Nowrangroy Metals Pvt. Ltd. v. Joint Commissioner Of Income Tax (Assessment) .

1. In all these appeals a common question of law arises and they are heard together and decided by this common order. The question involved in these appeals is whether the building in question is a "plant" and therefore the assessee is entitled to claim higher rate of depreciation.

2. The appellant-company is engaged in the business of manufacture and sale of atta and maida, etc, and for manufacture of the said items it has established a rolling flour mill, located at Athgaon, Guwahati. The factory building on which the rolling flour mill is attached is being claimed by the assessee as plant. The assessee originally filed a return claiming depreciation over the building as "building", but later on the assessee has filed revised return on January 20, 1995, claiming depreciation of the building at the rate of 25 per cent. treating the building to be a plant. The Income-tax Officer has disallowed the claim of the assessee which resulted in filing of appeal before the Commissioner of Income-tax (Appeals). Before the Commissioner of Income-tax (Appeals) the assessee filed a technical report of the building from the architect engineer which reads as under :

"1. The mill building is designed in such a manner that it holds the entire plant and machinery. Beams and columns are erected to hold the entire load of plant and machinery on each floor. All the floors are constructed with holes for passing of the flow pipes, belts, chains, etc. The floors are constructed with specifically reinforced RCC materials as per technical requirements. The structure is made with heavy re-enforced steel and concrete to hold the weight of heavy machines installed in each floor with a load bearing capacity of one ton per sq. mtr. On the roof of the building water tanks with 40,000 litres capacity have been erected for washing, and cleaning the wheat in process.

2. That almost l/3rd part of the four storied structures is covered for erection of silos (storage bins). The twelve numbers of storage bins are specially made with reinforced steel to accommodate about 40 tons of wheat in process in each bin. These are made for washing and conditioning the wheat before milling. These bins are essential for processing of the wheat.

3. That all the four walls of the structure and ceiling are fitted with flow pipes and other electrical fittings.

4. That the plant cannot be held and run without the said specially designed structure. It can be said that the structure holds the entire plant and machinery and therefore is an integral part of the plant."

3. It may be mentioned here that the Revenue either before the Commissioner or before the Tribunal or even before this court has not challenged the report submitted by the architect engineer. On the basis of the report submitted by the architect and relying on certain decisions of the courts the Income-tax Commissioner (Appeals) has held that the factory building wherein the rolling flour mill are fitted is part and parcel of the plant and accordingly the assessee is entitled to depreciation at the rate applicable for plant and machinery.

4. Feeling aggrieved by the order, passed by the Commissioner of Income-tax (Appeals) the Revenue preferred appeal before the Income-tax Appellate Tribunal, Guwahati Bench, Guwahati. The Tribunal by its order dated May 30, 2002, after consideration of the authorities cited before it, has held that the building in question is not a plant and therefore the assessee is not entitled for the higher rate of depreciation. The Tribunal held that in the light of the various authorities

"we are of the view that the roller flour mill can be divided into two parts; one is building; and another is machinery, equipment, etc. The building is a building and that the same cannot be considered as a plant. Of course, the equipment, machinery, etc./ are plant as per the functional test. Therefore, the building of the said flour mill attracts ,the depreciation which is applicable to the factory building, i.e., at the rate of 10 per cent. only. In the instant case the building is not entitled for the depreciation' at the rate of 25 per cent."

On this finding the order passed by the Assessing Officer was upheld and the order of the Commissioner of Income-tax (Appeals) was set aside.

5. The assessee has filed these appeals; challenging the order of the Appellate Tribunal It is contended by counsel appearing for the appellant that on the basis of the materials placed on record and the various decisions of the court, the building in question can only be held to be a "plant" and the assessee is entitled for higher depreciation.

6. On the other hand, the contention of the Revenue is that the building in question is only a building and cannot be held to be a plant and would not attract higher rate of depreciation.

7. Section 43 defines "plant" which includes ships, vehicles, books, scientific apparatus and surgical equipment used for the purposes of the business or profession, but does not include tea bushes or livestock. A bare reading of this section clearly indicates that the definition of "plant" is inclusive and shall include other things, which have not been mentioned in clause (3) of section 43 if it partakes of the character of plant.

8. In CIT v. Kanodia Warehousing Corporation [1980] 121 ITR 996, the Division Bench of the Allahabad High Court has considered the meaning of "plant" and held that in order to find out if a building or structure or part thereof constitutes "plant", the functional test must be applied. It must be seen whether the subject-matter involved, that is, the building or structure or part thereof, constitutes an apparatus or a tool of the taxpayer or whether it is merely a space where the taxpayer carries on his business. If the building or structure or part thereof is something by means of which the business activities are carried on, it would amount to a plant but where the structure plays no part in the carrying on of those activities but merely constitutes a place within which they are carried on, it cannot be regarded as a plant.

