1988 (4) TMI 10 - HC - Income Tax

Summary

Issues Involved:
1. Whether bottles and shells constitute "plant" u/s 32(1)(ii) of the Income-tax Act, 1961, for the assessment year 1976-77.

Summary:

Issue 1: Definition of "Plant"
The court examined whether bottles and shells used by the assessee, a soft drink manufacturer, qualify as "plant" u/s 32(1)(ii) of the Income-tax Act, 1961. The assessee claimed depreciation on bottles and shells purchased during the year, which was initially rejected by the Income-tax Officer on the grounds that bottles are part of stock-in-trade and not separate from the drink for sale purposes. The Commissioner of Income-tax, following precedents, accepted the assessee's claim, stating that bottles and shells constitute "plant" and allowed the deduction under the first proviso to section 32(1)(ii).

Functional Test and Legal Precedents:
The court referred to various legal precedents and principles to determine the definition of "plant." Notably, the Supreme Court's decision in CIT v. Taj Mahal Hotel [1971] 82 ITR 44 and Scientific Engineering House (P.) Ltd. v. CIT [1986] 157 ITR 86 were considered. The "functional test" was emphasized, which assesses whether the item serves a functional purpose in the business. The court noted that "plant" includes apparatus used by a businessman for carrying on his business, excluding stock-in-trade.

Durability and Functionality:
The court highlighted that the bottles and shells have a degree of durability and are essential tools in the assessee's business. They perform a trade function by enabling the transportation of soft drinks, similar to the role of silos in Schofield v. R. and H. Hall Ltd. [1974] 49 TC 538 (CA). The court rejected the Revenue's argument that bottles and shells are merely part of the setting in which the business is carried on.

Conclusion:
The court concluded that bottles and shells qualify as "plant" for the purposes of the Income-tax Act, 1961, and upheld the decision of the Rajasthan High Court in CIT v. Jai Drinks (P.) Ltd. [1988] 173 ITR 100. The reference was answered in the affirmative, in favor of the assessee and against the Department.