Gujarat H.C: Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the drainage and sewerage network constituted plant and machinery and was entitled to investment allowance under s. 32A of the IT Act on its cost of Rs. 63,54,058 ?

High Court Of Gujarat

CIT vs. Gujarat Narmada Valley Fertilizer Co. Ltd.

Sections 32A, 43(3)

Asst. Year 1983-84

D.A. Mehta & Ms. H.N. Devani, JJ.

IT Ref. No. 64 of 1993

10th March, 2005

Counsel Appeared

K.M. Parikh, for the Petitioner : Manish J. Shah for J.P. Shah, for the Respondent

JUDGMENT

D.A. Mehta, J. :

The Tribunal, Ahmedabad Bench “B”, has referred the following questions under s. 256(1) of the IT Act, 1961 (the Act), at the instance of CIT, Baroda :

“(1) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the drainage and sewerage network constituted plant and machinery and was entitled to investment allowance under s. 32A of the IT Act on its cost of Rs. 63,54,058 ?

(2) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that tractor-trailers used for lifting and carrying equipments and materials constituted plant and machinery and were entitled to investment allowance under s. 32A of the IT Act ?”

The respondent assessee-company is a public limited company carrying on business of manufacture of chemical fertilizers. The assessment year is 1983-84 and the relevant accounting period is calendar year 1982. The assessee-company installed drainage and sewerage network costing Rs. 63,54,058 and claimed investment allowance on the said sum on the basis that the same formed part and parcel of plant and machinery. The claim was rejected by the AO and CIT (A). The assessee carried the matter in appeal before the Tribunal and the Tribunal held that the assessee was entitled to the investment allowance claimed by holding that the drainage and sewerage network was installed for the purpose involving handling of waste quantities of materials obtained on chemical reaction while manufacturing fertilizers. That the said network was utilised to channelise the fluids consisting of effluent, blowout washing spillage and leakage from various sections and units of the main plant, which were either pumped or otherwise collected thereafter for the purposes of treatment and recycling or being released. The Tribunal, therefore, found that the drainage and sewerage network running through the factory and attached to the plant and machinery was a part and parcel of plant and machinery itself.

In relation to the second question, the assessee claimed that certain tractor-trailers were used in factory premises for lifting and carrying equipments and materials. The cost of such tractor-trailers was Rs. 2,82,508 and on the said sum, investment allowance was claimed. The AO rejected the claim by holding that they were road transport vehicles. The CIT(A) confirmed the said finding. The Tribunal, for the reasons stated in para No. 9 of its order, held that huge quantities of raw materials, finished products and equipments were required to be handled and transported within the factory premises and for such handling and transportation, the tractor-trailers were used entitling the assessee to claim investment allowance. The matter has been heard on 9th and 10th March, 2005, but the learned advocate for the applicant is absent. However, the learned advocate for the respondent-assessee Shri Manish J. Shah is present and has made his submissions in support of the order made by the Tribunal. In relation to question No. 1, the issue stands concluded by ratio of decision rendered by this Court in case of CIT vs. Gujarat State Fertilisers Co. Ltd. (1999) 157 CTR (Guj) 121 : (1999) 240 ITR 536 (Guj). For the reasons stated in the aforesaid decision of this Court, question No. 1 is answered in the affirmative i.e., in favour of the assessee and against Revenue. The Tribunal was right in holding that the drainage and sewerage network was entitled to investment allowance under s. 32A of the Act on the investment cost of Rs. 63,54,058.

