1999 (3) TMI 29

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....A No. 6361 of Delhi of 1990, relating to the assessment year 1982-83, be called and the Income-tax Appellate Tribunal, Delhi, be directed to draw up a statement of the case, and to refer the following questions of law for opinion to this court : "(1) Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was legally justified in holding that, the preoperational expense of Rs. 2,08,100 should be taken into account to work out the unexplained investment in the construction of factory building? (2) Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was legally correct in holding that civil works expenses on foundation and water storage tank amounting to Rs.....

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....on of the assessee, the Assessing Officer found that the unexplained investment came to Rs. 1,76,374. Further, the Assessing Officer, while considering the question of investment allowance found that the assessee had included civil works amount of Rs. 6,16,963 under the heading of plant and machinery. He was of the opinion that no investment allowance is admissible on such civil work. In appeal, the Commissioner of Income-tax (Appeals), Meerut, held that there is no question of any unexplained expenses in view of the nature of public limited companies where projects are financed by borrowings from financial institutions or from share capital. The claim of the assessee for considering proportionate pre-operational expenses was held to be jus....

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....p;            Rs.    9,821.71                                                 -----------------                                                  Rs. 6,07,563.81      &nbsp....

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....r of Income-tax does not arise out of the Tribunal's order. So far as the second question of law proposed by the Commissioner of Income-tax, Meerut, is concerned, we find that the claim of investment allowance in question is related to two types of items : (i) foundation for installation of various machinery and plants ; and (ii) water storage tank. In order to decide as to whether a particular item constitutes plant or not, the functional test is to be applied. If on the application of this test, it is found that the subject-matter involved, that is, the building or apparatus or a part thereof is employed in carrying on the activity of business, then it shall be treated as a plant, no matter that it consisted of some structure or ....