2015 (12) TMI 122 - AT - Income Tax

Scope of the term Plant u/s 43(3) - Exclusion of Building and Furniture from the scope of plant - constitutional validity - expenses have been incurred on wall partition fall ceiling flooring and sliding - Held that - The word plant has been defined in section 43(3) as under (3) plant includes ships vehicles books scientific apparatus and surgical equipment used for the purpose of the business or profession but does not include tea bushes or livestock or buildings or furniture and fittings As it can be seen from the above provision definition of plant is inclusive in nature and not exhaustive. Thus there is a wide scope for including many items in the definition. It is a matter of fact that legislature has stepped in specifically excluding building from the definition of plant and such amendment was brought by the Finance Act 2003 w.e.f. 2004. The coverage of term plant was subject matter of litigation particularly on the issue whether building or furniture and fittings constitute plant and to clarify the intention of the statute such amendment has been brought. Such amendment brought into the statute by the legislature has not been shown to be violative of constitutional provision. Therefore according to clear legislative intent the assessee cannot take the benefit of higher depreciation by including building in the value of plant . - Decided against assessee.

Summary

Issues Involved:
1. Classification of additions to Plant and Machinery versus Building and Furniture.
2. Applicable rate of depreciation for additions made to Plant and Machinery versus Building and Furniture.

Detailed Analysis:

1. Classification of Additions to Plant and Machinery versus Building and Furniture:

The assessee, engaged in the manufacturing of pharmaceutical and surgical items, installed BFS Machinery No.17 & 18, which required clean rooms, LDPE Plastic granules conveying system, and electric supply. The expenses incurred for these installations were claimed as additions to "Plant and Machinery." However, the AO classified these expenses as related to "Building and Furniture," which includes costs for wall partitions, fall ceilings, flooring, and sliding. The AO referred to the definition of "plant" in section 43(3) of the Income Tax Act, 1961, which excludes buildings and furniture from the definition of plant post the amendment by the Finance Act 2003, effective from 01/04/2004. The CIT(A) upheld this classification, stating that the case laws cited by the assessee pertained to periods before the amendment and were thus not applicable.

2. Applicable Rate of Depreciation:

The assessee argued that the installations were integral to the efficient working of the "Plant and Machinery" and should be depreciated at the rates applicable to "Plant and Machinery" rather than "Building and Furniture." The AO and CIT(A) disagreed, applying the depreciation rates for buildings and furniture. The assessee cited decisions from the Ahmedabad ITAT and Mumbai ITAT, which allowed higher depreciation rates for similar installations, but these were not considered applicable due to the statutory amendment excluding buildings and furniture from the definition of plant.

Judgment Analysis:

The tribunal acknowledged that the definition of "plant" is inclusive and not exhaustive, allowing for a broad interpretation. However, the specific exclusion of buildings and furniture from the definition of plant by the Finance Act 2003 was clear and unambiguous. The tribunal noted that earlier case laws, which included buildings designed for manufacturing processes as part of the plant, were no longer applicable post-amendment.

The tribunal found that the expenses incurred by the assessee, primarily payments to Aeolus Technovations Pvt. Ltd. for clean rooms and related installations, were in the nature of building expenses. The tribunal did not find any specific expenses that could be excluded from the ambit of building and included in the plant. Consequently, the tribunal held that the CIT(A) did not err in rejecting the assessee's claim and upheld the lower depreciation rates applicable to buildings and furniture.

Conclusion:

The tribunal dismissed the appeal filed by the assessee, affirming that the expenses related to clean rooms and installations were correctly classified as building and furniture, and the applicable depreciation rates were appropriately applied. The tribunal's decision was pronounced in open court on 01/04/2015.