2004 (4) TMI 12 - HC - Income Tax

Depreciation on the plinth platforms - Whether Tribunal was right in allowing depreciation on the plinth platforms at the rate prescribed for the building and not treating them as plant ? - 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 thus, reference is answered in the negative, against the Revenue and in favour of the assessee

Issues Involved:
1. Whether the income from open plinth godowns for storage of foodgrains should be treated as business income or income from house property.
2. Whether depreciation on the plinth platforms should be allowed at the rate prescribed for 'building' or should they be treated as 'plant'.

Issue-wise Detailed Analysis:

1. Income Classification: Business Income vs. Income from House Property
The primary issue was whether the income from the open plinth godowns should be classified as business income or income from house property. The assessee had entered into an agreement with the Food Corporation of India (FCI) to lease out open plinth godowns for storage of foodgrains. The Assessing Officer initially treated the income as income from house property, while the assessee claimed it as business income. The Commissioner of Income-tax (Appeals) sided with the assessee, recognizing the income as business income. The appellate authority noted that the assessee had no intention to create property to earn rent; rather, it was an adventure in the nature of trade, responding to a tender by FCI to provide specific storage capacity. The plinths were constructed for a limited period and had specific design and construction requirements, making them semi-permanent and suitable only for the specific use by FCI. The court emphasized that the activity undertaken by the assessee was not merely letting out property but was more aligned with a business venture.

2. Depreciation Classification: Building vs. Plant
The second issue concerned the classification of the plinth platforms for depreciation purposes. The Tribunal had to determine whether the platforms should be treated as 'plant' or 'building'. The Tribunal concluded that the platforms could not be treated as plant based on the functional test, which assesses whether an asset is used as a tool for the business. The Tribunal cited the case of Inland Revenue Commissioners v. Barclay, where a dry dock was considered a plant due to its specific function. However, the Tribunal also noted that even if the platforms did not qualify as plant, they should still be eligible for depreciation at the rate applicable to non-residential buildings. The court reviewed the definition of 'plant' under the Income-tax Act, 1961, and referred to various precedents, including CIT v. Taj Mahal Hotel, where sanitary fittings in a hotel were considered plant, and Scientific Engineering House P. Ltd. v. CIT, where technical documents were treated as plant. The court applied the functional test and concluded that the open plinth godowns, given their specific use and temporary nature, should be classified as plant rather than buildings. The court found that the Tribunal had not fully appreciated the functional and business aspects of the platforms.

Conclusion:
The court answered the reference in the negative, against the Revenue and in favor of the assessee, determining that the open plinth godowns should be treated as plant for depreciation purposes and that the income derived from them should be classified as business income.

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