Dr. B.P Saraf, J.:— By this reference under section 256(1) of the Income Tax Act, 1961 made at the instance of the assessee, the Income Tax Appellate Tribunal, Bombay Bench “C”, Bombay, has referred the following questions of law to this Court for opinion:

“(1) Whether items of tube well, plumbing, drainage, cable laying and installation work constitute plant and machinery and as such entitled to development rebate?

(2) Whether items consisting of furniture and fixtures, which were later on reclassified as plant and machinery, were entitled to development rebate?”

2. So far as the first question is concerned, the submission of learned counsel for the assessee is that boring of a tube well, plumbing, drainage, cable laying and installation work etc. constitute plant and machinery and as such they are entitled to development rebate. Reliance is placed in support of this contention on the functional test applied by the Courts from time to time for determining whether a particular asset constituted plant or not. According to the learned counsel, keeping in view the nature of the activities of the industrial undertaking of the assessee, these items have to be treated as plant. So far as the second question is concerned, the submission of the learned counsel is that the assessee is at liberty to reclassify items originally classified by him as “furniture and fixtures” as “plant and machinery” and to claim development rebate thereon. According to him, the authorities below were not justified in holding that the items of furniture and fixture did not constitute plant and machinery. In the instant case, according to the counsel, applying the functional test, the furniture and fixtures in question have to be treated as plant and machinery.

3. Before we express our opinion on the above submissions, it may be expedient to briefly set out the material facts of the case as are relevant for determination of the controversy arising before us. The assessee is an Indian company engaged in the manufacture of equipments for generation and transmission of electricity, X-ray equipments and other electrical goods. The assessment year involved is 1965–1966. During the previous year corresponding to this assessment year, the assessee company incurred an expenditure of Rs. 3,798/- for boring a tube well. It was claimed by the assessee that the tube well constituted plant and machinery.

4. The assessee had also set up a switchgear works on a plot of land purchased by it at Chakala Road. The various switchgear components were required to be electroplated with silver plating, nickel plating and zinc plating. The plating process was parried out in the electroplating shop known as galvanic shop. An expenditure of Rs. 1,78,115.50 was incurred on plumbing, drainage, cable laying and installation work in connection with the setting up of the electroplating plant/paint shop. The plumbing and drainage was required to take out the effluents like corrosive chemicals from the electroplating shop. The assessee claimed development rebate on tube well (Rs. 3,798/-) and plumbing, drainage, cable laying and installation work etc. (Rs. 1,76,115/-) but the lower authorities did not allow the same on the ground that these items could not be treated as plant and machinery.

5. The assessee had originally classified certain items consisting of furniture and fixtures amounting to Rs. 2,27,514/- as “furniture and fixtures”. However, these items were reclassified by it as “plant and machinery” and development rebate was claimed in respect thereof. As the assessee had originally classified these items as furniture and fixtures, the lower authorities held that they could not be reclassified as plant and machinery and hence disallowed the claim for development rebate on furniture and fixtures valued at Rs. 2,27,514/-.

6. The appeal of the assessee against the above order was dismissed by the Appellate Assistant Commissioner, who confirmed the order of the Income Tax Officer on both the counts. The assessee thereupon carried the matter in second appeal to the Income Tax Appellate Tribunal (“Tribunal”) and contended that the Appellate Assistant Commissioner was wrong in not allowing development rebate on the cost of tube well and plumbing, drainage, cable laying and installation work on the ground that these items did not constitute plant and machinery. The Tribunal did not accept the above contention of the assessee and held that the items in question could be classified only as part of factory building and not “plant”. The tribunal accordingly directed the Income Tax Officer to allow depreciation on these items as forming part of the factory building. The Tribunal also upheld the order of the Income Tax Officer and the Appellate Assistant Commissioner rejecting the claim of the assessee for development rebate in respect of items of furniture which were reclassified by him as plant and machinery and held that these items were furniture items and could not be classified as plant and machinery. Hence this reference under section 256(1) of the Act at the instance of the assessee.

