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TMI Blog1993 (1) TMI 254X X X X Extracts X X X X X X X X Extracts X X X X ..... be treated either as business income or as capital gain. 4. According to Shri S. C. Chatterjee, the learned Departmental Representative of the Revenue, the order of the learned CIT(A) was unjustified because the land in question was not an agricultural land. He emphasised that the Assessing Officer noted that though the land in question was a part of the tea garden, but that was not under any agricultural operation at the relevant time and, as such, the land being not an exempt asset the compensation received against its acquisition was a capital gain which was taxable. He stated that the learned CIT(A) did not examine that fact at the time of deleting the addition. 5. On the other hand, Shri D. K. Kothari, the learned counsel for the assessee strongly supported the order of the learned CIT(A). In the cross-objection also the assessee having taken a ground has supported the order of the learned CIT(A). He stated that the land in question was an agricultural land and formed a part of the tea garden situated in rural area. He stated that the lands were surrendered in 1975, 1976 and 1978 and piecemeal compensation was received. He stated that the land was an agricultural land wher ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , it cannot be said to be a capital asset in view of S. 2(14) of the Act and the compensation received on acquisition of the land cannot be brought to tax. The various decisions as referred to above on which the assessee has relied strongly support the claim of the assessee and so regard being had to the entire facts and circumstances of the case we do not find merit in the case of the Revenue. The order of the learned CIT(A) on this score is justified and so we confirm it. 7. In the result, the appeal is dismissed. C. O. No. 90(Cal)/1989 8. In the cross objection the assessee has set forth as many as 7 grounds. Besides that, at the time of hearing the assessee requested for admittance of two additional grounds which were admitted after hearing both sides. 9. The first ground relates to that of supporting the order of the CIT(A) deleting the addition of Rs. 44,100 being the compensation amount which was received by way of compensation on acquisition of agricultural land. This ground stands decided in favour of the assessee in view of the observations as made in the foregoing order passed in ITA No. 1626(Cal)/1989. 10. The second ground relates to Allahabad property as to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the IT Act, 1961. 17. Shri D. K. Kothari, the learned counsel for the assessee submitted that gratuity was a statutory liability payable on retirement or on termination of the services of employees. According to him, gratuity was part and parcel of the Wages payable to employees. It was in the nature of deferred wages. Gratuity as created on the basis of actuarial valuation was allowable as deferred wages. It was added by him that the provision for gratuity was made on the basis of actuarial valuation as so was decided by the Board of Directors and approved by the shareholder by approving the accounts. If the provision for gratuity was not allowed as deduction it would not reflect the real income of the assessee. The assessees case was not covered by S. 36(1)(iv) of the Act; rather, in view of the provisions of S. 28 or S. 37 of the Act the provision for gratuity might be allowed. In support of his contentions Shri Kothari, the learned counsel for the assessee relied on certain decisions of different High Courts : 1. CIT vs. Andhra Prabha P. Ltd. (1980) 123 ITR 760 (Mad), 2. Nagri Mills Co. Ltd. vs. CIT (1981) 131 ITR 257 (Guj), 3. Addl. CIT vs. Madho Mahesh Sugar Mills ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thod of calculation and further they were liabilities of the previous year. The decision of the Honble Gujarat High Court in the case of Nagri Mills Co. Ltd. vs. CIT (supra) is not applicable for the obvious reason that the assessment related to the asst. yr. 1968-69 and by that time the provision of S. 40A(7) was not there. The decision of the Honble Allahabad High Court in the case of Addl. CIT vs. Madho Mahash Sugar Mills (supra) only speaks about the permissibility of deduction under S. 36(1)(v) of the Act which is not the case of the present case. So regard being had to the entire facts and circumstances of the case we do not think that the claim of the assessee for deduction of the provision for gratuity is to be acceded to. The order of the learned CIT(A) on this point is justified. We accordingly confirm it. 20. The fifth ground relates to disallowance of the provision of Rs. 4,70,830 for doubtful debts, loans and advances. 21. The authorities below disallowed the same because it was simply a provision and the debts, loans and advances, etc., were not written off in the books. 22. Shri D. K. Kothari, the learned counsel for the assessee submitted that no doubt the pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the asst. yr. 1984-85 in the case of the assessee itself and the Tribunal by its order dt. 18th Aug., 1992 passed in ITA No. 521(Cal)/89 having relied on the decision of the Honble Calcutta High Court in the case of CIT vs. Sugauli Sugar Works (P) Ltd. (1983) 140 ITR 286 (Cal), had allowed the liabilities that being written off unilaterally. 27. In respect of the present case also no material has been brought on record to distinguish the facts and circumstances from those of the earlier case and, as such, consistent with the earlier order dt. 18th Aug., 1992 of the Tribunal and the reasons as assigned therein we dispose of this issue in favour of the assessee. The order of the learned CIT(A) is reversed on this point. 28. The seventh ground is general in nature speaking only that at the time of hearing additional grounds may be raised and in fact the assessee raised two additional grounds at the time of hearing. 