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Issues Involved:
1. Whether the roads constructed by the assessee-company within the factory premises constitute "plant" or "building" within the meaning of section 32 read with section 43(3) of the Income-tax Act, 1961. Issue-wise Detailed Analysis: 1. Depreciation Claim on Roads as "Plant" or "Building": The primary issue is whether the roads constructed by the assessee-company within its factory premises can be classified as "plant" or "building" under section 32 read with section 43(3) of the Income-tax Act, 1961, for the purpose of claiming depreciation. - Assessee's Argument: - The assessee argued that the roads within the factory premises should be treated as "plant" because they are essential for the operation of the factory. Without these roads, goods could not be transported from one part of the factory to another. - The assessee relied on the Supreme Court's decision in CIT v. Taj Mahal Hotel [1971] 82 ITR 44, which held that sanitary fittings in a hotel could be classified as "plant". The assessee also cited the Court of Appeal decision in Jarrold (H. M. Inspector of Taxes) v. John Good & Sons Ltd. [1962] 40 TC 681, where special partitioning was treated as "plant". - Revenue's Argument: - The Revenue contended that roads are part of the land and cannot be distinguished from it. They argued that roads should be classified as "buildings" rather than "plant". - The Revenue relied on the decision in CIT v. Colour-Chem Ltd. [1977] 106 ITR 323, where roads or roadways within factory premises were considered as "buildings" for the purpose of depreciation. - Tribunal's Decision: - The Tribunal initially held that the roads were not "buildings" within the meaning of the Income-tax Act. However, relying on the Supreme Court's decision in CIT v. Taj Mahal Hotel, the Tribunal concluded that roads could be treated as "plant". - High Court Analysis: - The High Court referred to the definition of "plant" in section 43(3) of the Income-tax Act, which includes ships, vehicles, books, scientific apparatus, and surgical equipment used for business purposes. - The Court emphasized the wide interpretation of "plant" as established in Yarmouth v. France [1887] 19 QBD 647, which includes any apparatus used by a businessman for carrying on his business, excluding stock-in-trade. - The Court noted that the term "plant" does not include the place where the business is carried on, as established in J. Lyons & Co. Ltd. v. Attorney-General [1944] 1 Ch 281. - The Court applied the functional test to determine whether an asset can be considered "plant". This test assesses whether the asset is an apparatus used for carrying on the business or merely provides the setting for the business. - The Court concluded that roads within the factory premises provide the setting for the business rather than being an apparatus used for carrying on the business. Therefore, they should be classified as "buildings" rather than "plant". - Distinguishing Case Law: - The Court distinguished the present case from CIT v. Taj Mahal Hotel, emphasizing that the decision in Taj Mahal Hotel was based on the specific facts of that case and did not establish a general principle that roads within factory premises should be treated as "plant". - The Court also distinguished the present case from Jarrold's case, noting that the special partitioning in Jarrold's case had a unique character and functionality that justified its classification as "plant". - Conclusion: - The High Court held that the roads constructed by the assessee-company within the factory premises should be classified as "buildings" for the purpose of section 32 read with section 43(3) of the Income-tax Act, 1961. - The Tribunal was not justified in holding that the roads constituted "plant". The roads should be treated as "buildings", and the assessee's claim for depreciation on this basis was rejected. The question referred to the Court was answered in favor of the Revenue, and the assessee was ordered to pay the costs of the reference.
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