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TMI Blog2022 (3) TMI 459X X X X Extracts X X X X X X X X Extracts X X X X ..... phouse panel, window AC etc and the assessee has not provided function performed by these items in the process of manufacturing. No details of their place or location of installation has been provided before us. No doubt, if any split AC is integral part of machinery itself, the assessee may be entitled for depreciation at the rate of the plant and machinery, however, if a split AC is provided in the chamber of a person in the factory as ancillary item, same will not be entitled for rate of depreciation applicable in the case of plant and machinery. Assessee has not complied the direction of the Hon ble High Court and not furnished function performed by each item separately. Further, no such information is available on record. Though the appeal is very old, but in the facts and circumstances and in the interest of the substantial justice, we feel it appropriate to restore this issue to the file of the Assessing Officer for deciding in the light of the direction of the Hon ble Delhi High Court with the direction to the assessee to provide functions performed by each and every item of the list provided in para 4 and para 5 of the Hon ble High Court and then the AO shall decide the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entioned at page 64 cannot be treated as part of the plant and machinery. On these electrical items, 10% depreciation is allowable as per rule. This ground of assessee in both the appeals stand dismissed. 2. However, on further appeal by the assessee, the Hon ble High Court of Delhi by way of order dated 9/10/2013 has remitted the issue back to the Tribunal as to whether items mentioned under the head electric installation are entitled to depreciation at the rate of the 10% under the heading electrical fitting or at the rate of 15% under the heading plant and machinery , with following directions: 7. It is an accepted position that electrical fittings including electrical wirings, switches, sockets and other fittings, etc. are entitled to depreciation @ 10% but plant and machinery is entitled to depreciation @ 15%. We have reproduced above different items on which depreciation was claimed by the assessee @ 15% but was allowed by the Assessing Officer @ 10%. We note that the items include transformers, window ACs. Split ACs, investors, etc. We feel that the matter requires greater consideration as different rates have been specified for electrical fittings including ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... jected to 15% depreciation. He also referred to definition of plant provided in section 43(3) of the Act. He further referred to query raised by the Assessing Officer during assessment proceeding (page 37 of the paper-book) for restricting disallowance of the electrical installation at the rate of 10% treating the same as electrical fitting. He also referred to reply of the assessee filed before the Assessing Officer (page 35 of the paper-book) and submitted that capital expenditure made for Transformers, switch panels and other accessories and attachment required to run a particular machinery falls under the definition of the plant . In support of his contention that the electrical items on which the depreciation has been restricted to 10% by the Assessing Officer, are in the nature of the plant and eligible for depreciation at the rate of 15%, he relied on following decisions: 1. CIT v. Karnataka Power Corporation reported in (2001) 247 ITR 268 (SC) 2. CIT vs. Delhi Airport Services as reported in 255 ITR 91. 3. Babulal Agrawal vs Commissioner Of Income-Tax reported in 272 ITR 454 6. Further, he referred to list of individual items for assessment years 2007- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eciation on functional test in case of each and every item of electrical installation. 9. We have heard rival submission of the parties and perused the relevant material on record. The issue in dispute in the instant case is whether the items of electrical installation listed in the order of Hon ble High Court in para 4 (for assessment year 2007-08) and para 5 (for assessment year 2008-09) are eligible as plant and machinery. We find that depreciation has been provided under section 32 of the Act and rates for such depreciation have been prescribed under Rule 5 along with Appendix of Income Tax Rules, 1962. During the relevant period, rate of depreciation on furniture and fittings was 10% under Heading II part A (tangible assets) of Appendix of Income Tax Rules. The heading furniture and fittings , included electrical fittings . Further, Note-5 below the appendix mentions that electrical fittings include electrical wiring, switches, sockets, other fittings and fans etc. Thus, item of electrical fittings are subjected to depreciation at the rate of 10%. During relevant period, the Depreciation on plant and machinery was provided at the rate of 15%. On the items listed in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k is, 1 think, the means by which, or plant with which, the operation is performed.' Lord Guest indicated a functional test in these words (page 75 of 76 ITR) : 'In order to decide whether a particular subject is an apparatus it seems obvious that an enquiry has to be made as to what operation it performs. The functional test is, therefore, essential at any rate as a preliminary.' In other words, the test would be : Does the article fulfil the function of a plant in the assessee's trading activity ? Is it a tool of his trade with which he carries on his business ? If the answer is in the affirmative, it will be a plant. If the aforesaid test is applied to the drawings, designs, charts, plans, processing data and other literature comprised in the 'documentation service' as specified in clause 3 of the agreement, it will be difficult to resist the conclusion that these documents as constituting a book would fall within the definition of 'plant'. It cannot be disputed that these documents regarded collectively will have to be treated as a 'book', for, the dictionary meaning of that word is nothing but 'a number of sheets of p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and, the walls, roofs of the building are to be constructed or maintained in a particular manner, which is exclusively necessary for the purpose of the cold storage and then the roofs and walls are to be insulated. The insulation without the building cannot produce the result and the building without the insulation also equally disastrous for the purpose. The building with the insulation is an integral part for forming the apparatus or means. A building constructed otherwise than specified would not be able to house the insulation or produce the desired result. A cold storage is to be constructed in a particular manner and then insulated. The building of the cold storage is exclusively used for a cold storage and cannot be put to any other use. It is the storage with which the business is carried on. The racks are to be placed in a manner as specifically provided in rule 11 for distribution and circulation of temperature and air as well as for facilitating loading and unloading and preservation of the stores. The cold storage cannot run either with the rack or with the insulation without there being the building. The cold storage building housing the chambers is a consolidated and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e purpose of the trade. 13. Mr. Rohit Arya, learned senior counsel appearing for the revenue, has drawn our attention to certain decisions reported in CIT v. National Storage (P) Ltd. (1967) 66 ITR 596 (SC) and CIT v. Kanaiyalal Nimani (1979) 120 ITR 892 (Cal). On a careful perusal of the same, we are of the considered view that it is the functional test which becomes the real criteria for treating a particular tool as plant or not. As has been indicated by their Lordships of the Apex Court, the definition of the term plant is of a wide magnitude. In the instant case, as is perceptible, the assessee is not involved in letting out the premises to earn rent. It is evincible from the analysis made by the first appellate authority the assessee is trading with godowns, structure is a temporary measure, it is like a platform as is apparent, the duration is short and the purpose is different. If one goes by the conception of functional test and the activity involved, there can be no scintilla of doubt that the use of the open plinth godowns are not buildings but are plant and therefore the assessee is entitled to depreciation on the basis that they are to be treated as plants an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r probe and closer scrutiny, something a different picture gets frescoed from where it becomes clear that it is utilised for the business purposes. (emphasis supplied externally) 9.2 The Hon ble High Court in the case of CIT vs JKK Textiles Processing (supra) held that electric transformers perform function of supplying electrical energy from high tension lines of Electricity Board to the plant and machinery and therefore same are not integral part of plant and machinery. The relevant finding of the Hon ble High Court is reproduced as under: 6. We have considered the rival submissions made by both the sides in depth in the light of the materials available on record. It is evident from Appendix I to the Income-tax Rules, 1962, that extra shift allowance shall not be allowed in respect of any item of machinery or plant, which has been specifically excepted by inscription of the letters N. E. S. A. against the machinery and plant to which the general rate of depreciation of 10 per cent, applies. In the excepted items with the heading Electrical machinery switchgear and instruments, transformers and other stationary plant and wiring and fittings of electric light ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... integral part alone is to be considered as an asset, that in other words, unless one apparatus which independently is a plant or machine, when fitted to another machine to make that machine complete, becomes an integral part of the concerned asset itself and loses its independent identity, it cannot be said that the two assets are one, but mere interdependency upon each other for their functioning does not make the two assets one for the purposes of claiming depreciation. Further, it has also been held that it is a well-known principle of interpretation that where there are two entries covering the same item, one special and another general, the applicability of the general provision shall be excluded. 9. In the light of the observations made above it was held in that case that the phrase used in entry (2) of sub item (ii)B of item III of Part I of Appendix I to the rules is air-conditioning machinery including room air-conditioners, that this goes to show that this entry deals with all types of air-conditioning machinery whether used in a room, factory or office or any other place of business irrespective of any particular use to which it is put and that, therefore, no extra ..... X X X X Extracts X X X X X X X X Extracts X X X X
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