2016 (4) TMI 713 - HC - Income Tax

Higher depreciation at the rate of 25% on factory building - Held that - In the order of assessment for the year 1997-1998, the Assessing Officer has recorded the following finding that as have gone through the maps and photographs and also functional use of the building and decisions. Considering all these facts and circumstances there is no doubt that the factory building is plant of the assessee. It qualifies for depreciation @ 25%. The said stand of the assessee was accepted in the subsequent Assessment Year 1998-1999. Though the said order was interfered with by the Commissioner of Income-tax while exercising the jurisdiction under Section 263 of the Income-tax Act, 1961, but such order has since been set aside by the Tribunal in its order dated 18.12.2002. Since the order of the Commissioner of Income-tax has been set aside, the order of the Assessing Officer becomes operative. Therefore, keeping in view the finding of the Assessing Officer for the previous two years and applying the functional test, we find that the building which is constructed solely for the manufacturing of medicine is a plant and is entitled to higher depreciation at the rate of 25%. Thus, the question of law is answered in the affirmative in favour of the assessee and against the revenue.

Summary

Issues:
1. Appeal under Section 260A of the Income Tax Act, 1961 against an order passed by the Income Tax Appellate Tribunal, Patna Bench, Patna.
2. Claim of depreciation on factory building at the rate of 25% instead of 10%.
3. Application of functional test to determine if the building qualifies as a plant for higher depreciation.
4. Interpretation of the term 'plant' under Section 43(3) of the Income Tax Act, 1961.

Analysis:
1. The appellant filed an appeal under Section 260A of the Income Tax Act, 1961 against an order passed by the Income Tax Appellate Tribunal, Patna Bench, Patna, regarding the Assessment Year 1999-2000. The issue revolved around the claim of depreciation on a factory building at 25% instead of the allowable rate of 10%.

2. The Assessing Officer disallowed the excess depreciation claimed by the assessee on the factory building and added it back to the total income. The Commissioner of Income Tax (Appeals) initially rejected the claim for depreciation at 25% due to lack of a categorical finding by the Assessing Officer regarding the building's use for medicine manufacturing. However, a rectified order and assessment orders for previous years supported the building's classification as a plant for depreciation at 25%.

3. The Court considered the application of the functional test to determine if the building qualified as a plant for higher depreciation. Citing precedents, the appellant argued that the building was exclusively designed for medicine manufacturing and should be considered a plant. The revenue, on the other hand, relied on a judgment stating that a building cannot be treated as a plant, emphasizing the popular understanding of the term 'plant'.

4. The Court analyzed previous assessment orders, the functional use of the building, and the decisions in similar cases to conclude that the building, constructed solely for medicine manufacturing, qualified as a plant. Relying on the Assessing Officer's findings and the functional test, the Court held in favor of the assessee, allowing higher depreciation at the rate of 25%. The judgment clarified the interpretation of the term 'plant' under Section 43(3) of the Income Tax Act, 1961, in the context of the specific case.