High Court Of Madras
Express Newspapers Ltd. vs. DCIT
Sections 32(1)(ii), 43(3)
Asst. Year 1989-90
Markandey Katju, C.J. & F.M. Ibrahim Kalifulla, J.
Tax Case (Appeal) No. 29 of 2003
22nd June, 2005
Counsel Appeared
V.S. Jayakumar, for the Assessee : Mrs. Pushya Sitaraman, for the Revenue
JUDGMENT
Markandey Katju, C.J. :
This appeal is filed under s. 260A of the IT Act, 1961, in which the following questions of law are said to be involved :
“(i) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in observing and directing the AO to disallow the entire claim of depreciation if the facts are found that the scaffolding materials at the time of termination of lease are not recovered ?
(ii) Whether the Tribunal was right in law in exercising jurisdiction which results in enhancement of the assessment on the appellant when the Tribunal has no jurisdiction ?
(iii) Whether the Tribunal was right in holding that the depreciation on scaffolding material is not to be allowed at the rate of 100 per cent ?”
We have heard learned counsel for the parties, and have perused the material on record. The assessee is a public limited company deriving income from property, finance and leasing business. The relevant assessment year is 1989-90. The assessee claimed depreciation on the scaffolding material given on lease to M/s Bhasin Associates Ltd., New Delhi, at the rate of 100 per cent on the ground that each of the scaffolding material costs less than Rs. 5,000, and hence the entire value should be allowed as depreciation on the ground that each of the scaffolding material constituted a “plant” used for the purpose of business. The AO, however, allowed depreciation only at the rate of 33-1/3 per cent. The AO held that the scaffolding material was an integrated unit and hence could not be bifurcated into several pieces of Rs. 5,000 each in value. Accordingly, he restricted the depreciation claim to the rate of 33-1/3 per cent on the plant.
5. In appeal the CIT(A) confirmed the order of the AO restricting the claim of depreciation to 331/3 per cent under s. 32(1)(ii) of the IT Act (in short “the Act”). The CIT(A) observed : “The Madras High Court in Mysore Dasaprakash vs. CIT (1989) 75 CTR (Mad) 120 : (1989) 177 ITR 38 (Mad), has held that electrical switch boards, distribution boards and fittings form constituent parts of the entire electricity supply system as a whole and there was no scope for cutting up the aggregate expenditure into several parts as claimed by the assessee. The benefit arising out of the installation of electricity switch boards, distribution boards, etc., was not confined to any particular room but was intended to regulate, distribute and make available electricity to all the rooms. Accordingly, considering the electricity system as an integrated whole, the expenditure incurred on it had to be treated as such and there was no scope for working out depreciation under the proviso to s. 32(1)(ii) by dissecting the electrical system into different component parts. In the instant case, the scaffolding material leased out by the assessee-company is found comprised mainly pipes, right angles and swivel clamps and fixed base plates. Thus, the various items comprising the scaffolding cannot be used independently of each other but form constituent parts of the entire scaffolding and act as a whole, i.e., an integrated unit. Thus, the scaffolding material being an integrated unit and one that is admittedly reusable, there is no possibility of apportioning the expenditure to each item and allowing depreciation under the proviso to s. 32(1) (ii). Restriction of the claim for depreciation to 33-1/3 per cent is accordingly confirmed.”
6. Both the assessee as well as the Department filed appeals against the order of the CIT(A), and they have been disposed of by the judgment of the Tribunal dt. 2nd April, 2002.
7. In this case we are not concerned with the appeal filed by the Department before the Tribunal. We are only concerned with the appeal filed by the assessee.
8. By the order dt. 2nd April, 2002, the Tribunal disposed of the assessee’s appeal, but without considering its claim for allowing 100 per cent depreciation instead of 33-1/3 per cent. Hence, the assessee filed a rectification petition under s. 254(2) of the IT Act before the Tribunal, in which it was pleaded in para 6 :
“It is further submitted that non-consideration of ground Nos. 11 to 13 relating to the second issue, namely, allowance of 100 per cent depreciation, ground Nos. 14 and 15 relating to the third issue, namely, disallowance of travel expenses of director and ground Nos. 16 to 18 relating to legal and professional services are mistakes apparent which require to be rectified.”
