1984 (11) TMI 86 - AT - Income Tax

Summary

Issues Involved:
1. Whether galvanized corrugated (GC) sheets qualify as 'plant' under Section 32(1)(ii) of the Income-tax Act, 1961.
2. Eligibility for depreciation and investment allowance on GC sheets.
3. Classification of GC sheets as 'plant' or 'building' material for depreciation purposes.

Issue-wise Detailed Analysis:

1. Whether GC Sheets Qualify as 'Plant':

The assessee, a firm engaged in the business of tent merchants and suppliers, claimed that GC sheets used for constructing movable partitions, fences, and removable fittings should be classified as 'plant' under Section 32(1)(ii) of the Income-tax Act, 1961. The Income Tax Officer (ITO) rejected this claim, arguing that the business of the assessee did not involve any industrial process, thus GC sheets could not be treated as 'plant'. The Commissioner (Appeals) also initially rejected the claim, stating that the GC sheets did not have enough durability to be classified as 'plant'. However, the Tribunal found that GC sheets fulfilled the function of a plant in the assessee's trading activities, acting as tools of the trade. The Tribunal referred to various judicial precedents, including the Supreme Court's decision in CIT v. Taj Mahal Hotel [1971] 82 ITR 44 and the Gujarat High Court's decision in CIT v. Elecon Engg. Co. Ltd. [1974] 96 ITR 672, which broadly construed the term 'plant' to include any apparatus used by a businessman for carrying on his business.

2. Eligibility for Depreciation and Investment Allowance:

The assessee claimed full depreciation on the GC sheets, stating that each sheet's value was less than Rs. 750, thus qualifying for a deduction of the entire cost under the proviso to Section 32(1)(ii). The ITO allowed only 10% depreciation, treating the GC sheets as fittings. The Commissioner (Appeals) allowed 100% depreciation, treating the GC sheets as temporary buildings. The Tribunal, however, concluded that since the GC sheets were classified as 'plant' and their individual value was less than Rs. 750, the entire cost should be allowed as a deduction. Consequently, the assessee's claim for investment allowance was not applicable as the entire cost was already deductible.

3. Classification of GC Sheets as 'Plant' or 'Building' Material:

The Commissioner (Appeals) initially classified the GC sheets as building material used for erecting temporary structures, thereby allowing 100% depreciation. However, the Tribunal disagreed with this classification, emphasizing that the GC sheets were tools of the assessee's trade and should be considered 'plant'. The Tribunal referred to the functional test applied in previous cases, which determined whether an item was used as an apparatus in the business. The Tribunal found that GC sheets were used by the assessee for carrying on its business, fulfilling the function of a plant. The Tribunal also addressed objections raised by the department, including the argument that GC sheets were stock-in-trade, and rejected them based on judicial precedents.

Conclusion:

The Tribunal concluded that GC sheets should be classified as 'plant' under Section 32(1)(ii) of the Income-tax Act, 1961. Since the individual value of each sheet was less than Rs. 750, the entire cost was deductible in the computation of the assessee's income. The Tribunal confirmed the Commissioner (Appeals)'s decision to allow full depreciation, albeit for different reasons, and ruled out the applicability of investment allowance.