2003 (1) TMI 81 - HC - Income Tax

Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was justified in law in directing the Assessing Officer to grant investment allowance under section 32A and additional depreciation under section 32(1)(iia) of the Income-tax Act, 1961? - We answer the question in the affirmative, in favour of the assessee.

Issues Involved
1. Entitlement to investment allowance under section 32A.
2. Entitlement to additional depreciation under section 32(1)(iia).
3. Classification of railway siding and locomotive as "plant."
4. Interpretation of "road transport vehicle" exception.

Detailed Analysis

1. Entitlement to Investment Allowance under Section 32A
The court examined whether railway siding and locomotives qualify for investment allowance under section 32A(1) of the Income-tax Act, 1961. Section 32A(1) allows deduction of investment allowance in respect of plant owned by the assessee, installed after a particular date, and wholly used for the business. The proviso in clause (b) excludes "road transport vehicles."

The court held that railway siding and locomotives are included as plant in Appendix I of the Income-tax Rules, which prescribes the rate of depreciation. The court emphasized that the term "road transport vehicle" does not encompass railway transport vehicles, as road and rail are distinct modes of transport. Therefore, the exclusion of "road transport vehicles" does not apply to railway siding and locomotives.

2. Entitlement to Additional Depreciation under Section 32(1)(iia)
The court also analyzed whether railway siding and locomotives qualify for additional depreciation under section 32(1)(iia). This section allows additional depreciation for plant installed in the previous year, excluding road transport vehicles.

The court reiterated that railway siding and locomotives are classified as plant in Appendix I and are not excluded by the proviso for road transport vehicles. The court noted that "installation" means putting something in use, and both railway siding and locomotives are installed when made ready for use.

3. Classification of Railway Siding and Locomotive as "Plant"
The court examined whether railway siding and locomotives qualify as "plant" under section 43(3) of the Act, which provides an inclusive definition of plant. The court referred to various judicial decisions, including CIT v. Shaan Finance (P.) Ltd. and CIT v. Anand Theatres, to support the view that plant includes any apparatus or means used for business purposes.

The court held that railway siding and locomotives meet the functional test for being classified as plant, as they play an essential role in the business operations. The court emphasized that railway siding and locomotives are inseparable and integral to the business, thus qualifying as plant.

4. Interpretation of "Road Transport Vehicle" Exception
The court addressed the interpretation of the term "road transport vehicle" in the proviso to sections 32(1)(iia) and 32A(1). The court rejected the Department's argument that road transport includes all surface transport, including rail. The court noted that the Road Transport Corporations Act defines road transport service as transport by road, explicitly excluding rail.

The court emphasized that the legislative intent was clear in excluding only road transport vehicles and not rail transport vehicles. The court held that the exclusion of road transport vehicles does not apply to railway siding and locomotives, which are distinct from road transport.

Conclusion
The court concluded that railway siding and locomotives qualify for both investment allowance under section 32A and additional depreciation under section 32(1)(iia). The court answered the question in the affirmative, in favor of the assessee, and disposed of the reference accordingly.

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