8. In relation to the second question, the following decisions were cited on behalf of the assessee to submit that various Courts have held that tractors-trailers used in the factory premises for lifting and carrying equipments and materials would be “plant” within the meaning of definition of the said term under s. 43(3) of the Act. It was further submitted that, for the purposes of ascertaining whether an item of plant or machinery is entitled to investment allowance or not, has to be tested by considering the function such plant or machinery performs during the conduct of the business of an assessee : (1) Shiv Construction Co. vs. CIT (1986) 55 CTR (Guj) 37 : (1987) 165 ITR 160 (Guj) (2) CIT vs. U.P. Paschimi Kshetriya Vikas Nigam Ltd. (2004) 188 CTR (All) 40 : (2003) 264 ITR 273 (All) (3) CIT vs. Tarun Commercial Mills Ltd. (1984) 38 CTR (Guj) 148 : (1985) 151 ITR 75 (Guj) (4) CIT vs. S.L.M. Maneklal Industries Ltd. (1993) 115 CTR (Guj) 397 : (1994) 205 ITR 547 (Guj) (5) CIT vs. Progressive Engineering Co. (1998) 148 CTR (AP) 551 : (1998) 230 ITR 729 (AP) (6) CIT vs. Sibson Construction & Co. (1997) 142 CTR (Gau) 4 : (1996) 221 ITR 468 (Gau) (7) CIT vs. Nandlal Parshuram (1999) 239 ITR 497 (Gau). It is apparent that the Tribunal has found that the tractor-trailers were used to transport huge quantities of raw materials, finished products and equipments within the factory premises. In light of this finding of fact, it is not possible to state that the tractor-trailers would fall within the meaning of road transport vehicles. Road transport vehicles would, in common parlance, mean vehicles which are used for transportation of goods or passengers by road. In normal circumstances, a tractor-trailer is not used for transportation of people at least, though in given set of circumstances it may be involved in transportation of goods. However, what is material is as to where such transportation takes place. In the facts of the case, as noted hereinbefore, the Tribunal has found on facts that the tractor-trailers have been used for handling and transportation of raw materials, finished products and equipments within the factory premises only. In these circumstances, applying the functional test, it may be safely stated that the decision of the Tribunal holding that the assessee is entitled to investment allowance by treating such tractor-trailers as “plant” under s. 32A of the Act, is correct.

However, there is one more aspect of the matter. Sec. 32A(1) of the Act stipulates that investment allowance equal to 25 per cent of the actual cost of the plant or machinery is allowable as a deduction in respect of the previous year in which the machinery or plant was installed, or first put to use in the immediately succeeding previous year, then, in respect of that previous year. Therefore, whether tractor-trailer could be termed to have been installed in the previous year, even if it is treated to be a plant, is required to be answered. In the case of CIT vs. Thyristors Controls (P) Ltd. (1994) 207 ITR 317 (Guj), this Court was called upon to decide whether books containing practical know-how kept in the office premises were entitled to investment allowance under s. 32A of the Act. After holding that books would be plant within the meaning of s. 32A(1) of the Act, the Court held that : “The word ‘installed’ occurring in s. 32A(1) would not necessarily mean that it should be fixed in a position, but the word is also used in the sense of ‘induct’ or ‘introduce’ or ‘placing an apparatus in position for service or use’ as held by the Supreme Court in CIT vs. Mir Mohammad Ali (1964) 53 ITR 165 (SC). The word ‘installed’ would mean to place in position for service or use or to set up for service or use. The books would be installed when they would be placed for use in the premises in question”. 11.1 It may be noted that similar view is expressed by the Bombay High Court in case of CIT vs. Bharat Radiators (P) Ltd. (2000) 158 CTR (Bom) 519 : (1999) 239 ITR 608 (Bom) in relation to patterns and dyes and electrical installations.

12. Therefore, applying the aforesaid test, it is apparent that the tractor-trailer was inducted or introduced in the business and was, therefore, installed for the purposes of the business of the assessee entitling the assessee to claim investment allowance.

13. In the result, question No. 2 is answered in the affirmative i.e., in favour of the assessee and against Revenue. The Tribunal was justified in holding that tractor-trailers used for lifting and carrying equipments and materials constituted plant and machinery and were entitled to investment allowance under s. 32A of the Act.

14. The reference stands disposed of accordingly. There shall be no order as to costs.

[Citation : 281 ITR 297]

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