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2015 (6) TMI 769 - HC - Income TaxEntitlement to claim 100% depreciation on the centering/shuttering material - Held that - The bottles containing the soft drink cannot be stock-in-trade inasmuch as the bottle by itself is not the subject of sale. The customer or the retailer returns back the bottle to the assessee after the soft drink is consumed. Likewise, the shells which are sent to the customer or dealer also come back with the empty bottles and they cannot also be stock-in-trade. What is the function these bottles and shells perform in the assessee s trade ? Are they essentially tools in the assessee s business ? In our opinion, yes. The bottles are essential tools of the trade for it is through them that the soft drink is passed on from the assessee to the customer. Without these bottles, the soft drink cannot be effectively transported, like the silos which are used to store grain and to empty the same, performing a trade function. As pointed out in Dixon v. Fitch s Garage Ltd. the bottles and the contents are totally interdependent. So are the shells. The bottles and shells also satisfy the durability test for it is nobody s case that their life is too transitory or negligible to warrant an inference that they have no function to play in the assessee s trade. They are therefore plant for the purposes of the Act. individual components of shuttering/centering material do not lose their individuality merely because they are used in combination with other similar or dissimilar units in the construction activity of the assessee. They can be and are normally dis-assembled after their use in combination and revert back to their individual status. Since they are durable and have a function in the assessees business, merely because they are not capable of being used individually on a stand alone basis and have to be used in combination with other units thereof, they do not cease to be a plant. Therefore, it is possible for the assessee to claim depreciation on individual items thereof under the proviso to Section 32 (1) (ii) of the Act and that it is not necessary for him to prove that each such individual item is capable of being used on a stand alone basis. Thus electric poles used in an industry for change of power from D.C to A.C would constitute a plant. It cannot be disputed that poles support the shuttering/centring material used by the assessee. On the same parity of reasoning, poles used in shuttering/ centring work would also be plant no matter that they cannot be used on a stand alone basis. Answer the reference in favour of the assessee that the Appellate Tribunal was justified in law in holding that the assessee is entitled to claim 100% depreciation on the centering/shuttering materials. Also hold that the decision of the Division Bench of this Court in Sri Raghavendra Constructions (2011 (1) TMI 698 - Andhra Pradesh High Court) is not correctly decided in so far as it held that individual units of centring/shuttering material would not be plant are not entitled to 100% depreciation under the first proviso to Sec.32 (1) since they cannot be used on a stand alone basis. It is accordingly overruled. The view taken in Live Well Home Finance (P) Ltd (2015 (2) TMI 366 - ANDHRA PRADESH HIGH COURT ) is the correct one - Decided in favour of assessee.
Issues Involved:
1. Whether the appellate Tribunal was justified in law in holding that the assessee was entitled to claim 100% depreciation on the centering/shuttering material. Analysis: Background and Divergence in Division Bench Judgments: The case was referred to the Full Bench due to conflicting opinions in two Division Bench judgments of the Andhra Pradesh High Court. The first judgment in *Commissioner of Income Tax Vs. Raghavendra Constructions* held that individual components of centering/shuttering material do not qualify as a plant eligible for 100% depreciation. The second judgment in *Commissioner of Income Tax Vs. Live Well Home Finance (P) Limited* held that individual components of shuttering material qualify as a plant and are eligible for 100% depreciation. Facts of the Case: The respondent-assessee claimed 100% depreciation on centering and shuttering equipment for the Assessment Year 1991-92. The Assessing Officer allowed only 33 1/3 % depreciation. The Commissioner (Appeals) allowed 100% depreciation, which was upheld by the Tribunal. The Revenue appealed under Section 260A of the Income Tax Act, 1961. Legal Provisions: - Section 32(1)(ii) of the Income Tax Act provides for depreciation on buildings, machinery, plant, or furniture used for business purposes. The first proviso allows 100% depreciation if the actual cost of any machinery or plant does not exceed Rs. 5,000. - Section 43(3) defines "plant" to include ships, vehicles, books, scientific apparatus, and surgical equipment but excludes tea bushes or livestock. Analysis by the Full Bench: 1. Definition and Interpretation of Plant: - The term "plant" is to be broadly construed to include any apparatus used by a businessman for carrying on his business, with some degree of durability. The functional test is decisive. - The Full Bench noted that centering and shuttering materials, when used collectively, fulfill the function of a plant. However, the question was whether individual components such as steel plates or wooden planks could be treated as plant. 2. Judgments and Precedents: - The Full Bench reviewed various judgments, including those of the Supreme Court and High Courts, which interpreted "plant" broadly. - In *Krishna Bottlers Pvt. Ltd.*, individual bottles and shells were treated as plant. - In *Margadarsi Chit Fund (P) Ltd.*, it was held that individual items of purchase would also be plant if integrally involved in the business. 3. Functional and Durability Tests: - The Full Bench applied the functional test, determining whether the individual components of shuttering material could function independently as a plant. - It was concluded that individual components of shuttering material do not lose their identity and can be reused in different combinations, thereby qualifying as plant. 4. Contradictory Views and Resolution: - The Full Bench disagreed with the view in *Raghavendra Constructions* that individual components must function independently to qualify as plant. - It agreed with the view in *Live Well Home Finance (P) Ltd.* that individual shuttering plates and components qualify as plant and are eligible for 100% depreciation if their cost does not exceed Rs. 5,000. Conclusion: The Full Bench held that the appellate Tribunal was justified in law in holding that the assessee was entitled to claim 100% depreciation on the centering/shuttering material. The decision in *Raghavendra Constructions* was overruled, and the view in *Live Well Home Finance (P) Ltd.* was upheld. The matter was directed to be placed before the appropriate Bench for a decision based on the majority opinion. Separate Judgment by Justice M. S. Ramachandra Rao: Justice M. S. Ramachandra Rao provided a dissenting opinion, emphasizing that individual components of shuttering material should be treated as plant, whether used independently or in combination with others. He relied on the functional test and the broad interpretation of "plant" by the Supreme Court, arguing that the stand-alone use test applied in *Raghavendra Constructions* was incorrect. He concluded that the assessee was entitled to claim 100% depreciation on individual components of shuttering material.
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