2005 (3) TMI 37 - HC - Income Tax

(1) Whether Tribunal was right in law in holding that the drainage and sewerage network constituted plant and machinery and was entitled to investment allowance under section 32A of the Income-tax Act on its cost of Rs. 63, 54, 058? (2) Whether Tribunal was right in law in holding that tractor-trailers used for lifting and carrying equipment and materials constituted plant and machinery and were entitled to investment allowance under section 32A of the Income-tax Act? - Question No. 1 is answered in the affirmative i.e. in favour of the assessee and against the Revenue - it is apparent that the tractor-trailer was inducted or introduced in the business and was therefore installed for the purposes of the business of the assessee entitling the assessee to claim investment allowance. Question No. 2 is answered in the affirmative i.e. in favour of the assessee and against the Revenue

Summary

Issues:
1. Entitlement to investment allowance on drainage and sewerage network as plant and machinery.
2. Entitlement to investment allowance on tractor-trailers as plant and machinery.

Issue 1: Entitlement to Investment Allowance on Drainage and Sewerage Network:
The case involved a public limited company engaged in manufacturing chemical fertilizers. The company installed a drainage and sewerage network within its factory premises, claiming investment allowance on the cost of Rs. 63,54,058, contending that it constituted plant and machinery. The Assessing Officer and Commissioner of Income-tax (Appeals) initially rejected the claim. However, the Tribunal ruled in favor of the company, stating that the network was essential for handling waste materials from the manufacturing process. The Tribunal found that the network, used for channeling fluids like effluent and spillage for treatment and recycling, was integral to the plant and machinery setup. The High Court referred to a previous decision and upheld the Tribunal's decision, affirming that the drainage and sewerage network qualified for investment allowance under section 32A of the Income-tax Act.

Issue 2: Entitlement to Investment Allowance on Tractor-Trailers:
In the second aspect of the case, the company claimed investment allowance on tractor-trailers used for transporting equipment and materials within the factory premises. The Assessing Officer and Commissioner of Income-tax (Appeals) categorized the tractor-trailers as road transport vehicles, denying the investment allowance. However, the Tribunal disagreed, emphasizing that the tractor-trailers played a crucial role in handling and transporting materials within the factory. The High Court analyzed various legal precedents cited by the company, which supported the view that such equipment could be considered "plant" under the Income-tax Act. The Court noted that the functional test was crucial in determining eligibility for investment allowance, and in this case, the tractor-trailers were used solely within the factory premises for material handling. The Court also addressed the installation timeline requirement under section 32A(1) of the Act, citing previous judgments to establish that induction or introduction of the equipment into the business sufficed for meeting the installation criteria. Consequently, the High Court ruled in favor of the company, affirming that the tractor-trailers qualified as plant and machinery entitled to investment allowance under section 32A of the Act.

In conclusion, the High Court of Gujarat delivered a judgment addressing the entitlement to investment allowance on both a drainage and sewerage network and tractor-trailers used within a chemical fertilizer manufacturing company's factory premises. The Court upheld the Tribunal's decisions in both instances, affirming that the drainage and sewerage network, along with the tractor-trailers, met the criteria to be considered as plant and machinery eligible for investment allowance under section 32A of the Income-tax Act. The judgment provided detailed analyses of the functional roles of the equipment in the company's operations and referenced legal precedents to support the conclusions reached.