2004 (10) TMI 84 - HC - Income Tax

Depreciation - Business in aquaculture - Prawns are grown in specially designed ponds. According to the assessee, prawn ponds are tools to the business of the assessee and hence the same constitute plant eligible for depreciation at the rates applicable to plant and machinery. - In order to keep the water at the required level for the purpose of breeding shrimps or prawns the pond is a must. The breeding of fish cannot be carried on within the ponds. As referred to by the Tribunal, water plays the role of a machine just like a timber merchant. If the timber merchant requires a sawing machine to cut and shape the log such sawing machine constitutes a plant for him. Water in the case of the assessee plays same role. Water has to be stored within the ponds. Therefore, the ponds also constitute part of the machinery in the business of the assessee. Learned counsel for the Revenue submitted that it was only a natural pond. It is not correct. Held that the pond is a plant and hence, entitled to statutory depreciation.

Summary

Issues:
1. Whether prawn ponds constitute "plant" eligible for depreciation at the rates applicable to plant and machinery.
2. Application of functional test and premises test in determining the classification of prawn ponds as "plant."
3. Interpretation of the term "plant" under section 32 of the Income Tax Act.
4. Comparison with previous judgments on similar cases.

Analysis:
1. The primary issue in this case is whether prawn ponds can be considered as "plant" eligible for depreciation at the rates applicable to plant and machinery. The assessee argued that prawn ponds are essential tools for their aquaculture business and thus should be treated as "plant." The Commissioner of Income-tax initially disallowed the claim, leading to an appeal by the assessee.

2. The Commissioner of Income-tax (Appeals) referred to a Full Bench decision in the case of CIT v. Hotel Luciya, which held that prawn ponds should be treated as "plant" and depreciation applicable to plant should be allowed. The Income-tax Appellate Tribunal applied the functional test, as laid down by the Kerala High Court in Hotel Luciya's case, and decided in favor of the assessee. The Tribunal emphasized that depreciation on prawn ponds should be allowed at the rate applicable to plant and machinery.

3. The Revenue challenged the Tribunal's decision, citing the Supreme Court's judgment in CIT v. Anand Theatres, which held that a building used for business purposes is not considered "plant." However, the Tribunal maintained that prawn ponds should be classified as "plant" and distinguished the case from previous judgments, including Siemens India Ltd. v. CIT.

4. The High Court analyzed the definition of "plant" under section 32 of the Income Tax Act and referred to various precedents, such as CIT v. Karnataka Power Corporation and CIT v. Victory Aqua Farm Ltd. In the current case, the Court agreed with the Tribunal's reasoning that prawn ponds play a crucial role in the assessee's business operations, akin to machinery for a timber merchant. Therefore, the Court upheld the Tribunal's decision that prawn ponds qualify as "plant" and are entitled to statutory depreciation.

In conclusion, the High Court dismissed the appeal, affirming that prawn ponds are considered "plant" for the purpose of depreciation under the Income Tax Act.