DEPRECIATION FOR ‘JETTY’

[Mr. M. GOVINDARAJAN]

Oxford English Dictionary gives the meaning for the term ‘jetty’.    Jetty is a landing stage or small pier at which boats can dock or be moored; a bridge or staircase used by passengers boarding an aircraft; a breakwater constructed to protect or defend a harbor, stretch of coast, or riverbank.

The meaning of the word ‘jetty’ would show that it is in the nature of a construction which is used either as a landing stage, a small pier, bridge, staircase or a construction, built into the water to protect the harbor.  The utility of a jetty is limited by its construction.   It is used to obtain either access to a vessel, or, protect the harbor.

An interesting case law came before the Madras High Court in the matter of depreciation allowable for the jetty.  In ‘Commissioner of Income Tax V. Anand Transport’ – 2017 (3) TMI 895 - MADRAS HIGH COURT the assessee filed a return for the assessment year 2005 – 06 on 30.01.2006.   It showed a total income of ₹ 4.53 crores.  The said return was processed on 28.03.2007.  After rectification in the said order under section 154 of the Income Tax Act, 1961  the assessee was ordered for a refund of ₹ 6670/-.

The return of the assessee was examined along with the depreciation schedule.  The schedule revealed that the assessee had claimed depreciation in the sum of ₹ 8.86 crores.   Out of the amount the assessee had claimed 100% depreciation qua a loading platform ie., jetty, amounting to ₹ 6.94 crores.

A notice was issued to the assessee on 28.03.2012.  The Revenue was of the view that the jetty was in the nature of a ‘plant’ and not a temporary structure, on which 100% depreciation could be claimed.  The assessee filed reply for the notice.  The assessee gave the following explanation to the Revenue-

• The assessee was essentially in the business of loading and unloading of bulk cargo, relating to exports and imports, transportation of cargo, both within and outside the ports and by sea and, attending to all works, incidental to the works connected with the main business;
• The assessee was awarded a contract by MMTC on 06.05.2004;
• The subject jetty was erected, albeit, temporarily, to facilitate loading of iron ore onto vessels, in furtherance of the contract awarded by MMTC, in favor of the assessee;
• The loading platform consisted of a belt conveyor (along with electrical and panels) and the assessee has incurred a sum of ₹ 6.95 crores which was the amount claimed as depreciation;
• Upon the completion of the contract jetty was required to be dismantled ;
• Jetty is a temporary structure set up for commercial consideration and not for securing any capital asset;
• The project had a life of only three years and therefore being a temporary nature, it was entitled 100% depreciation as per section 32 of the Income Tax Act read with Rule 5 framed there under.

The Assessing Officer applied the functional test and came to the conclusion that the jetty was a plant as it was an apparatus/tool, which only enabled the assessee to carry on the business.  The Assessing Officer observed that the jetty consisted mainly of a belt conveyor and electrical support and that the civil work was negligible.  The conveyor belt could be dismantled and reused.    The Assessing Officer allowed depreciation @ 25% and the remaining depreciation as claimed by the assessee was disallowed by the Assessing Officer.

The assessee filed an appeal before Commissioner (Appeals) against the order of Assessing Officer.  The Commissioner (Appeals) sustained the reasoning given by the Assessing Officer.  The Tribunal, in the appeal, held that jetty or loading platform was a temporary structure.  It cannot, but be submitted that, if, jetty is held to be a temporary structure, then the assessee would be entitled to depreciation at the rate of 100%.  The Tribunal also relied on the entry incorporated in the appendix No. 1 appended to the Act in the relevant assessment year.  For the assessment year 2006 – 06 Part A heading ‘tangible asset’ and sub-heading I ‘Building; temporary exemptions such as wooden structure are falling under the classification ‘building’ and 100% depreciation was prescribed.

The Revenue filed appeal before the High Court, Madras and raised the following questions of law in the appeal for the consideration of the High Court-

1. Whether under the facts and circumstances of the case, the Income Tax Appellate Tribunal was correct in granting depreciation on jetty at 100% under the head ‘Building-Temporary Structure’ instead of allowing depreciation at 25% under the head ‘Plant’?
2. Whether under the facts and circumstances of the case, the Income Tax Appellate Tribunal was correct in holding that the jetty was a temporary structure, without appreciating the fact that the structure had enduring benefit to the assessee?
3. Whether under the facts and circumstances of the case, the Income Tax Appellate Tribunal was correct in relying on the decision of the Delhi Tribunal, when the law is settled in favor of the Department by the decision of the Chennai Tribunal?

The Revenue contended that question No. 3 does not arise from the impugned judgment of the Tribunal and therefore does not require any discussion by the High Court.    The High Court found that the provisions of the contract, as quoted by the Tribunal, would show that the jetty platform was constructed by the assessee on BOT basis, for a period of three years, from the date of commencement of the vessel loading application.   This was the initial arrangement between the assessee and MMTC which was modified to enable the operation of the jetty, till such time, the Ennore port allowed operations, or, for a period of three months from June 24.06.2009.  In terms of the contract, the jetty could be used till 31.03.2010 on the same terms and conditions as per mutually agreed terms arrived at between the parties.

The High Court held that jetty was erected by the assessee, which was tenure based, and therefore, could not have been treated as anything else, but a temporary erection.  Upon completion of the contract, the assessee was required to dismantle it.  The fact that the jetty had other contraptions attached to it, such as, a conveyor belt, to facilitate the process of loading, cannot convert such a structure into a plant.  Therefore, even if the functional test is employed, the main function of a jetty was to provide a passage or a platform to ferry articles onto the concerned vessels.  This could have been done manually.  That it was done by using a conveyor belt, would not, convert a jetty into a plant.  

The High Court held that the conclusions reached by the Tribunal, is a pure finding of fact, reached on the basis of the appreciation of the material placed before the Tribunal.  Therefore no question of law arises for consideration, much less a substantial question of law.  The High Court dismissed the appeal filed by the Revenue.