2003 (6) TMI 21 - HC - Income Tax

The question involved in these appeals is whether the building in question is a plant and therefore the assessee is entitled to claim higher rate of depreciation. - we hold that the building in question is a plant and therefore the assessee is entitled to higher rate of depreciation as claimed by him. The appeals are allowed

Issues Involved:
1. Whether the factory building housing the rolling flour mill qualifies as a "plant" for the purpose of claiming higher depreciation.

Issue-wise Detailed Analysis:

1. Qualification of Factory Building as "Plant":

The central issue in these appeals is whether the factory building, which houses the rolling flour mill, qualifies as a "plant" under the Income-tax Act, thereby entitling the assessee to claim a higher rate of depreciation.

Background and Claims:
The appellant-company, engaged in the manufacture and sale of atta and maida, established a rolling flour mill in a factory building at Athgaon, Guwahati. Initially, the assessee claimed depreciation on the building as a "building" but later revised the return to claim depreciation at 25%, treating the building as a "plant". The Income-tax Officer disallowed this claim, leading to an appeal before the Commissioner of Income-tax (Appeals).

Technical Report:
The assessee submitted a technical report from an architect engineer, stating that:
- The building is designed to hold the entire plant and machinery, with beams and columns erected to support the load on each floor.
- Floors are constructed with reinforced RCC materials and have holes for flow pipes, belts, and chains.
- The structure includes heavy reinforced steel and concrete to support heavy machines.
- The building houses silos and storage bins essential for processing wheat.
- The plant cannot function without this specially designed structure, making it an integral part of the plant.

Commissioner of Income-tax (Appeals) Decision:
The Commissioner, relying on the unchallenged technical report and certain judicial decisions, held that the factory building is part of the plant, entitling the assessee to the higher depreciation rate applicable to plant and machinery.

Income-tax Appellate Tribunal Decision:
The Revenue appealed to the Tribunal, which concluded that the building and machinery should be treated separately. The Tribunal ruled that the building is not a plant, thus only qualifying for a 10% depreciation rate applicable to factory buildings.

Assessee's Appeal:
The assessee challenged the Tribunal's decision, arguing that the building should be considered a plant based on the materials and judicial precedents.

Legal Definitions and Precedents:
- Section 43 of the Income-tax Act defines "plant" inclusively, suggesting that structures integral to business operations can be considered plants.
- Judicial precedents (CIT v. Kanodia Warehousing Corporation, R.C. Chemical Industries v. CIT, CIT v. Dr. B. Venkata Rao, CIT v. Anand Theatres) emphasize the functional test to determine if a building constitutes a plant. The test assesses whether the structure is an apparatus for business operations or merely a space for conducting business.

High Court's Analysis:
The court analyzed the technical report and judicial precedents, concluding that:
- The building is specifically designed to support the plant and machinery, making it integral to the manufacturing process.
- The functional test is satisfied as the building is essential for carrying out the business of manufacturing atta and maida.
- The Tribunal's distinction between the building and plant was deemed artificial and contrary to judicial pronouncements.

Conclusion:
The High Court held that the factory building qualifies as a plant, entitling the assessee to a higher rate of depreciation. The appeals were allowed, the Tribunal's order was set aside, and the Commissioner of Income-tax (Appeals)'s order was restored.

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