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Commissioner Of Income-Tax v. Margadarsi Chit Fund (P.) Ltd.
Factual and Procedural Background
The Revenue sought to call for a reference from the Tribunal on whether the Tribunal was correct in holding that a deduction under section 32 of the Income-tax Act was allowable to the assessee for purchase of bottles which it leased out as a business. The Tribunal had relied on this Court's decision in CIT v. Sri Krishna Bottlers Pvt. Ltd. to treat bottles as "plant" and to allow depreciation. The assessment in issue was for the year 1985-86. The petition challenged the Tribunal's conclusion; the I.T.C. was ultimately dismissed by the court.
Legal Issues Presented
- Whether the Tribunal was correct in holding that deduction under section 32 of the Income-tax Act is allowable to the assessee on purchase of bottles leased out as a business (i.e., whether such bottles constitute "plant").
- Whether the proviso to section 32(1) (as amended by the Finance Act, 1983) permits deduction only where purchase is en bloc and not for single bottles priced below Rs. 5,000.
Arguments of the Parties
Petitioner's Arguments (learned counsel Mr. S.R. Ashok)
- Even if the bottles are "plant" within the meaning of section 32(1), the deduction is allowable only when the purchase is en bloc (bulk purchase) and cannot be allowed in respect of single bottles which would be priced less than Rs. 5,000.
Tribunal's Position
- The Tribunal placed reliance on CIT v. Sri Krishna Bottlers Pvt. Ltd. to hold that bottles are "plant" and that 100% depreciation could be available.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| CIT v. Sri Krishna Bottlers Pvt. Ltd. | Held that bottles and shells function as essential tools of the trade and satisfy the durability test, and therefore are "plant" for the purposes of the Act. | The court adopted the logic of Krishna Bottlers, held that bottles purchased for leasing out in the respondent's business are "plant", and agreed with the Tribunal's allowance of depreciation. |
Court's Reasoning and Analysis
The court examined section 32(1) and the first proviso as amended by the Finance Act, 1983 (applicable to the assessment year 1985-86). It noted Krishna Bottlers' reasoning that bottles perform essential functions in the trade, satisfy the durability test, and therefore qualify as "plant". The court accepted that bottles purchased for leasing out constituted "plant" for the respondent's business—a concession noted from Mr. S.R. Ashok. The court rejected the submission that depreciation under section 32(1) and its proviso is restricted to bulk (en bloc) purchases or that single items priced below Rs. 5,000 could not be treated as plant. It found no distinction in the wording of section 32(1) or the proviso that would support the suggested limitation. The court stated the sole test is whether the article claimed as plant is integrally involved in carrying on the business; individual items meeting that test are eligible for depreciation. On that basis the court concurred with the Tribunal's view and found no merit in the petition seeking a reference.
Holding and Implications
DISMISSED.
Direct effect: The petition was dismissed and the Tribunal's conclusion—that the bottles constituted "plant" and depreciation could be allowed—was upheld. Broader implications: The opinion does not discuss wider precedent beyond applying Krishna Bottlers; it resolves the dispute between the parties without creating a new principle beyond that application.
1. The question submitted by the Revenue seeking to call for a reference from the Tribunal is whether the Tribunal has been right to hold the deduction allowable under section 32 of the Income-tax Act to the assessee on the purchase of the bottles which it leased out as a business. The submission of Mr. S.R. Ashok, learned counsel for the petitioner, is that even if for the purpose of the business of the respondent the bottles are treated as "plant" within the meaning of section 32(1), yet the deduction is allowable only when the purchase is en bloc and cannot be allowed in respect of single bottles which would obviously be priced less than Rs. 5,000. The Tribunal placed reliance on the decision of this court in CIT v. Sri Krishna Bottlers Pvt. Ltd. , to hold bottles as "plant" and 100 per cent. depreciation could be available.
2. The impugned assessment is of the year 1985-86. Section 32(1) is in the following terms :
"32. Depreciation. - (1) In respect of depreciation of buildings, machinery, plant or furniture owned by the assessee and used for the purpose of the business or profession, the following deductions shall, subject to the provisions of section 34, be allowed -"
3. The first proviso to the sub-section which was amended by the Finance Act, 1983, with effect from April 1, 1984, and was applicable to the assessment in question was as follows :
(ii) in the case of any block of assets, such percentage on the written down value thereof as may be prescribed :
Provided that where the actual cost of any machinery or plant does not exceed five thousand rupees, the actual cost thereof shall be allowed as a deduction in respect of the previous year in which such machinery or plant is first put to use by the assessee for the purposes of his business or profession;
4. In Krishna Bottlers' case , the court held, while deciding that the bottles containing soft drink cannot be stock-in-trade, as follows (page 170) :
"What is the function these bottles and shells perform in the assessee's trade ? Are they essentially tools in the assessee's business ? In our opinion, yes. The bottles are essential tools of the trade, for it is through them that the soft drink is passed on from the assessee to the customer. Without these bottles, the soft drink cannot be effectively transported ..... The bottles and shells also satisfy the durability test for it is nobody's case that their life is too transitory or negligible to warrant an inference that they have no function to play in the assessee's trade. They are therefore 'plant' for the purposes of the Act."
5. Adopting the logic, it can be well said that since it is the business of the respondent to purchase the bottles for the purpose of leasing them out as a business, the bottles do constitute "plant" for the purpose of his business or profession. Once such a ground applies and indeed the fact is conceded by Mr. S.R. Ashok, in view of the decision in Krishna Bottlers' case , the further question raised by learned counsel does not arise. There is no distinction that the purchase on which the depreciation would be allowed must be bulk purchase of a large number and that it would be disallowed if the purchase is of single items. There is no evidence that the bottles in respect of which depreciation was claimed were not the subject of bulk purchase. Even apart from it, a bulk purchase is merely individualised purchase made collectively and we do not find any distinction in the provisions of section 32(1) or the proviso, distinction possible to be drawn in the manner suggested. The only test is whether the article in respect of which depreciation is claimed is "plant" for the purpose of the business or profession. Individual items of purchase would also be "plant", if it is integrally involved in the carrying out of the profession or business and depreciation could be claimed in respect of that. In that view of the matter, we concur with the view taken by the Tribunal and do not find any merit in the petition justifying the call for a reference.
6. The I.T.C. is dismissed.
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