High Court Of Madhya Pradesh
Babulal Agrawal vs. CIT
Sections 32, 43(3)
Dipak Misra & A.K. Shrivastava, JJ.
IT Ref. No. 74 of 1994
30th April, 2004
Counsel Appeared
Sumit Nema, for the Assessee : Rohit Arya, for the Revenue
JUDGMENT
Dipak Misra, J. :
This is a reference under s. 256(1) of the IT Act, 1961, (for short “the Act of 1961”), whereby the Income-tax Appellate Tribunal (for brevity “the Tribunal”), has referred the following question for answer by this Court : “Whether, on the facts and in the circumstances of the case, the Tribunal was right in allowing depreciation on the plinth platforms at the rate prescribed for the ‘building’ and not treating them as ‘plant’ ?”
2. To understand the factual scenario, it is necessitous to state certain facts. The assessee had filed a return showing loss of Rs. 7,66,455. A notice under s. 143(2) of the Act of 1961 was served on him. It is pertinent to state here that the assessee had filed a return in the status of an AOP consisting of 15 members. The source of income was indicated as rent received from the Food Corporation of India on hire of open plinth godowns for storage of foodgrains. The assessee had claimed depreciation of Rs. 10, Rs. 89 and Rs. 996 on the open plinth structure of godowns. The AO required the assessee to inform how monthly income from leased godowns was considered as business income and why it should not be treated as income from house property. The assessee submitted his explanation and claimed that it was a business income and not the income from the house property. The AO did not accept the submission of the assessee and treated the open plinth godowns as house property and imposed tax.
3. The assessee preferred an appeal and the appellate authority, namely, the CIT(A), Bhopal, came to hold that letting out the open plinth godowns to the Food Corporation of India was assessable only under the head of income from business. Thus, this facet of the appeal was allowed. At this juncture, we may clarify that no other point having been referred before the Tribunal, we need not advert to the other aspects.
4. Being aggrieved by the order passed by the appellate authority, the Revenue preferred an appeal before the Tribunal and the assessee being aggrieved on other scores also preferred appeal. Both the appeals were disposed of by a common order and the Tribunal expressed the view as under : “We have minutely considered the respective submissions of the parties. We entirely agree with the stand of the Department that the platforms cannot be treated as plant. The ratio of the judgment in IRC vs. Barclay, Curle & Co. Ltd. (1969) 1 WLR 675 (HL) is that the functional test is essential for finding out if a particular asset is plant or not. In that case, a dry dock was held to be a plant for the obvious reason that the function of a dry dock was to load ships into a position where they could be securely held exposed out of the water and inspected and repaired and to raise them again to a level where they were free to sail away. It was not a mere platform as was in the instant case, but it had a function as stated above. However, it is wrong to assume that in case the platform does not fall under the category of plant, it is not entitled to depreciation prescribed at the normal rate prescribed for building, which are not used mainly for residential purposes. At this juncture, we may make it clear that for the purpose of depreciation, the platforms do fall within the definition of buildings as stated in Appendix I of the IT Rules. For that purpose, even under peculiar circumstances, a road or a boundary wall is also treated as building. The AO is directed to allow depreciation on the cost of the platforms at the rate applicable to the building which are not used mainly for residential purposes.”
5. Thereafter, an application was filed and the Tribunal, as has been indicated hereinabove, referred the aforesaid question.
6. We have heard Mr. Sumit Nema, learned counsel for the assessee, and Mr. Rohit Arya, learned senior counsel for the respondent-Revenue.
7. The singular issue that arises for consideration is whether the income from open plinth godowns for storage of foodgrains would be treated as business income or income from house property. In this regard, we may note that the assessee had entered into an agreement with the Food Corporation of India whereby the structure area, namely, open plinth, godowns, were given. The activity undertaken was also highlighted before the authorities below. It is submitted by Shri Nema, learned counsel for the assessee, that the activity was not for letting out a property but it was activity in the nature of adventure, therefore, it was assessed under the head of “Income from business”. It is noticeable that in the agreement entered into between the assessee and the Food Corporation of India, the assessee had offered certain facilities which were incorporated in the tender. On a perusal of the order of the first appellate authority who has scanned the anatomy of the agreement, it is perceptible that the assessee had purchased the plot and constructed platform thereon according to designs and specifications and as per the requirements and given to the Food Corporation of India. The first appellate authority noted certain special features, namely, the assessee had no intention to create property so as to earn rent; that it was done in response to the notice inviting tenders by the assessee that the assessee responded and offered to make the required storage capacity to the Corporation; that the agreement enjoined upon the assessee to erect plinths on specific design building materials, specifications and storage capacity; that the plinth structure was to be hired only for a limited period of three years and, therefore, semipermanent in nature; that the plinths were so designed and constructed as to be suitable only for a particular use by the assessee, i.e., to give it to the Food Corporation of India; that the assessee was required to provide such ancillary services which are not generally essentially a part of the contract of lease of immovable property; that the assessee had not erected the plinths with a view to make profitable account of them as pieces of immovable property but to enter into an adventure of providing storage capacity to the Food Corporation of India; and that the plinths were erected on a plot of land which was granted exemption under s. 20 of the Urban Land (Ceiling and Regulations) Act, 1976, and such exemption was subject to the above conditions which included duration of exemption, leasing of plinths to FCI and their use for a particular purpose. While noting these facts, we think it appropriate to refer to the definition of the term “plant” that occurs in the Act of 1961. The said definition reads as under : “‘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.”
