2006 (12) TMI 80 - HC - Income Tax

Depreciation AO estimated the cost of construction of nursing home of a medical practitioner on the higher side and treated the difference as unexplained investment held that cost of construction of nursing home of the assesse is entitled for depreciation on the ground that it is a plant.

Summary

Issues:
1. Assessment of unexplained investment based on underestimated construction cost.
2. Claim for depreciation on the cost of construction of a nursing home as a plant.

Issue 1: Assessment of unexplained investment based on underestimated construction cost
The case involved an appeal against the assessment order by the Revenue, where the assessing officer had estimated the cost of construction of a nursing home to be significantly higher than what was shown by the assessee. The assessing officer treated the difference amount as unexplained investment and brought it to tax. The Commissioner of Income-tax (Appeals) later reduced the cost of construction by a certain amount. The Income-tax Appellate Tribunal, following a Supreme Court decision, allowed depreciation on the cost of construction as it was considered a plant. The Revenue, aggrieved by this decision, raised a substantial question of law regarding the application of the functional test to determine if the building qualifies as a plant.

Issue 2: Claim for depreciation on the cost of construction of a nursing home as a plant
The key question in this issue was whether the nursing home, even without specific equipment, could be considered a plant and thus be entitled to depreciation. The Revenue contended that the functional test should have been applied to determine if the building was constructed specifically to function as part of the plant. The court referred to previous judgments, including one by the Apex Court, which held that if a building or structure constitutes an apparatus or tool by means of which business activities are carried out, it would amount to a plant. In this case, the assessing officer, Commissioner, and Tribunal all acknowledged that the nursing home was an essential part of the medical practitioner's business. Therefore, the court upheld the Tribunal's decision, ruling that the cost of construction of the nursing home should be entitled to depreciation as it qualifies as a plant.

In conclusion, the High Court upheld the Tribunal's decision, dismissing the appeals by the Revenue as no substantial question of law was found. The judgment clarified the application of the functional test to determine if a building qualifies as a plant for depreciation purposes, emphasizing the role of the building in facilitating business activities.