of cl.(vi) and (via) 9of sec.10(2)) ? The Court then quoted with approval, the following passage from the judgment of the Privy Council in Corporation of Calcutta (43 supra): The word machinery, when used in ordinary language prima-facie, means some mechanical contrivances wh....
X X X X Extracts X X X X
X X X X Extracts X X X X
....NTS OF THE SUPREME COURT 74. As previously mentioned, the Supreme Court in Tajmahal Hotel (39 supra) has held that the word plant as defined in Section 43 (3) would include any article or object fixed, moveable, live or dead, used by a businessman for carrying on his business. It held that sanitary fittings in the bathrooms in a hotel would be plant and they cannot be said to have no connection with the business of hotelier. 75. Similarly, in Scientific Engineering House P. Ltd. (41 supra) the Supreme Court has reiterated this and further held that in order to qualify as a plant an article is not necessarily confined to an apparatus which is used for mechanical operations or processes or is employed in mechanical or industrial business, but it must have some degree of durability. It approved the functional test laid down in IRC v. Barclay, Curle and Co. Ltd ([(1970) 76 ITR 62 (HL)]). wherein Lord Guest held that in order to decide whether a particular subject is an apparatus, enquiry has to be made as to what operation it performs. The Supreme Court held that the test would be : Does the article fulfill the function of a plant in the assessees trading activity ? Is it a tool ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....y of the assessee. They can be and are normally dis-assembled after their use in combination and revert back to their individual status. Since they are durable and have a function in the assessees business, merely because they are not capable of being used individually on a stand alone basis and have to be used in combination with other units thereof, they do not cease to be a plant. 80. In Munby v. Furlong Munby ([(1977) 50 TC 491 (CA)] ) , the tax- payer, a barrister started to practice at a Bar in 1972. During the following year, he bought textbooks and law reports for the purpose of his practice. In making assessments for income tax, the Inspector of Taxes refused to allow the taxpayer deductions in respect of the expenditure which he had incurred in buying the books. The taxpayer appealed against the assessments on the ground that the books were plant qualifying for capital allowances in Chapter I of Part III of the Finance Act, 1971. The appeal was dismissed and was upheld by a single Judge of the High Court but the tax payer succeeded before the Court of Appeal. The Court of Appeal declared that in the context of a profession, the provision of plant should be so interpret....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ts; and if the individual unit is regarded as a plant, and if it is valued below Rs. 5,000/-, it would qualify for 100% depreciation. There is no question of how many units are normally used for the business and the test is as to whether one centering/shuttering material is a tool of the assessees trade with which he carries on business. 86. No doubt, in Pathange Poultry Farm v. Commissioner of Income-Tax ([(1994) 210 ITR 668 (Karnataka)] ), a Division Bench of the Karnataka High Court, while dealing with a case of an assessee engaged in poultry business who claimed 100% depreciation on the cost of individual cages (which were then fabricated in such a manner to form a bigger unit) disallowed such a claim. But, the basis of such disallowance was that once the smaller cages are integrated into a bigger unit, they lose their individuality; and that they become a part of the bigger plant and cease to either perform or remain capable of performing any function independent of what is performed by the entire unit as one complete plant or machine. It is this judgment which was followed in Raghavendra Constructions (29 supra), by the Division Bench therein to come to the conclusion that....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of the assessee. They can be and are normally dis-assembled after their use in combination and revert back to their individual status. They are then reused in different combinations. Unlike parts of a motor car, the shuttering/ centring material do not lose their identity. Parts of a motor car once integrated are not dis-assembled after each use of the car like shuttering/centring material. So centring/shuttering material stand on a truly different position from parts of a motor car. 91. In fact in Commissioner of Income Tax v. Indian Turpentine and Rosin Co. Ltd([(1970) 75 ITR 533 (All)] ), which was approved and followed by the Supreme Court in Taj Mahal Hotel (39 supra), poles, cables, conductors and switch boards used by a Company engaged in manufacturing and selling rosin and turpentine to change over power from D.C to A.C, have been held to be a plant. The court held: The Tribunal described the change over from D.C. system to A.C. system thus : "This involved new installations of poles, cables, conductors, switchboards for distribution to various feeders." 8. In Commissioner of Income Tax v. Mir Mohammad Ali, the Supreme Court explained that the expression "instal....