8. The aforesaid definition is an inclusive definition. In this regard, we may profitably refer to the decision in the case of CIT vs. Taj Mahal Hotel 1973 CTR (SC) 480 : (1971) 82 ITR 44 (SC) where their Lordships dealt with the concept of “plant” under the Indian IT Act, 1922. In that case, their Lordships were considering whether the sanitary fittings and pipe lines installed in the hotel constituted plant within the meaning of s. 10(5) of the Act of 1922. In that context, their Lordships held as under : “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, s. 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 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. The word ‘include’ is also susceptible of other constructions which it is unnecessary to go into.”
9. Eventually, their Lordships held as under : “It cannot be denied that the business of a hotelier is carried on by adapting a building or premises in a suitable way to be used as a residential hotel where visitors come and stay and where there is arrangement for meals and other amenities are provided for their comfort and convenience. To have sanitary fittings, etc., in a bathroom is one of the essential amenities or conveniences which are normally provided in any good hotel, in the present times. If the partitions in Jarrold’s case (1963) 1 WLR 214 (CA) could be treated as having been used for the purpose of the business of the trader, it is incomprehensible how sanitary fittings can be said to have no connection with the business of the hotelier. He can reasonably expect to get more custom and earn larger profit by charging higher rates for the use of rooms if the bathrooms have sanitary fittings and similar amenities. We are unable to see how the sanitary fittings in the bathrooms in a hotel will not be ‘plant’ within s. 10(2)(vib) r/w s. 10(2)(5) when it is quite clear that the intention of the legislature was to give it a wide meaning and that is why articles like books and surgical instruments were expressly included in the definition of ‘plant’. In decided cases, the High Courts have rightly understood the meaning of the term ‘plant’ in a wide sense. [see CIT vs. Indian Turpentine & Rosin Co. Ltd. (1970) 75 ITR 533 (All)].”
10. In this context we may refer to the decision in the case of Scientific Engineering House (P) Ltd. vs. CIT (1985) 49 CTR (SC) 386 : (1986) 157 ITR 86 (SC). In that case, their Lordships were dealing with the concept of book as a plant. In that regard, it was held as under : “In other words, plant would include 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 vs. 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 vs. Taj Mahal Hotel 1973 CTR (SC) 480 : (1971) 82 ITR 44 (SC) the 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 s. 10(5) of the 1922 Act which was similar to the definition given in s. 43(3) of the 1961 Act and this Court after approving the definition of plant given by Lindley L.J. in Yarmouth vs. France (1887) 19 QBD 647, as expounded in Jarrold vs. John Good & Sons Ltd. (1962) 40 Tax Cases 681 (CA), held that sanitary and pipeline fittings fell within the definition of plant. In IRC vs. Barclay, Curle & Co. Ltd. (1970) 76 ITR 62 (HL), the House of Lords held that a dry dock, since it fulfilled the function of a plant, must be held to be a plant. Lord Reid considered the part which a dry dock played in the assessee company’s operations and observed : ‘It seems to me that every part of this dry dock plays an essential part …. The whole dock is, I think, the means by which, or plant with which, the operation is performed.’ Lord Guest indicated a functional test in these words : ‘In order to decide whether a particular subject is an “apparatus” it seems obvious that an enquiry has to be made as to what operation it performs. The functional test is, therefore, essential at any rate as a preliminary.’
In other words, the test would be : Does the article fulfil the function of a plant in the assessee’s trading activity ? Is it a tool of his trade with which he carries on his business ? If the answer is in the affirmative, it will be a plant. If the aforesaid test is applied to the drawings, designs, charts, plans, processing data and other literature comprised in the ‘documentation service’ as specified in cl. 3 of the agreement, it will be difficult to resist the conclusion that these documents as constituting a book would fall within the definition of ‘plant’. It cannot be disputed that these documents regarded collectively will have to be treated as a ‘book’, for, the dictionary meaning of that word is nothing but ‘a number of sheets of paper, parchment, etc., with writing or printing on them, fastened together along one edge, usually between protective covers; literary or scientific work, anthology, etc., distinguished by length and form from a magazine, tract, etc.’ (vide Webster’s New World Dictionary). But apart from its physical form, the question is whether these documents satisfy the functional test indicated above. Obviously, the purpose of rendering such documentation service by supplying these documents to the assessee was to enable it to undertake its trading activity of manufacturing theodolites and microscopes and there can be no doubt that these documents had a vital function to perform in the manufacture of these instruments; in fact it is with the aid of these complete and up-to-date sets of documents that the assessee was able to commence its manufacturing activity and these documents really formed the basis 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 owing 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.”