7. We have carefully perused the order of the Tribunal in the light of the facts set out above and considered the reasoning of the Tribunal in support of its conclusions. We have also given our careful consideration to the submission of the counsel for the assessee, as also of the counsel for the revenue who supports the order of the tribunal. The expression ‘plant’ has been defined in clause (3) of section 43 of the Act to include “ships, vehicles, books, scientific apparatus and surgical equipment used for the purpose of the business or profession”. Obviously, it is an inclusive definition. Its intention is to enlarge the meaning of the expression “plant” occupying in the Act to include not only such items as are commonly known as “plant” but also those which are enumerated therein. To decide whether a particular item is plant or not, one of the tests applied is the “common parlance or trade or commercial parlance” test. Another test that is often applied for that purpose is “functional test”. This test was applied by the Supreme Court in Scientific Engineering House P. Ltd. v. C.I.T, (1986) 157 ITR 86 to determine whether technical know-how acquired by the assessee in the shape of drawings, designs, charts, plants, processing date and other literature, fell within the definition of “plant”. The Supreme Court referred to the material passage from speech of Lindley, C.J in Yarmouth v. France, (1887) Queen's Bench Division 647 where a cart-horse was held to be “plant” and observed:

“…. that 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 an apparatus which is used for mechanical operations or processes or is employed in mechanical or industrial business”.

8. The Supreme Court formulated the following test:

“Does the article fulfil the function of a plant in the assessee's trading activity? It is a tool of his trade with which he carried on his business? If the answer is in the affirmative, it will be a plant”.

9. Applying the above test, it was held that technical know-how in the shape of drawings, designs, charts, plants, processing data and other literature fell within the definition of “plant”. Applying the same test, in C.I.T v. Taj Mahal Hotel, (1971) 82 ITR 44, it was held that sanitary and pipeline fittings, installed by the assessee who ran a hotel, constituted “plant”. In the above decision, the Supreme Court also approved the decision of the Allahabad High Court in C.I.T v. Indian Turpentine and Resin Co. Ltd., (1970) 75 ITR 533 where in case of an assessee engaged in manufacturing and selling of resin and turpentine, poles, cables, conductors and switch boards for distribution of electricity were treated as “plant”. The functional test also came to be considered by this Court in C.I.T v. Mazagaon Dock Ltd., (1994) 206 ITR 260 where it was urged on behalf of the assessee that judging from the functional test, the “approach challed” constructed by dredging the sea can be treated as “plant”. The above contention was rejected by this Court. While doing so, this Court also cautioned against indiscriminate application of this test in the following words (at page 267):

“In our opinion, the functional test has to be applied rationally. Too liberal an application of this test may bring in everything including the roads within the factory, which have already been held by the Supreme Court to be “building”….. On such liberal interpretation, even the “factory building” itself may have to be held to be a “plant” because, without it, the “plant” cannot be operated in the open. But that is not so. Structures which fall within the expression “building” or pathways like roads, etc., required for providing approach to the factory have been held to be buildings or roads and not “plant”……”

10. Reference may also be made at this stage to the decision of the House of Lords in Cole Bros. Ltd. v. Phillips, 55 Tax Cases 188; Commissioner Inland Revenue v. Scottish and New Castle Breweries Ltd., 55 Tax Cases 252 and the decision of the Court of Appeal in Wimpy International Ltd. v. Warland, 61 Tax Cases 51. In Cole Bros. Ltd. v. Phillips (supra), the controversy was whether lighting and other apparatus installed in shop premises qualified as “plant” within the meaning of sections 40 and 41 of the Finance Act, 1971. The Revenue held it not to be plant. On the above decision being affirmed by the Chancery Division, the Company appealed to the Court of Appeal. The Court of Appeal held that in deciding whether expenditure on a particular item is allowable as expenditure on plant, the question which the Court must ask itself is: whether the particular subject-matter under consideration either itself performs, or is a necessary or integral part of that which performs, simply and solely the function of “housing” the business, or whether, as its sole function or as its additional function, it performs some other distinct business purpose. A distinction was drawn between “plant” and “setting” and on the facts of the case, it was held that the lighting and other apparatus installed in the shop premises did not quality as “plant” but formed part of the “setting”. On appeal against the above decision, the House of Lords reaffirmed the distinction between the “plant” and “setting” and dismissed the appeal. It was held,

“the criteria by which the courts define concepts (‘plant’ and ‘setting’) is to look at the disputed object in order to see what it is and then to consider what in the context of the business actually being carried on its function….”

11. It was observed that:

“The two concepts are not mutually exclusive and in certain cases notably that of a hotelier and restaurant proprietor the very thing the trader is selling includes an “ambience” or “setting”…..”