29. The first additional ground relates to grant of extra shift allowance on building and furniture and the second additional ground relates to claim for depreciation on tea bushes which we admitted after hearing the learned counsel for the assessee as well as the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yr. 1985-86 the Tribunal recorded back the matter to the Assessing Officer and so, in that manner, the claim of the assessee had been shuttling like a shuttle cock in the hard Court of the Revenue and the soft Court of the Tribunal, but no final decision whatsoever was given. The learned counsel for the assessee, therefore, earnestly requested to decide the claim of the assessee in this assessment year so that either the assessee or the Revenue as the case might be go for reference to the High Court on the basis of the order of the Tribunal on the nature of the decision of the Tribunal. Of course, Shri S. C. Chatterjee, the learned Departmental Representative of the Revenue strongly pressed to restore the matter back to the Revenue authority following the earlier orders of the Tribunal, but, however, considering the manner in which the claim of the assessee was kept in fluid state, we in the interest of justice preferred to decide the matter and open the door to have on the matter in issue a decision either of the jurisdictional High Court or the apex Court of the country, if need would require so because the claim of the assessee is somewhat unusual and as the matters in controve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ambers 20th Century Dictionary, the word apparatus means things prepared or provided, material in set of instruments, tools, natural organs, etc. Oxford Dictionary speaks about an apparatus to be an equipment for doing something, organs effecting a natural process. Compact Edition of Oxford English Dictionary speaks; things collectively in which this preparation consists, and by which its processes are maintained, equipment, material, mechanism, machinery, material appendages or arrangements. Similarly, the word tool, according to Chambers 20th Century Dictionary, means anything necessary to the pursuit of a particular activity. According to Compact Edition of Oxford English Dictionary it is a thing (concrete or abstract) with which some operation is performed, a means of effecting something, an instrument. Similarly, the word equipment, according to Chambers 20th Century Dictionary means; that with which one is equipped; apparatus required for any operation. According to Compact Edition of Oxford English Dictionary, it has a wider meaning to furnish for service to provide with what is requisite for efficient action, as arms, instruments or apparatus of any kind. The word instrumen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on its setting in the scheme of the statute." So, from the above conservation of the Honble Gujarat High Court it is manifest that the word plant has got varied as well as extensive meaning to be construed according to the context in which that is to be interpreted. While examining the matter, the Honble Court has referred to the case of Yarmouth vs. France (1889) 19 OBD 647 (OB). In that case, the question was whether a horse could be regarded as a plant and further whether the word plant would be confined to an inanimate objects and whether it would also include an animate object. In that case, it was held : "There is no definition of plant in the Act; but, an its ordinary sense, it includes whatever apparatus is used by a businessman for carrying on his business, - not his stock-in-trade which he buys or makes for sale; but, all goods and chattels, fixed or movable, live or dead, which he keeps for permanent employment in his business." This definition of plant is a milestone in the annal of the history of taxation law wherever the question of interpretation of the word plant came thereafter. Aforesaid interpretation of the word plant has been followed in various subsequen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded as plant. But the word does, I think, connote some degree of durability, and I would find it difficult to include articles which are quickly consumed or worn out in the course of a few operations. There may well be many borderline cases, but these articles have an average life of three years, and if their cost can fairly be called capital expenditure I cannot refuse to them the description of plant unless the Act discloses some special reasons for doing so." In that case, it was further observed : "These machines are undoubtedly plant. They are plant used by the manufacturers in the factory. Each of the machines - each mechanical cobbler - is part of the plant. The knives and lasts, too, are part of the plant." Yet more, the other decision which the Honble Gujarat High Court has considered is in Jarrold vs. John Good Sons Ltd. (1968) 40 Tax Cases 681 (CA). In that case, the question was whether certain movable office partitions installed in the office of the assessee could be regarded as plant. That apart, there was a subsidiary contention also that plant would only comprise an apparatus or instrument used in carrying out the actual operation of trade. In that case, ref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e functional test is, therefore, essential at any rate as a preliminary." Yet more, it was further held : "At the end of the day I find the functional test propounded by Lindley L. J. and by Lord Pearson L. J. to be as good as any, though, as was said in Jarrold (Inspector of taxes) vs. John Good Sons Ltd., some plant may perform its function passively and not actively..... Thus the dry dock is, despite its size, in the nature of a tool of the taxpayer companys trade and, therefore, in my view, plant." Apart from the above decisions of English Courts the Honble Gujarat High Court has