9. By the impugned order dt. 18th Nov., 2002, the Tribunal disposed of the rectification petition filed by the assessee by observing : “In our opinion scaffolding materials get damaged when it is used for building construction and the lessor will not be able to get almost similar items that were leased out, though it is called lease, it appears to be sale. The income from leasing business shown by the assessee may be part of sale proceeds. However, the Department has treated it as capital asset and had allowed it depreciation at 33.33 per cent. It is therefore necessary to find out what transpired on the termination of the lease, i.e., whether the assessee was able to recover the entire scaffolding materials or recovered none. In the event of the assessee recovering nothing from the scaffolding materials, it may go to indicate that there is a sale. If the assessee recovered the entire 100 per cent scaffolding materials, then obviously it is a lease. In the event of finding that it is a real lease and the materials were received back by the assessee then the AO may consider the decision in Harijan Evam Nirbal Varg Avas Nigam Ltd. vs. CIT (1996) 131 CTR (All) 178 : (1998) 229 ITR 776 (All).” Learned counsel for the assessee has submitted before us that while disposing of the rectification petition the Tribunal went beyond its brief by dealing with extraneous aspects of the issue of depreciation, which has the effect of enhancement of the assessment made on the assessee. Learned counsel also submitted that the observation of the Tribunal in para 3 of its order dt. 18th Nov., 2002, that the transaction “though called a lease appears to be a sale” was nobody’s case. We agree with this submission. It may be mentioned that the assessee claimed that the scaffolding materials were given on lease to M/s Bhasin Associates Ltd. treating it as a plant and the assessee claimed 100 per cent depreciation thereon as the value of each of the items was less than Rs. 5,000. It was not the case of the Department at any stage that the transaction was not a lease but a sale. The Department had also not at any stage contended that the assessee was not able to recover the scaffolding material. In these circumstances, we are of the opinion that it was not open to the Tribunal to carve out a new case, which was not the case of any of the parties before it. In our opinion, the Tribunal erroneously took into account irrelevant and extraneous factors while passing the impugned order dt. 18th Nov., 2002.
In CIT vs. Alagendran Finance Ltd. (2004) 186 CTR (Mad) 102 : (2003) 264 ITR 269 (Mad), a Division Bench of this Court has held that each centering sheet is eligible for 100 per cent depreciation in view of the proviso to s. 32(1)(ii) of the Act, since the cost did not exceed Rs. 5,000 per sheet. In our opinion, on the same basis it has to be held that each of the scaffolding materials would constitute “plant” as defined in s. 43(3) of the Act. It may be mentioned that the definition of the word “plant” in s. 43(3) of the Act is inclusive and not exhaustive, and hence it has to be given a wider meaning vide CIT vs. Taj Mahal Hotel 1973 CTR (SC) 480 : (1971) 82 ITR 44 (SC) and CIT vs. Indian Turpentine & Rosin Co. Ltd. (1970) 75 ITR 533 (All). The word “plant”, therefore, includes whatever apparatus or instruments are used by a businessman in carrying on his business. Even books and surgical instruments are treated as “plant” in the definition in s. 43(3) of the Act. The word “plant” would, therefore, include any article or object, fixed or movable, used by a businessman for carrying on his business vide CIT vs.
Taj Mahal Hotel (supra), Sundaram Motors (P) Ltd. vs. CIT (1969) 71 ITR 587 (Mad), etc. Further, the word “plant” would mean and include apparatus used by a businessman for carrying on his business, and it is not confined to an apparatus used for mechanical operations or processes or industrial business vide CIT vs. Parke Davis (India) Ltd. (1995) 128 CTR (Bom) 195 : (1995) 214 ITR 587 (Bom). In CIT vs. Parke Davis (India) Ltd. (supra) it has been held that fans installed in the office premises of the assessee would constitute plant and would be eligible for depreciation. It may be noted that the expression “plant” used in s. 32(1)(ii) of the Act (as it stood at the relevant time), and as defined in s. 43(3) of the Act, does not mean factory itself as one composite unit including all buildings, machinery and apparatus therein which are required for the purpose of the factory. Under the scheme of the statutory provision, each apparatus conforming to the definition of machinery or plant, as the case may be, has to be taken individually for the purpose of considering the computation of depreciation and not the organisation 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 vs. Kiran Crimpers (1997) 140 CTR (Guj) 418 : (1997) 225 ITR 84 (Guj). In Cripps vs. Judge (1884) 13 QBD 583 (CA), scaffolding has been held to be a “plant”.
In our opinion, the Tribunal went off on a tangent by observing that the facts need to be verified by the AO as to whether the scaffolding materials have been really leased out or have been sold. In fact, it was nobody’s case before any of the authorities that there was any disguised sale of scaffolding materials. A perusal of the entire record shows that the only dispute before the authorities related to the rate of depreciation i.e., as to whether it was 33-1/3 per cent or 100 per cent. The Tribunal had not even put the assessee on notice about the above observation at the time of hearing, and no opportunity was given to the assessee about the point raised suo motu by the Tribunal. In view of the above, we set aside the impugned order of the Tribunal dt. 18th Nov., 2002 and hold that the scaffolding materials are entitled to 100 per cent depreciation treating the transaction as a lease. The appeal is allowed. There will be no order as to costs.
[Citation : 280 ITR 452]
