2010 (11) TMI 338 - HC - Income Tax

Depreciation - whether, on the facts and in the circumstances of the case, poultry shed should be treated as plant, thereby allowing the assessee-company a higher rate of depreciation as applicable to plant and not the rate of depreciation as applicable to building - In the case of Shivalik Poultries 2004 -TMI - 10318 - PUNJAB AND HARYANA High Court , a poultry shed is merely a shelter or home or setting in which the business is carried on and, therefore, it is only a building and not a plant - Held that poultry shed is not a plant enabling the assessee to the higher rate of depreciation as applicable to a plant and that it is entitled to claim depreciation as applicable to a building only - Decided in favour of the revenue

Summary

Issues Involved:
1. Whether poultry sheds should be treated as "plant" for the purpose of allowing higher depreciation rates under the Income-tax Act, 1961.

Detailed Analysis:

Background:
The cases referred under section 256(1) and the Income-tax Appellate Tribunal Appeals filed under section 260A of the Income-tax Act, 1961, involve a common question compelling disposal by a common order. All the referred cases are at the instance of the Revenue. The primary question is whether poultry sheds should be treated as "plant," thereby allowing the assessee-company a higher rate of depreciation as applicable to plant and not the rate of depreciation as applicable to building.

Case Details:
1. R. C. No. 53 of 2001:
- M/s. Srinivasa Hatcheries (Private) Limited, Hyderabad, claimed depreciation at 20% on poultry sheds treating them as "plant" for the assessment year 1991-92.
- The Assessing Officer treated the poultry sheds as "building," allowing depreciation at 10%.
- The assessee's appeal was successful, but the Revenue's appeal before the Income-tax Appellate Tribunal was unsuccessful.
- The Supreme Court directed the Tribunal to refer the question to the High Court.

2. I. T. T. A. No. 376 of 2006:
- Involved M/s. Venkateswara Hatcheries, Hyderabad, for the assessment year 1992-93.
- The Commissioner set aside the assessment order, leading to reassessment.
- The assessee contended that poultry shed is a plant within the meaning of section 43(3) of the Act and successfully appealed.
- The Revenue's appeal before the Tribunal was futile.

Contentions:
- Revenue's Argument:
- Relying on decisions of the Supreme Court and Punjab and Haryana Court, the Revenue contended that if any business is carried on in a premises, it is to be treated as a building.
- Poultry sheds used for growing chicks and hatching and incubating their eggs do not satisfy the functional test of being a plant.

- Assessee's Argument:
- Poultry sheds are specially designed to serve the assessee's technical requirements and should be treated as tools and apparatus for business purposes.
- Poultry shed is a "plant," and the assessees are entitled to claim depreciation at 25%.

Legal Provisions:
- Section 32 of the Act: Allows deductions for depreciation of buildings, machinery, plant, or furniture.
- Section 43(3) of the Act: Defines "plant" inclusively, covering everything used for business purposes except buildings, furniture, or fittings.

Court's Analysis:
- Assessing Officer's Reasoning:
- Poultry sheds are mere places where business activities are carried on and not tools for business.

- Commissioner of Income-tax (Appeals) and Tribunal's Reasoning:
- Concluded without much reasoning that poultry shed is to be allowed depreciation at the rates of plant and machinery.

- Case Law:
- Anand Theatres: Held that buildings used for business purposes remain buildings and not plants.
- Shivalik Poultries: Held that poultry sheds are merely shelters for business and not plants.
- Karnataka Power Corporation: Held that if a building is specially planned and constructed for technical requirements, it may qualify as a plant.
- Dr. B. Venkat Rao and Dr. Ganga R. Menon: Held that buildings with special technical requirements for nursing homes and hospitals can be treated as plants.

Conclusion:
- The court held that poultry sheds are buildings and not plants, as they are merely shelters where business activities are carried on.
- The decision in Venkateswara Hatcheries P. Ltd. concluded that poultry sheds do not qualify as plants for higher depreciation rates.
- The court answered the reference in favor of the Revenue and against the assessees, holding that poultry sheds are entitled to depreciation as applicable to buildings only.

Judgment:
- The reference is answered in the negative in favor of the Revenue.
- All appeals filed by the Revenue are allowed without any order as to costs.