considered the decision of the Honble Supreme Court in the case of CIT vs. Taj Mahal Hotel (1971) 82 ITR 44 (SC). In that case also, the interpretation of the word plant came with respect to allowance of development rebate on sanitary fittings. The Honble Gujarat High Court having considered those various English decisions as mentioned earlier observed : "Now it is well-settled that where the definition of a word has not been given, it must be construed in its popular sense if it is a word of every day use. Popular sense means that sense which people conversant with the subject-matter with wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g on this business. It is not necessarily confined to an apparatus which is used for mechanical operations or processes or is employed in mechanical or Industrial business. It would not, however, cover the stock-in-trade, that is, goods bought or made for sale by a businessman. It would also not include an article which is merely a part of the premises in which the business is carried on as distinguished from a part of the plant with which the business is carried on. An article to qualify as plant must furthermore have some degree of durability and that which is quickly consumed or worn out in the course of a few operations or within a short time cannot properly be called plant. But an article would not be any the less plant because it is small in size or cheap in value or a large quantity thereof is consumed while being employed in carrying on business. In the ultimate analysis the inquiry which must be made is as to what operation the apparatus performs in the assessees business. The relevant test to be applied is : Does it fulfil the function of plant in the assessees trading activity? Is it the tool of the taxpayers trade? If it is then it is plant no matter that it is not very ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IT vs. Union Bank of India Ltd. (1976) 102 ITR 270 (Bom); (xiii) "Air conditioning equipment" - CIT vs. Central Bank of India Ltd. (1976) 103 ITR 196 (Bom); (xiv) "Cold storage" - CIT vs. Kanodia Cold Storage (1975) 100 ITR 155 (All); (xv) CIT vs. Yamuna Cold Storage (1981) 129 ITR 728 (P H) as plant entitled to depreciation on that basis; (xvi) "Vehicles" - Ambala Bus Syndicate Ltd. vs. CIT (1963) 49 ITR 480 (Punj). In the recent past the Tribunal, A Bench, Bombay in the case of Ruia Stud Agricultural Farms (P) Ltd. vs. ITO (1985) 3 TTJ (Bom) 559 : (1985) 14 ITR 429 (Bom) even held horses as plant. In that case also, in view of S. 43(3) of the Act the meaning of the word plant in relation to horses purchased by the assessee-company carrying on business of live stock breeding and having a stud farm for horse breeding, and not for selling the parents horses, came for consideration, and ultimately holding those horses as plant depreciation was allowed. Recently also, the Tribunal, Hyderabad Bench A, in the case of Singh Poultry Pvt. Ltd. vs. ITO (1989) 28 ITD 336 (Hyd) considered a similar issue. In that case, the assessee-company was engaged in hatchery business. The p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... selling tea becomes instrumental. It is an implement, a thing or a means by which tea is obtained. It is an apparatus employed in the business for obtaining specific results, i.e., production of tea leaves. It is a tool for performing the specific function of growing tea. It can also be said to be an organism to carry out specific industrial process and, therefore, it is an apparatus or tool or implement or instrument and equipage and a requisite article or thing for the purpose of business whereby the assessee is equipped to carry on its business and derive income from sale of tea grown and manufactured by it. So, the tea bush also very much satisfies the functional test of plant. Analysing the things it can be said without hesitation that tea bush fits itself to all tests as laid down for an object or thing or article, whether live or dead, movable or fixed, to be a plant. The tea bush no doubt is a living thing, it has got durability. It has the character of function and that it is an asset in the hands of the businessman, and not stock-in-trade and, that apart, the tea bush is also subject to wear and tear. 38. It can be argued that inputs and outputs are part of plant and, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n on animals is allowable as referred to above - Ruia Stud Agricultural Farms (P) Ltd. (supra) and Singh Poultry Pvt. Ltd. (supra). In case of tea bushes there is no provision like S. 36(1)(vi) of the Act. Since there is no provision to consider the cost of original plantation as revenue expenditure or as there being no specific provision for amortization of the cost, depreciation on tea bushes is essentially required for a correct arrival of profit or loss in the business. In fact, as has already been stated, in the four corners of the IT Act there is no provision specifically denying the allowability of depreciation on tea bush and legislature has also no such intention; otherwise a negative provision would have existed. 40. In the earlier assessment years the Assessing Officer as well as in some of the cases the CIT(A) did not specifically deny that tea bush was not plant. They denied depreciation only because no rate was prescribed in Appendix-I to r. 5. It is to be further noted that for the asst. yr. 1988-89 in the case of Kamala Tea Co. Ltd. the Revenue accepted the assessees claim for depreciation on tea bush. 41. So, when set together the entire facts and circumstanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the assessee strongly supported the order of the learned CIT(A) and reiterated that ground rent was neither tax nor duty and, as such, there was no application of S. 43B of the Act and in support of his submission he relied on the decision of the Honble Supreme Court in the case of Omprakash Agarwal vs. Giriraj Kishori (1987) 164 ITR 376 (SC). 