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Commissioner Of Income-Tax v. Alagendran Finance Ltd.
Factual and Procedural Background
The appeals under section 260A of the Income-tax Act, 1961, challenge a common order of the Income-tax Appellate Tribunal, Madras, in I.T.A. Nos. 370 and 560.MDS of 1996, for the assessment years 1991-92 and 1992-93 dated 28 January 1999. The respondent-assessee, a company engaged in leasing out assets, purchased centering sheets during those assessment years and claimed 100% depreciation under the first proviso to section 32(1)(ii) of the Income-tax Act on the ground that each centering sheet was an individual plant/machinery costing less than Rs. 5,000.
The Assessing Officer disallowed the claim, holding that individual centering sheets were not independent plant or machinery but parts used collectively (with props) to form platforms for laying reinforced concrete. The Commissioner of Income-tax (Appeals), Coimbatore, confirmed the Assessing Officer. On further appeal, the Income-tax Appellate Tribunal held that each centering sheet constituted a plant and allowed the claim for depreciation. The Revenue challenged the Tribunal's decision before this court.
Legal Issues Presented
- Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was correct in law in holding that the assessee is entitled to 100% depreciation of centering sheets under the proviso to section 32(1)(ii) of the Income-tax Act on the ground that they are individual plant/machinery.
Arguments of the Parties
Appellant / Revenue's Arguments
- Centering sheets are not independent units; they are used collectively with props to make a platform on which reinforced concrete is laid and left to settle and dry.
- Centering sheets are parts of a larger unit used in building construction and therefore cannot be treated as individual plant or machinery for the purpose of claiming 100% depreciation.
- Relied on Pathange Poultry Farm v. CIT ([1994] 210 ITR 668, Karnataka High Court) where cages were held not to be separate units but parts of a bigger plant, and on CIT v. Singhania Enterprises ([1998] 234 ITR 822, Madhya Pradesh High Court) where the High Court remanded the matter to the Tribunal for lack of sufficient material to determine whether centering plates could constitute plant.
Respondent / Assessee's Arguments
- Each centering sheet is a separate sheet and can constitute an individual plant/machinery costing less than the monetary threshold, entitling the assessee to 100% depreciation under the proviso to section 32(1)(ii).
- Contended that the Tribunal's finding that each centering sheet is a plant is a finding of fact and does not raise a substantial question of law; relied on the Andhra Pradesh High Court decision in CIT v. Sree Rama Agricultural Poultry Farm ([2002] 258 ITR 336).
- Relied on the Division Bench decision of this court in First Leasing Co. of India Ltd. v. CIT (No. 2) ([2000] 244 ITR 238) which held that individual bottles could be regarded as plant and qualify for 100% depreciation if the individual unit's value is below the stipulated threshold.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Pathange Poultry Farm v. CIT, [1994] 210 ITR 668 | Holds that where units (cages) form a continuous fabricated unit used as part of a larger plant with common facilities, such units cannot be treated individually as plant for depreciation. | The court noted Revenue's reliance on this decision but held it did not apply to the present case because centering sheets are separate sheets (unlike the continuous cages in that case). |
| CIT v. Singhania Enterprises, [1998] 234 ITR 822 | Addressed the claim of 100% depreciation on centering material; the High Court observed insufficient material to determine whether individual plates constituted a plant and remanded the matter to the Tribunal. | The court recorded the citation and the remand in that case, observing that the High Court found insufficient material to decide whether individual centering plates should be treated as plant. |
| First Leasing Co. of India Ltd. v. CIT (No. 2), [2000] 244 ITR 238 | Established that the proviso to section 32(1)(ii) focuses on whether the individual unit is a plant and on the value of the individual unit; if an individual unit is usable as a plant and its value is below the monetary threshold, it qualifies for 100% depreciation. | The court relied on and applied the reasoning in this decision, adopting the view that the proviso refers to the value of the individual unit and that an individual centering sheet could qualify as a plant if usable independently and valued below Rs. 5,000. |
| CIT v. Sree Rama Agricultural Poultry Farm, [2002] 258 ITR 336 | Cited for the proposition that a Tribunal's finding that an item is a plant may be a finding of fact and not necessarily a substantial question of law. | The court acknowledged the respondent's reliance on this decision to argue the factual nature of the Tribunal's finding, but proceeded to elucidate the issue on its merits despite that factual characterisation. |
Court's Reasoning and Analysis
The court analysed the scope and purpose of the proviso to section 32(1)(ii) of the Income-tax Act. It reasoned that the proviso is concerned with the value of the individual unit and is not confined to units held in bulk or aggregate. The proviso refers to the value of the individual unit and not to how many such units were bought or used together.
