High Court Of Madras
Siddharth Agencies vs. CIT
Sections 32(1), RULE Appendix I, Part I, Item I(2)
Asst. year 1982-83
R. Jayasimha Babu & K. Gnanaprakasam, JJ.
Tax Case No. 139 of 1988
16th November, 2000
P.P.S. Janarthana Raja for Subbaraya Aiyar, for the Assessee : Mrs. Chitra Venkataraman, for the Revenue
R. JAYASIMHA BABU, J.:
Whether the building in which eggs produced by the hens is a factory building in respect of which higher depreciation at double the normal rate should be allowed is the question referred to us by the Tribunal at the instance of the assessee. The assessment year is 1982-83.
It is obvious that eggs are the result of a natural biological process, and are not an article of manufacture. The buildings in which this natural biological process occurs is the environment, though controlled, within which the process occurs. The owner of the building does not contribute in anyway to the production, except to provide the feed and to preserve the health of the poultry. The eggs are preserved and protected by the owner of the hatchery, but he has no role to play in the occurrence of the biological event.
The factory is normally understood as a place, wherein, goods are manufactured or processed. Buildings in which the operations are carried out which are ancillary to such production or manufacture may also be regarded as factory buildings. This Court in the case of CIT vs. Engine Valves Ltd. (1980) 19 CTR (Mad) 274 : (1980) 126 ITR 347 (Mad) : TC 27R.152 has held that a canteen in forming part of an industrial undertaking for the purpose of providing refreshments of the workmen is also required to be regarded as a factory building for the purpose of allowance of a higher rate of depreciation. The Court held that the canteen building must be regarded as being part and parcel of the factory premises.
The Supreme Court in the case of CIT vs. Venkateswara Hatcheries (P) Ltd. (1999) 153 CTR (SC) 105 : (1999) 237 ITR 174 (SC) considered the claim of a hatchery that it should be regarded as an industrial undertaking in the course of the judgment, the Court observed thus : “From a perusal of the self-stated steps taken by the assessee for the alleged production of chicks it is clear that the assessee does not contribute to the formation of chicks. The formation of chicks is a natural and biological process over which the assessee has no hand or control. In fact, what the assessee is doing is to help the natural or biological process of giving birth to chicks. The chicks otherwise can also be produced by conventional or natural method and in that process also, the same time is taken when the chicks come out from the eggs. What the assessee by application of mechanical process does in the hatchery is to preserve and protect the eggs at a particular temperature. But the coming out of chicks from the eggs is an event of nature. The only difference seems to be that, by application of mechanical methods, the mortality rate of chicks is less and the assessee may get chicks more in number. This, however, would not mean that the assessee produces chicks and that chicks are âarticles or thingsâ. We are, therefore, of the opinion that the assessee is neither an industrial undertaking nor does the business of hatchery carried out by the assessee fall within the meaning of s. 32A and s. 80J of the Act.” What has been said about chicks is equally true for eggs. The production of eggs is an event of nature, and is not the result of any manufacture or processing by the owner of the hatchery. The buildings in which the hens are housed cannot, therefore, be regarded as a factory building for the purpose of allowing the higher rate of depreciation. The normal rate of depreciation allowable for the building of the assessee which was classified as a third class building is 7-1/2 per cent. That is the extent to which depreciation can be claimed. The claim for a further 7-1/2 per cent on the ground that it is a factory building was an untenable claim, and was rightly rejected. This Court in the case of Siddarth Agencies vs. CIT (2000) 160 CTR (Mad) 48 : (2000) 244 ITR 826 (Mad) had occasion to consider a similar question. This Court observed that the housing of chicks in the buildings could not be expected to cause any wear and tear and stress and strain on the building as in the case of factory buildings, housing, machinery, or even the kitchen of a canteen attached to the factory.
The hatchery not being an industrial undertaking and the eggs produced not being the result of any manufacture or of any process carried out by the owner of the hatchery, the buildings in which the hens are housed cannot be regarded as factory buildings. The Tribunal was, therefore, right in holding that the buildings of the assessee were not to be allowed depreciation at the higher rate.
The question is, therefore, answered in favour of the Revenue, and against the assessee.
[Citation : 249 ITR 458]