2003 (4) TMI 534 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Whether the plant and machinery given on lease by a co-operative society is a movable property or an immovable property.
2. Taxability of lease money received for plant and machinery under the Rajasthan Sales Tax Act, 1954.
3. Applicability of various legal definitions and precedents in determining the nature of the property.

Detailed Analysis:

Issue 1: Definition of Plant and Machinery as Movable or Immovable Property

The primary question revolves around whether the plant and machinery given on lease can be classified as movable or immovable property. The assessing officer treated the plant and machinery as movable property and subjected it to tax. However, the Rajasthan Tax Board held that the plant and machinery imbedded to earth are considered "immovable property" and thus not liable to be taxed.

The definition of "immovable property" under the General Clauses Act, 1897, and the Transfer of Property Act, 1882, was scrutinized. According to Section 3(26) of the General Clauses Act, "immovable property" includes land, benefits to arise out of land, and things attached to the earth or permanently fastened to anything attached to the earth. The petitioner argued that to classify property as immovable, the attachment should be permanent and for the beneficial enjoyment of the land.

Case laws were cited to support both sides. For instance, the Allahabad High Court in *Official Liquidator v. Sri Krishna Deo* held that machinery fixed to their bases with bolts and nuts, although easily removable, are not movable property when set up with the definite object of running an oil mill. Similarly, the Supreme Court in *Duncans Industries Ltd. v. State of U.P.* emphasized that whether machinery embedded in the earth is movable or immovable depends on the intention behind the embedment-whether it was meant to be temporary or permanent.

The court concluded that plant and machinery in a ginning and pressing factory, being embedded to earth, are attached for beneficial enjoyment and thus should be considered immovable property.

Issue 2: Taxability of Lease Money under the Rajasthan Sales Tax Act, 1954

The lease money received by the assessee included the use of land, building, plant, and machinery. The assessing officer provided a rebate for land and building but taxed the lease amount for plant and machinery. The Rajasthan Tax Board, however, ruled that since the plant and machinery are immovable property, they are not subject to tax under the Rajasthan Sales Tax Act, 1954.

The court examined the definitions under the Rajasthan Sales Tax Act, particularly sections 2(h) and 2(o), which define "goods" as all kinds of movable property. Since immovable property is outside the purview of the State Legislature under Entry 54 of List II of the Seventh Schedule to the Constitution, the plant and machinery, being immovable, cannot be taxed.

Issue 3: Applicability of Legal Definitions and Precedents

The court relied on various legal definitions and precedents to reach its conclusion. The definitions from the General Clauses Act and the Transfer of Property Act were pivotal in understanding what constitutes immovable property. The court also considered previous judgments, such as those from the Allahabad High Court, Andhra Pradesh High Court, and the Supreme Court, which provided insights into the nature of fixtures and their classification based on their attachment to the earth.

For instance, the Andhra Pradesh High Court in *J. Kuppanna Chetty v. Collector of Anantapur* held that machinery embedded in the earth for the beneficial enjoyment of the building is immovable property. The Supreme Court in *Duncans Industries Ltd.* reiterated that the intention behind embedding machinery plays a crucial role in determining its nature.

The court also noted that earlier judgments by the Tax Tribunal had held that factory buildings and machinery embedded into earth cannot be taxed, and these judgments had attained finality.

Conclusion:

The court dismissed the revision petitions, upholding the Rajasthan Tax Board's decision that the plant and machinery given on lease are immovable property and thus not subject to tax under the Rajasthan Sales Tax Act, 1954. The court emphasized that the plant and machinery, being embedded to earth for the beneficial enjoyment of the land, fit the definition of immovable property. Therefore, the taxing authorities' attempt to classify them as movable property for taxation purposes was not justified.

Petitions dismissed.