2011 (8) TMI 149 - HC - Income Tax

Depreciation - Higher rate of depreciation - The amendment in S. 43 (3) w.e.f. 1.4.2004 is only clarificatory in nature, and which excluded the live stock or buildings or furniture and fittings from the plant - In case of cold storage as it was found by Calcutta High Court, the building is required to be constructed for cooling chambers in a specific process and manner and without such specific process and manner a chamber cannot be commissioned, for which a licence is also required to be obtained - assessee will be entitled to compute and to take benefit of depreciation on the cooling chambers of the cold storage in the relevant assessment year, at the notified rate of 25%

Summary

Issues:
1. Interpretation of depreciation rates for cold storage chambers under the Income Tax Act.
2. Exclusion of cold storage chambers from the definition of 'plant' post-amendment.

Issue 1: Interpretation of Depreciation Rates
The appellant, running a cold storage, claimed depreciation at 25% for cold storage including cooling plant and special chambers. However, authorities allowed depreciation at 10%, resulting in an addition of Rs. 5,28,878. The Income Tax Appellate Tribunal opined that post-amendment, the building was excluded from the definition of plant under Section 43(3). The Tribunal found that the chambers, requiring thermocole lining, had separate existence and were entitled to depreciation at the normal rate of 10%.

Issue 2: Exclusion of Cold Storage Chambers
The appellant argued that the amendment in Section 43(3) did not change the inclusive definition of 'plant', which includes buildings or furniture not integrally connected with the plant. Citing a judgment of the Calcutta High Court, the appellant contended that cold storage chambers are integral parts of the plant. The department argued that cold storage building had separate existence from the cooling plant, warranting different depreciation rates. However, the Court held that the building, including insulated walls used as a freezing chamber, was part of the air conditioning plant and entitled to special depreciation.

The Court clarified that the amendment in Section 43(3) was clarificatory, excluding only live stock or specific types of buildings from the plant. In the case of cold storage, the building and chambers were interdependent and integral to each other's functioning. The Court emphasized that the cold storage's special facilities for refrigeration did not allow for the separation of chambers as independent buildings for depreciation purposes.

In conclusion, the Court allowed the income tax appeal in favor of the assessee, setting aside the Tribunal's order. The assessee was granted the benefit of computing and claiming depreciation on the cooling chambers of the cold storage at the notified rate of 25% for the relevant assessment year.