12. In Commissioner of Inland Revenue v. Scottish and Newcastle Breweries Ltd. (supra), expenditure on “decor” in a hotel and licensed premises was held to be expenditure on the provision of plant. This conclusion, however, was arrived at because on the clear and emphatic findings of the Commissioners that the “decor” went to create the “atmosphere” or “ambience” which it was an important function of the Company's particular trade to provide for its customers to resort to and enjoy. Somewhat similar dispute came up before the Court of Appeal in Wimpy International Ltd. v. Warland, 61 Tax Cases 51. In that case, Wimpy International Ltd. owned and operated fast food restaurants (Wimpy Bars) serving a standard range of food items to be selected by the customers at the counter with no table service. Similarly another assessee, Associated Restaurants Ltd., owned and operated Pizzaland restaurants serving quick inexpensive meals with pizza main courses, starter courses and sweets. They were licensed to sell liquor and offered table services. These companies expended money on improving and modernising their restaurants e.g shop fronts, floor and wall tiles, suspended ceilings, raised floors, light fittings, wall finishes, fire doors and fire proofing and other decorative items. In their assessments to corporation tax, they claimed that this expenditure was qualified for capital allowance under section 41 of the Finance Act, 1971 as plant used in the carrying on of their respective trades. The Special Commissioners disallowed the claims in respect of shop fronts, floors and wall tiles, wall finishes and the other non-decorative items, which, they held, were parts of the “setting” or premises in which the trades were carried on, but allowed those in respect of certain decorative items, such as murals, decorative brickwork and wall panels, as being embellishments not part of the premises. On appeal by the Company, the Chancery Division held:

“1. Although one test to be applied in determining whether an item was plant is whether the item, not being stock in trade, was used for carrying on the business (the “functional” or “business use” test), an item still might not qualify if it was urged as or was part of, the premises or place upon which the business was conducted (the “premises” test).

2. The light fittings passed both the “premises” and the “business use” tests and were therefore “plant”.”

13. The Court of Appeal, while doing so, laid down the following test:

“In relation to any item in dispute, the question to be asked is what does the item function? Is it more appropriate to describe the item as part of the premises rather than having retained a separate identity? If the item forms part of the premises, it is not plant…”

14. Applying the above test, the items in dispute in that case were held to be part of the relevant premises and not “plant”.

15. It is clear from the above discussion that an item would not qualify to be “plant” even if it satisfies the “functional test”, if on application of “premises test” it is found to be used as or part of the premises or place upon which the business was conducted.

16. We now turn to the facts of the present case. The assessee was engaged in the manufacture of equipments for generation and transmission of electricity, X-ray equipments and other electrical equipments. It incurred an expenditure of Rs. 3,798/- for boring a tube well. It also incurred an expenditure of Rs. 1,76,115.50 p. on plumbing, drainage, cable laying and installation work in connection with the setting up of the electroplating plant/plant shop. The plumbing and drainage was required to take out the effluents like corrosive chemicals from the electroplating shop. Considering the function of the above items in the context of the business carried on by the assessee, we are of the clear opinion that the expenditure on tube well, plumbing, drainage, cable laying and installation work constitutes “plant” and hence the assessee is entitled to development rebate in respect thereof. The first question is, therefore, answered in the affirmative and in favour of the assessee.

17. So far as the second question is concerned, we find that a large number of items numbering 74, which include even stools, cycles, storage racks, wooden top workman tables etc. Keeping in view their nature and function, all these were classified by the assessee itself as “furniture and fixtures”. This classification was, however, later changed to “plant” and development rebate was claimed in respect thereof. The reclassification was not accepted by the taxing authorities including the Tribunal as they were of the opinion that the items in question did not qualify to be termed as “plant”. The assessee is aggrieved by the above findings. According to him, all those items constitute “plant”. We have considered the submission of the assessee. We, however, find it difficult to accept the same for two reasons. First, the character of an item is essentially a question of fact in regard to which the finding of the Tribunal is final unless it is held to be perverse. Second, even if some of the items were used in carrying on the business, they were used more as a part of the premises or place upon which the business was carried on. They more appropriately satisfy the “premises test”. Hence these items cannot qualify as “plant”. In view of this opinion of ours, we answer question No. 2 in the negative i.e against the assessee and in favour of the revenue.

18. This reference is disposed of accordingly. Having regard to the facts and circumstances of the case, we make no order as to costs.

Order accordingly.