The task, the court explained, is twofold: (1) identify whether the asset claimed by the assessee is a "plant or machinery" and (2) if it is such, determine the value of that individual unit. If the individual unit qualifies as plant or machinery and its value is below the statutory threshold (stated in the opinion as Rs. 5,000), the proviso applies and 100% depreciation is allowable.
Applying that functional test to centering sheets, the court observed that centering sheets are separate sheets that are "usually arranged in different shapes and sizes" during building work and that a single sheet may be used for a particular task. There is no rule that centering sheets must be used only collectively. Because an individual centering sheet may be usable as a plant or machinery by itself, it can be identified as such for the purpose of the proviso. Consequently, if its value is below Rs. 5,000, the assessee is entitled to claim 100% depreciation.
The court also noted that the Tribunal's finding that each centering sheet is a plant is essentially a finding of fact (and the Tribunal is the final fact-finding authority), but the court nevertheless addressed the merits because of the importance of the question.
Holding and Implications
APPEALS DISMISSED.
Holding: The court dismissed the Revenue's appeals. It held that an individual centering sheet can constitute a plant or machinery for the purposes of the first proviso to section 32(1)(ii) of the Income-tax Act, and if the value of that individual sheet is less than Rs. 5,000, the assessee is entitled to claim 100% depreciation under the proviso.
Implications: The direct effect is that the assessee's claim for 100% depreciation on individual centering sheets (valued below Rs. 5,000) is sustained. The court clarified the legal test for application of the proviso—identify whether the individual asset is a plant or machinery and, if so, apply the threshold value test. No costs were awarded. The court did not purport to set aside any broader legislative change; it applied and explained existing principles as they relate to identification of an individual unit as plant or machinery and the proviso's focus on the value of the individual unit.
C. Nagappan, J.:— Both the appeals are filed under section 260A of the Income-tax Act, 1961, and they are directed against the common order of the Income-tax Appellate Tribunal, Madras, in I.T.A Nos. 370 and 560.MDS of 1996, for the assessment years 1991-92 and 1992-93, dated January 28, 1999.
2. The appeals have been admitted to consider the following question of law:
“Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is right in law in holding that the assessee is entitled to 100 per cent, depreciation of centering sheets as per the proviso to section 32(1)(ii) of the Act on the ground that they are individual plant/machinery?”
3. The respondent-assessee is a company, which is carrying on the business of leasing out its assets. It has purchased centering sheets during the assessment years 1991-92 and 1992-93 and claimed the cost of the centering sheets as deduction by way of 100 per cent, depreciation under the first proviso to section 32(1)(ii) of the Income-tax Act on the ground that each centering sheet constitutes an individual plant/machinery costing far less than Rs. 5,000.
4. The Assessing Officer held that each centering sheet is not an independent plant or machinery, since they are used in conjunction with the props to make a platform on which the reinforced concrete is laid and left to settle and dry and they cannot be used independently and the assessee is not entitled to 100 per cent, depreciation as claimed. On appeal by the assessee, the Commissioner of Income-tax (Appeals), Coimbatore, confirmed the order of the Assessing Officer. On further appeal, the Appellate Tribunal held that each centering sheet would constitute a plant and the assessee is entitled to depreciation as claimed and allowed the appeals. Aggrieved by the same, the Revenue has preferred the present appeals.
5. The only question is as to whether individual centering sheets can be regarded as plant for the purpose of the first proviso to section 32(1)(ii) of the Act.
