1994 (7) TMI 70 - HC - Income Tax

Summary

Issues Involved:
1. Entitlement to 100% depreciation on cages costing less than Rs. 750.
2. Classification of each cage as a plant for depreciation purposes.

Summary:

Issue 1: Entitlement to 100% Depreciation on Cages Costing Less Than Rs. 750
The Tribunal held that the applicant was not entitled to 100% depreciation on the cages costing less than Rs. 750 each, as these cages were fabricated into one unit and thereby lost their individuality. The Income-tax Officer and the Commissioner of Income-tax (Appeals) supported this view, stating that the cages did not have a separate existence apart from the bigger unit, which consisted of hundreds of such cages. Consequently, only 10% depreciation was allowable on the cost of the additions made.

Issue 2: Classification of Each Cage as a Plant for Depreciation Purposes
The Tribunal also held that each cage was not a plant by itself and, therefore, the applicant was not entitled to 100% depreciation when the cost of each cage was less than Rs. 750. The Tribunal observed that the cages were fabricated in such a manner to form a bigger unit, losing their individuality. The cages were used as part of a larger unit with common facilities for lighting, feeding, and watering, thus integrating them into a single plant or machinery.

Legal Reasoning:
The court examined the definition of "plant" u/s 43(3) of the Income-tax Act, 1961, which is inclusive and not exhaustive. The court referred to various judicial pronouncements, including Yarmouth v. France [1887] 19 QBD 647, CIT v. Taj Mahal Hotel [1971] 82 ITR 44, and Scientific Engineering House P. Ltd. v. CIT [1986] 157 ITR 86, to understand the wide amplitude of the term "plant." The court emphasized the "functional integrality" test, which determines whether components can be treated as plant in themselves or as part of a bigger unit.

The court concluded that the smaller cages were not used as independent units but were integrated into a larger plant, losing their individuality. Therefore, they could not be termed as separate plants to qualify for 100% depreciation. The income-tax authorities and the Tribunal were justified in allowing depreciation on the cost of the cages but not at 100%.

Conclusion:
The court answered both questions referred by the Tribunal in the affirmative, supporting the view that the applicant was not entitled to 100% depreciation on the cages as they were part of a larger unit and not independent plants. The reference was answered accordingly.