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TMI Blog2011 (6) TMI 1018X X X X Extracts X X X X X X X X Extracts X X X X ..... we condone the delay and admit the appeal. 3. The interconnected and common issues in this appeal of the revenue and Cross Objection of the assessee is against the order of CIT(A), revenue is against allowing depreciation without considering the provisions of section 35E of the Act and assessee is against disallowing additional depreciation. For this, the revenue raised following ground nos. 1 and 2: 1) That Ld. CIT(A) has erred in law as well as on facts, in allowing depreciation of Rs.66,00,000/- claimed by the assessee on Geographical Report, without considering that this is an expenses covered well within the provisions of Sec. 35E. 2) That Ld. CIT(A) has erred in law as well as on facts, in allowing depreciation claim of the assessee without considering that as per the second proviso to Sec. 32(1)(iia) depreciation is to be allowed in respect of any plant machinery installed for the purpose of business in any office premises whereas the Geographical Report is neither a plant or machinery for it was installed in the office premises. For this, assessee raised the following ground nos. 1 and 2: 1. That the Ld. CIT(A) erred in not appreciating that the Geograp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to claim additional depreciation u/s. 32(1)(iia) of the Act. 5. The CIT(A) allowed depreciation but disallowed additional depreciation by holding as under: I have gone through the submissions of the appellant and also the order of A.O. The A.O. has treated the expenditure incurred on purchasing the geographical report within the ambit of section 35E of the Act. I agree with the decision of the A.O. that by acquiring geographical report the assessee has not acquired the right over the Mining area. The acquisition of report is only a condonation in acquiring rights over the mine as per submissions of appellant. The Ld. A/R has not furnished any document to prove that by acquiring geographical report the assessee has acquired the right over the mining area. In normal course, the mine or coal block is allotted depending on the tender quotations. The argument of the appellant that purchase of report amounts to acquisition of rights over the deposits is without any basis. Therefore, expenses on Geographical Report cannot be equated with the expense of acquisition of Mining rights . The appellant has separately claimed depreciation on Mining rights and Mining lease char ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... depreciation shall be allowed in respect of any machinery or plant installed in any office premises. The Geographical report is basically an office document and is treated as intangible asset and not as a plant. The appellant is not entitled to claim additional depreciation u/s 32(1)(iia) of the I. T. Act. I agree with the A.O. on this issue. The AO is directed to allow depreciation at the applicable rate by treating the Geographical Report as an intangible asset. This ground of appeal is partly allowed. Aggrieved, now both are in cross appeals. 6. We have heard rival contentions and gone through facts and circumstances of the case. Before us assessee contented that GR is a document, which gave right to the assessee to win and commercially exploit the deposits of coal reserve in the coal block, inter alia, it contains the location, the boundary, the topography, the climate, the geometry, the nature, the quality and the quantity of coal reserve in the coal block. The assessee claimed that the expenditure incurred by the assessee for purchasing the report formed part of expenditure incurred by the company for acquisition of rights over the deposits of minerals i.e. coal at S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ilable in that coalfield. We have seen from the contents of the GR, that it contains general description of the mining area and the knowhow of the mine. The report also mentions the mineable potentiality of the block and technical description of different layers of the coal seams in Sarshtali coal block. Accordingly, this GR is a fundamental document to assess the feasibility of the mine, evaluate economics of mine and also contain mine plan according to which mining activity is to be carried on. This report gives an idea of the nature of deposits i.e. minerals i.e. coal and whether mining activity can be carried in this location or not. It means that this GR is not a source for acquiring right over mines or acquisition of right over the deposits. The expenses incurred by the assessee on this GR cannot be equated with the expenses of acquisition of mining rights and hence, this report constitutes plant or not. For this we have to go to the definition of plant as given in section 43(3) of the Act. The relevant section 43(3) reads as under:- Definition of certain terms relevant to income from profits and gains of business or profession. 43. In sections 28 to 41 and in this s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... apital asset of technical know-how in the shape of drawings, designs, charts, plans, processing data and other literature was acquired by the appellant. (iii) That plant was not necessarily confined to an apparatus which was used for mechanical operations or process or was employed in mechanical or industrial business. But in order to qualify as plant , the particular article had to have some degree of durability. The test to be applied was: Did the article fulfill the function of a plant in the assessee's trading activity? Was it a tool of his trade with which he carried on his business? If the answer was in the affirmative, it would be a plant . (iv)that the drawings, designs, charts, plans, processing data and other literature comprised in the documentation service as specified in clause 3 constituted a book and fell within the definition of plant in section 43(3) of the Income-tax Act, 1961. The purpose of rendering such documentation service by supplying these documents to the appellant was to enable it to undertake its trading activity of manufacturing the odolites and microscopes and these documents had a vital function to perform in the manufacture of these i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taken. (iv) The term plant would include any article or object, fixed or movable, live or dead, used by a businessman for carrying on his business and it is not necessarily confined to any apparatus which is used for mechanical operations or process or is employed in mechanical or industrial business. The article must have some degree of durability. (v) The building in which the business is carried on cannot be considered to be a plant . (vi) The item should be used as a tool of the trade with which the business is carried on. For that purpose the operations it performs have to be examined. From the above, if we consider this report as a plant, even then assessee is not eligible for additional depreciation in view of the second proviso to clause (iia) of section 32(1), which clearly debars additional depreciation on machinery or plant installed in office premises. This report is clearly a document which essentially assesses feasibility of mine to evaluate economics and contains plan according to which mining activity is to be carried on. Apart from this, this report gives idea of nature of coal deposits and whether mining activity can be carried out in that coal fie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by noting that this expenditure is incurred by the assessee and it gives advantage of enduring nature and hence, he disallowed the entire expenditure. Aggrieved, assessee preferred appeal before CIT(A), who allowed the claim of the assessee by giving following finding: I have gone through the submissions of the appellant and also the order of the A.O. The A.O. in his order observed that the link road constructed by the assessee belongs to Burdwan Zilla Parishad and it is for their use. It is only a coincidence that the assessee will use the Road for transportation as any other road belonging to the government. The submissions of the appellant show the business interest of the appellant in contributing the amount for construction of fink road belonging to Burdwan Zilla Parishad. This is public road, but connects the Sarashatali mine and Barabani Railway siding. I have perused the memorandum of understanding between the appellant and the Burdwan Zilla Parishad . The business interest of the appellant is mentioned in the objectives. If it is only public Road appellant could not have contributed money without benefit for company. There can be no doubt that the construction / up gra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e roads was, therefore, clearly and indubitably connected with the business activity of the assessee and it is difficult to resist the conclusion that the amount of Rs. 50,000 contributed by the assessee towards meeting the cost of construction of the roads under the Sugarcane Development Scheme was laid out wholly and exclusively for the purpose of the business of the assessee. These roads were undoubtedly advantageous to the business of the assessee as they facilitated the transport of sugarcane to the factory and the outflow of manufactured sugar from the factory to the market centres. There can be no doubt that the construction of these roads facilitated the business operations of the assessee and enabled the management and conduct of the assessee's business to be carried on more efficiently and profitably. It is no doubt true that the advantage secured for the business of the assessee was of a long duration inasmuch as it would last so long as the roads continued to be in motorable condition, but it was not an advantage in the capital field, because no tangible or intangible asset was acquired by the assessee nor was there any addition to or expansion of the profit-ma ..... X X X X Extracts X X X X X X X X Extracts X X X X
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