1979 (11) TMI 97 - HC - Income Tax

Summary

Issues involved: Interpretation of the term "plant" for the purpose of claiming development rebate under section 33 of the Income-tax Act, 1961.

Summary:
The case involved a reference under section 256(1) of the Income-tax Act, 1961, concerning the assessment year 1974-75. The assessee, a registered firm, had constructed warehouses for storing potatoes. The Income Tax Officer (ITO) disallowed the claim for development rebate on the grounds that the warehouses did not fulfill the requirements of section 33 of the Act. However, the Appellate Assistant Commissioner (AAC) allowed the claim, stating that the warehouses were entitled to development rebate if other conditions were met. The issue was whether the warehouses could be considered as "plant" for claiming development rebate.

The High Court analyzed the definition of "plant" under section 43(3) of the Act, which includes items used for business purposes. Various legal precedents were cited to determine the broad interpretation of the term "plant," including cases where structures like fencing and wells were considered as plant. The court emphasized the functional test to determine if a building or structure is actively involved in business activities or merely serves as a place for conducting business.

In applying the functional test to the present case, the court concluded that the warehouses did not qualify as "plant" under the Act. The warehouses were deemed to be spaces where business activities were carried out, rather than tools or apparatus actively involved in the business. Therefore, the assessee was not entitled to development rebate on the warehouses. The court ruled in favor of the department, holding that the Tribunal erred in considering the warehouses as "plant" eligible for development rebate under section 33 of the Act.

In conclusion, the court answered the question in the negative, supporting the department's position and disallowing the development rebate claim for the warehouses. The department was awarded costs and counsel's fee in the matter.