11. In CIT vs. Shree Gopikishan Industries (P) Ltd. (2003) 184 CTR (Cal) 1 : (2003) 262 ITR 568 (Cal), the Division Bench of the Calcutta High Court dealing with the case of cold storage held as under : “Thus, it appears that the storage or the chamber itself is an apparatus and tool of the trade through which the business is carried on. The building of the cold storage housing the chamber is neither a setting nor a canopy. On the other hand, it is the means or apparatus or the tools for the business. It is not only the insulation for which specification is provided for. On the other hand, the walls, roofs of the building are to be constructed or maintained in a particular manner, which is exclusively necessary for the purpose of the cold storage and then the roofs and walls are to be insulated. The insulation without the building cannot produce the result and the building without the insulation also equally disastrous for the purpose. The building with the insulation is an integral part for forming the apparatus or means. A building constructed otherwise than specified would not be able to house the insulation or produce the desired result. A cold storage is to be constructed in a particular manner and then insulated. The building of the cold storage is exclusively used for a cold storage and cannot be put to any other use. It is the storage with which the business is carried on. The racks are to be placed in a manner as specifically provided in r. 11 for distribution and circulation of temperature and air as well as for facilitating loading and unloading and preservation of the stores. The cold storage cannot run either with the rack or with the insulation without there being the building. The cold storage building housing the chambers is a consolidated and composite one providing the means or the apparatus or the tools of the business. For the purpose of maintaining the building, the Act and the Rules provide various conditions, which are mandatory in nature. Breach of any of the terms to maintain the building would result in the cancellation of the licence and stoppage of the business. Therefore, the building has no separate existence than the apparatus being the chamber where the goods are stored. Thus, a cold storage building stands altogether on a different footing from a hotel or a theatre accommodating the customers and audiences which are distinctly the setting or canopy or shelter used for the business without requiring any strict specific particulars and designs and system distinctly required for cold storage. Therefore, in our view, the chambers of the cold storage are definitely plant as defined in s. 43(3). We had occasion to deal with this question in CIT vs. Birla Jute & Industries Ltd. (2003) 180 CTR (Cal) 339 : (2003) 260 ITR 55 (Cal), therein we had held that the word ‘plant’ is defined in s. 43(3) of the Act. It is not an exhaustive definition. It is an inclusive definition. It includes 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 operation or process or is employed in mechanical or industrial business. The test to be applied for such determination is : does the article fulfil the function of a plant in the assessee’s trading activity ? Is it a tool of his trade with which he carries on his business ? If the answer is in the affirmative, it will be a plant.”
12. In this regard, we may also refer with profit to the decision reported in IRC vs. Barclay, Curle & Co. Ltd. (1969) 1 WLR 675 (HL), where it has been held that the dry dock constructed by a company for use of ship builders, ship repairers and marine engineers incurring capital expenditure was a plant for the purpose of the trade. Mr. Rohit Arya, learned senior counsel appearing for the Revenue, has drawn our attention to certain decisions reported in CIT vs. National Storage (P) Ltd. (1967) 66 ITR 596 (SC) and CIT vs. Kanaiyalal Nimani (1979) 120 ITR 892 (Cal). On a careful perusal of the same, we are of the considered view that it is the functional test which becomes the real criteria for treating a particular tool as plant or not. As has been indicated by their Lordships of the apex Court, the definition of the term “plant” is of a wide magnitude. In the instant case, as is perceptible, the assessee is not involved in letting out the premises to earn rent. It is evincible from the analysis made by the first appellate authority, the assessee is trading with godowns, structure is a temporary measure, it is like a platform as is apparent, the duration is short and the purpose is different. If one goes by the conception of functional test and the activity involved, there can be no scintilla of doubt that the use of the open plinth godowns are not buildings but are plant and, therefore, the assessee is entitled to depreciation on the basis that they are to be treated as plants and not buildings. The analysis of the Tribunal that the platforms come under the definition of “building” under the rules is not correct because the Tribunal has really not appreciated the essential and fundamental activity of these platform, the nature of agreement and the factual foundation. If the contract and the activity are understood in proper perspective, there can be no iota of doubt that the assessee is dealing in business with this kind of platform, but not letting them as buildings. It may apparently so appear but on deeper probe and closer scrutiny, something a different picture gets frescoed from where it becomes clear that it is utilised for the business purposes.
Consequently, the reference is answered in the negative, against the Revenue and in favour of the assessee.
[Citation : 272 ITR 454]
