2000 (4) TMI 151 - AT - Income Tax

Summary

Issues:
1. Whether tubewells should be classified as 'building' or 'plant and machinery' for the purpose of claiming depreciation.

Analysis:
The appeal was filed by the revenue against the order passed by the Commissioner (Appeals) concerning the classification of tubewells for depreciation in the assessment year 1991-92. The revenue contended that tubewells should be considered as 'building' based on the IT Rules, while the assessee claimed them as 'plant and machinery' for depreciation at a higher rate. The Assessing Officer initially treated tubewells as part of the building, but the first appellate authority favored the assessee's argument. The central issue was whether tubewells should be classified as 'building' or 'plant and machinery'.

The Court examined the definition of 'plant' under section 43(3), which includes items used for business purposes. The functional test was applied to determine if tubewells were integral to the manufacturing process of duplex cardboard. It was acknowledged that water from tubewells played a crucial role in manufacturing duplex cardboard. The Court referred to past judgments to establish that items of a building could be classified as 'plant' if they served a functional purpose in the business activities. The Court also noted that the definition of 'plant' is inclusive and not exhaustive.

Referring to precedents like CIT v. R.G. Ispat Ltd and CIT v. Lawly Enterprises (P.) Ltd, the Court emphasized that the building or part thereof could be considered as 'plant' if it significantly contributed to business operations. In this case, since tubewells played a vital role in the manufacturing process of duplex cardboard, they were deemed essential for business activities. Therefore, the Court upheld the classification of tubewells as 'Plant and Machinery', allowing the assessee to claim depreciation at the higher rate of 33.33%.

In conclusion, the appeal by the revenue was dismissed, affirming the order of the Commissioner (Appeals) regarding the classification of tubewells as 'Plant and Machinery' for depreciation purposes.