2022 (7) TMI 289 - HC - Income Tax

Depreciation u/s 32 - bottles and crates appellant-assessee uses in the course of carrying out its business can be treated as plant within the meaning of Section 32(1)(i) - HELD THAT - As regards the factual position, that is, use of glass bottles, return of bottles in the manner in which crates are used, the Revenue has accepted the facts of the present case and the factual position in the case of Jai Drinks (P.) Ltd. and Sri Krishna Bottlers Pvt. Ltd. are identical. Tribunal did not hold against the Appellant making a distinction in the facts on the factual situation but has not followed the decisions of Rajasthan High Court and Andhra Pradesh High Court as above relying on the decision of the Supreme Court in the case of Steel City Beverages Ltd. Therefore, the only question that will arise for consideration is whether the Supreme Court in the case of Steel City Beverages Ltd., has overruled the view taken in the case of Jai Drinks (P) Ltd. 1987 (9) TMI 8 - RAJASTHAN HIGH COURT and Sri Krishna Bottlers Pvt. Ltd. 1988 (4) TMI 10 - ANDHRA PRADESH HIGH COURT construing the provisions of Section 43 (3) of the Act. Supreme Court, in the case of Steel City Beverages Ltd. 1998 (11) TMI 125 - SUPREME COURT considered the issue of whether the bottles and crates can be construed the definition of Plant and held bottles those could not be considered as stock in trade. However, the issue that arose before the Supreme Court under the Bihar Sales Tax Supplementary (Deferment of Tax) Rules 1990 Tribunal, before following the decision of the Supreme Court in Steel City Beverages Ltd., had not adverted to these observations of the Supreme Court at all and, therefore, clearly erred in applying this decision and not following the decisions of the High Courts of Rajasthan and Andhra Pradesh cited before it, which had construed the same provision which was under consideration. Respondent that bottles and crates could not be included in the definition of the Plant because they have no reference to the categories mentioned therein; therefore, cannot be accepted. As regards the contention of Respondent based on the Income Tax Rules and Depreciation Table is concerned, the Table is only states that certain categories, which are Machinery and Plants, will have particular rate and rest which fall under the Machinery and Plant will have different rate. Therefore, merely because the bottles and crates do not fall under the categories listed in Item 2 of the Schedule, it cannot be said that they need to be excluded from the definition of Plant , if they, otherwise fall within the definition of Plant . It has to be noted that, however, this question had arisen for the assessment year 1989-90 based on the situation therein, and therefore, the question is whether the Tribunal was right in holding against the Appellant for that particular assessment year. As noted in the decision of Sri Krishna Bottlers Pvt. Ltd 2004 (11) TMI 37 - ANDHRA PRADESH HIGH COURT as to what would happen if plastic bottles were used or the manner of use is changed in future, those would be the facts of that case. - Decided in favour of assessee.

Summary

Issues Involved:
1. Whether bottles and crates used by the appellant-assessee in its business can be treated as "plant" under Section 32(1)(i) of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Definition and Treatment of Bottles and Crates as "Plant":
The core issue revolves around whether bottles and crates used in the appellant's business of manufacturing soft drinks can be classified as "plant" under Section 32(1)(i) of the Income Tax Act, 1961. The appellant claimed 100% depreciation on these items, arguing that they are essential tools for carrying out its business.

2. Assessing Officer's Decision:
The Assessing Officer, in the order dated 26 March 1992, denied the appellant's claim, stating that bottles and crates should be treated as stock-in-trade, not as "plant" under Section 43(3) of the Act.

3. Commissioner of Income Tax (Appeals) Decision:
The appellant appealed to the Commissioner of Income Tax (Appeals), who allowed the claim, referencing decisions from the Rajasthan High Court and Andhra Pradesh High Court that supported the classification of bottles and crates as "plant."

4. Income Tax Appellate Tribunal's Decision:
The Revenue appealed to the Income Tax Appellate Tribunal, which reversed the CIT(A)'s decision. The Tribunal relied on the Supreme Court's ruling in the case of State of Bihar vs. Steel City Beverages Ltd., which held that items like crates and bottles used for storing manufactured products do not qualify as "plant."

5. High Court's Analysis:
The High Court examined the definition of "plant" under Section 43(3) of the Act, noting its inclusive nature. The Court referenced the Supreme Court's decisions in Taj Mahal Hotel and Scientific Engineering House P. Ltd., which emphasized a broad interpretation of "plant." The Court also reviewed the decisions of the Rajasthan High Court and Andhra Pradesh High Court, which had previously ruled that bottles and crates used in similar businesses fell within the definition of "plant."

6. Supreme Court's Distinction in Steel City Beverages Case:
The High Court highlighted that the Supreme Court, in the Steel City Beverages case, made a clear distinction between the definitions under the Income Tax Act and the Bihar Sales Tax Supplementary (Deferment of Tax) Rules 1990. The Supreme Court noted that the term "plant" under the Income Tax Act is used more broadly.

7. Consistency in Tribunal's Decisions:
The High Court noted that the Tribunal had previously ruled in favor of the appellant for other assessment years (1985-86, 1986-87, 1988-89, and 1991-92), recognizing bottles and crates as "plant." The inconsistency for the assessment year 1989-90 was questioned.

8. Legal Precedents and Functional Test:
The High Court reiterated the principles from various rulings, emphasizing that "plant" should be construed broadly, including any apparatus used in business operations. The functional test, which assesses whether an item serves as a tool in the business, was deemed decisive.

9. Additional High Court Rulings:
The High Court considered additional rulings from other High Courts (Gujarat, Allahabad, and others), which supported the classification of bottles and crates as "plant."

10. Income Tax Rules and Depreciation Table:
The High Court dismissed the argument that the absence of bottles and crates in the Depreciation Table under the Income Tax Rules precludes them from being classified as "plant."

Conclusion:
The High Court concluded that the Tribunal erred in not following the decisions of the Rajasthan and Andhra Pradesh High Courts and misapplied the Supreme Court's ruling in Steel City Beverages. The question of law was answered in favor of the appellant, allowing the appeal with no order as to costs.