6. Learned counsel for the appellant/Revenue contended that the centering sheets are not used as independent units, but they are used collectively to make a platform on which reinforced concrete is laid and left to settle and dry and they are parts of a bigger unit used in building construction activity and therefore the assessee is not entitled to 100 per cent, depreciation and he relied on the decision of the Karnataka High Court in Pathange Poultry Farm v. CIT, [1994] 210 ITR 668. The question before the court in that case was as to whether the assessee was entitled to 100 per cent, depreciation under section 32 of the Income-tax Act on the cost of the cages purchased, on the ground that each cage was a separate plant valued at less than Rs. 750, when the cages were not separate but one continuous fabricated unit in which partitions were made for a number of birds to be housed in each compartment and the High Court held that cages were not used as independent units but were utilised by the assessee for fabrication of bigger compartments to have a larger number of birds with common facilities of lighting, feeding, watering, etc., and they became a part of the bigger plant and they cannot be termed as plant to individually qualify for the depreciation allowance as claimed by the assessee. In the present case, centering sheets are separate sheets and hence the above decision does not apply.
7. Learned counsel for the Revenue cited a decision of the Madhya Pradesh High Court in CIT v. Singhania Enterprises, [1998] 234 ITR 822, wherein, the assessee had claimed depreciation at 100 per cent, under section 32 of the Income-tax Act on centering material and the Revenue contended that each centering material could not be taken individually, but all the centering material put together, including the scaffolding, constituted one plant and machinery and the High Court held that sufficient material was not before the court in order to examine the question whether one or two plates of centering material would constitute a plant as a whole or not and it remanded the case to the Tribunal to determine that question.
8. A Division Bench decision of this court in First Leasing Co. of India Ltd. v. CIT (No. 2), [2000] 244 ITR 238 was brought to our notice, in which question arose as to whether individual bottles can be regarded as plant for the purpose of the first proviso to section 32(1)(ii) of the Act and this court held that each bottle can be regarded as a plant and the assessee is entitled to claim 100 per cent, depreciation in respect of it, since its cost is less than Rs. 750. R. Jayasimha Babu, J., speaking for the Bench, observed as follows (page 242):
“We do not see any foundation for such a view within the four corners of the proviso to section 32(1)(ii) of the Act. The benefit of the proviso is not confined only to units in bulk where the cost of each unit is less than Rs. 750. The proviso would be rendered futile if all similar units of plant, the individual value of which is Rs. 750 are to be grouped together and taken as one single unit for the purpose of calculating depreciation. The proviso does not refer to the number of units but refers to the value of the individual unit and once it is found that the value of the individual unit which could be regarded as a plant, is below Rs. 750 it would qualify for 100 per cent, depreciation as provided in the proviso.
The task of determining the circumstances in which the proviso is applicable is thus quite simple. One has to first identify the plant or machinery. If the asset claimed by the assessee as plant and machinery is found to be such, the only question to be answered thereafter is as to the value thereof. If the value is below Rs. 750 the proviso will apply. There is no need or occasion for raising a further question as to how many numbers of such units were bought by the assessee at a time or in the course of the year or how many such units are normally used by the assessee for his business, or how many such units are normally regarded as the tradable bulk by the manufacturers of such units. The functional test to the extent relevant is only for the purpose of ascertaining the usability of that unit as a plant or machinery by itself without being dependent on other similar, units for making it functional.”
9. As observed, the benefit of the proviso to section 32(1)(ii) of the Act is not confined only to units in bulk and it does not refer to the number of units, but refers to the value of individual units and if the individual unit is regarded as a plant and if it is valued below Rs. 5,000, it would qualify for 100 per cent, depreciation. There is no question of how many units are normally used for the business and the test is as to whether one centering sheet can be identified as a plant or machinery. While erecting scaffoldings for a building, centering sheets are usually arranged in different shapes and sizes and a single sheet also is used for a particular work. It is not, as a matter of rule, centering sheets have to be used collectively for all works. Depending upon the nature of work, the number of centering sheets to be used varies. A single individual centering sheet may be sufficient for a particular work in the process of construction of a building and hence it would constitute a plant and if the value of it is less than Rs. 5,000, the assessee is entitled to claim 100 per cent, depreciation as per the proviso to section 32(1)(ii) of the Act.
10. Learned senior counsel for the respondent/assessee contended that the finding of the Tribunal is on a question of fact and no substantial question of law is involved for adjudication and relied on the decision of the Andhra Pradesh High Court in CIT v. Sree Rama Agricultural Poultry Farm, [2002] 258 ITR 336. It is true that the finding recorded by the Appellate Tribunal that each centering sheet is a plant is essentially on a question of fact and the Tribunal is the final fact-finding authority. However we have elucidated the issue on the merits in view of the importance of the question involved.
11. The appeals are accordingly dismissed. No costs.
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