46. We have heard the rival submissions on both sides. In fact, from the materials available on the appeal record it is gathered that the land in question is a tea garden and the ground rent is payable to the Assam State Government. However, before us there is no material to come to a definite conclusion as to whether the entire land in which the tea garden is situated is a lease-hold property or a settled land. If it is a lease-hold property and the rent is paid by way of lease rent then the lease rent paid may not be counted as tax or duty because it is a contractual liability on the part of the assessee, but if the assessee is a tenant and the rent or the tax of the land is payable to the Assam State Government under the provisions of any Tenancy Act of the Assam State Government in that situation, naturally, it will be a tax and that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce of Rs. 73,507 made under S. 43B of the Act relating to Provident Fund. In this matter also, the Assessing Officer disallowed the aforesaid amount of Rs. 73,507 because at the end of the accounting year the aforesaid amount remained outstanding. In fact, the provision of S. 43B with special reference to Expln. 2 inserted by the Finance Act, 1989 with retrospective effect from 1st April, 1984 has come for consideration by various Honble High Courts and the allowability of the tax, duty, cess or fee or provident fund as a deduction, even though not paid in the previous year relating to the assessment year, has been considered elaborately. In view of the decisions of the Honble Calcutta High Court in the case of CIT vs. Sri Jagannath Steel Corpn. (1991) 191 ITR 676 (Cal) and the Honble Patna High Court in the case of Jamshedpur Motor Accessories vs. Union of India (1991) 189 ITR 70 (Pat), even if the tax, duty, cess or fee or provident fund not paid during the previous year relating to the assessment year but paid before the due date of filing of the return of income under S. 139(1) of the Act, as in the case of the assessee, the assessee is entitled to have deduction of the same. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idiary company and before finalisation of the accounts as on 29th Feb., 1984. It was also noted that the aforesaid subsidiary company, M/s. Abhi Vriddhi Pvt. Ltd., did not carry on any business in the subsequent year and in the accounting year relevant to the assessment year it did sole transaction of sale jute only. Part of the financing relating to acquisition of the shares by Shri D. K. Kothari was done by Shri R. L. Kanoria, Managing Director of the assessee-company. According to the Assessing Officer, the assessee-company in order to avoid tax resorted to a colourable device and so, in that view of the matter, he did not allow the aforesaid claim for a loss of Rs. 10,71,840. The CIT(A) directed to allow the loss when the matter was disputed by the assessee-company in appeal before him according to the learned CIT(A) the assessee-company did not resort to any colourable device but the sale was genuine and in a genuine transaction the loss occurred. In course of hearing, the learned CIT(A) examined the various documents. Against the said order of the CIT(A) now the Revenue have come in appeal before the Tribunal. 50. Shri S. C. Chatterjee, the learned Departmental Representati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee that at the relevant time Shri D. K. Kothari was only in the employment of the assessee-company as a Chartered Accountant and he was not related to Shri R. L. Kanoria. He was introduced into the Board of Directors only later on. The learned counsel having referred to the capital account of Shri D. K. Kothari in the books of Shri R. L. Kanoria, stated that no doubt Shri R. L. Kanoria provided Rs. 60,000 to him but that was only by way of a friendly loan which was paid back later on with interest. It was also stated that Shri D. K. Kothari in order to purchase the shares raised funds from his sister, wife and mother-in-law also. Shri D. K. Kothari still held the major part of the shares of M/s. Abbi Vriddhi Pvt. Ltd. and, of course, sold some of them after due bargain. The learned counsel emphasised that there was no evidence on the appeal record to show that the assessee-company entered in collusion with Shri D. K. Kothari and the loss on sale of shares was improvised to occur. According to the learned counsel, the CIT(A) examined all materials carefully and then only directed to allow the loss in shares. The learned counsel stated that the Assessing Officer was having only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llowance of Rs. 50,203 on account of foreign tour undertaken by Shri R. L. Kanoria. The Assessing Officer disallowed the aforesaid expense that being not for business purposes of the assessee-company. The CIT(A) directed to allow the expense. 54. We have heard the rival submissions on both sides on this point, and have gone through the appeal record. It is to be noted that Shri R. L. Kanoria undertook foreign tour to U. K. for reviving the companys tea export business. His tour to U. K. was duly approved by the Board of Directors vide minutes of the meeting dt. 27th Feb., 1984. It is to be further noted that Shri R. L. Kanoria was granted foreign exchange by the Reserve Bank of India by its letter dt. 3rd March, 1984. After conducting his foreign tour Shri R. L. Kanoria even furnished a report to the Reserve Bank of India vide the companys letter dt. 21st June, 1984 giving the entire details as to the parties with whom business meetings were held and talks were conducted. Considering those documents there remains hardly and doubt that the foreign tour undertaken by Shri R. L. Kanoria was not for business purposes. We may mention here that while directing the Assessing Officer to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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