9. In R.C. Chemical Industries v. CIT [1982] 134 ITR 330, the Delhi High Court has considered the meaning of "plant" with reference to Section 43(3) of the Income-tax Act and laid down the following principles (headnote) :

"1. The definition of 'plant' in Section 43(3) should be given a wide meaning as it is an inclusive definition.

2. All buildings are not 'plant' despite the dictionary meaning which includes buildings ; but a building or structure is not per se to be excluded from the ambit of the expression 'plant'.

3. If the concrete construction or building is used as the premises or setting in which the business is carried on in contradistinction to the fulfilling of the function of the plant, the building or construction or part thereof is not considered a plant. The true test is whether it is the 'means of carrying on the business' or 'the location' for so doing.

4. In order for a building or concrete structure to qualify for inclusion in the term 'plant', it must be established that it is impossible for the equipment to function without the particular type of structure."

10. In Cit v. B. Venkata Rao [2000] 243 ITR 81, the apex court held that if it was found that the building or structure constituted an apparatus or a tool of the taxpayer by means of which business activities were carried on, it amounted to a "plant", but where the structure played no part in the carrying on of these activities but merely constituted a place wherein they were carried on, the building could not be regarded as a plant.

11. In CIT v. Anand Theatres [2000] 244 ITR 192, while considering the case whether hotel or cinema can be termed as plant, the apex court observed that there is well established distinction, in general terms, between the premises in which the business is carried on and the plant with which the business is carried on. The premises are not plant. It is proper to consider the function of the item in dispute. If it functions as part of the premises it is not plant. The fact that the building in which a business is carried on is, by its construction particularly well-suited to the business, or indeed was specially built for that business, does not make it plant. Its suitability is simply the reason why the business is carried on there. But it remains the place in which the business is carried on and is not something with which the business is carried on, except in some rare cases where it plays an essential part in the operations which take place. Hotel premises are not considered to be an apparatus or tool for running the hotel business but are merely a shelter or home or setting in which business is carried on. The same would be the position with regard to a theatre in which cinema business is carried on. Therefore, even the functional test is not satisfied.

12. Based on this decision, it is submitted by learned counsel for the Revenue, Shri U. Bhuyan, that the premises cannot be a plant or building can in no case be a plant and therefore, the assessee cannot be entitled for higher rate of depreciation.

13. The apex court itself had an occasion to consider this case in a later decision reported in Commissioner Of Income Tax, Karnataka v. Karnataka Power Corporation. [2001] 247 ITR 268, and it has said (page 270) :

"Our attention has been drawn by learned counsel for the Revenue to the judgment of this court in CIT v. Anand Theatres [2000] 244 ITR 192. He submits that, in that judgment, this court has held that, except in exceptional cases, the building in which the plant is situated must be distinguished from the plant and that, therefore, the assessee's generating station building was not to be treated as a plant for the purposes of investment allowance.

It is difficult to read the judgment in the case of Anand Theatres [2000] 244 ITR 192 (SC) so broadly. The question before the court was whether a building that was used as a hotel or a cinema theatre could be given depreciation on the basis that it was a "plant" and it was in relation to that question that the court considered a host of authorities of this country and England and came to the conclusion that a building which was used as hotel or a cinema theatre could not be given depreciation on the basis that it was a plant. We must add that the court said (page 225): 'To differentiate a building for grant of additional depreciation by holding it to be a "plant" in one case where a building is specially designed and constructed with some special features to attract the customers and the building not so constructed but used for the same purpose, namely, as a hotel or theatre would be unreasonable.' This observation is, in our view, limited to buildings that are used for the purposes of hotels or cinema theatres and will not always apply otherwise. The question, basically, is a question of fact, and where it is found as a fact that a building has been so planned and constructed as to serve an assessee's special technical requirements, it will qualify to be treated as a plant for the purposes of investment allowance."

14. From the aforementioned authorities we can safely extract the general principle on the basis of which building can be treated as "plant". All buildings could not be a plant, but for that reason all buildings cannot be excluded from treating it as a plant simply because it is building. The building can in the given circumstance be treated as plant, when the building in question can be considered as a means of carrying on business. When the building in question is an apparatus or a tool of taxpayer as against merely a space only from where the taxpayer carries on business it can be treated as plant. If a building is an integral part for carrying on the business of manufacture it would be a plant whereas if the structure plays no part in carrying on any of the activity relating to manufacture, it would merely constitute a place where the business is carried on and it cannot be recognised as plant. When the assessee with a definite purpose, considering the nature of business carried on by the asses-see, constructs a building with specific required design keeping in view specified technical requirement, without which the assessee's business cannot be carried out, the building in question would qualify to be treated as plant.

15. In the present case, applying the tests we have to ascertain whether the building in question is plant or not for the assessee to claim the higher rate of depreciation. The report of the architect engineer specifically mentions that the mill building is designed in such a manner that it holds the entire plant and machinery and beams and columns are erected to hold the entire load of plant and machinery on each floor. The report also states that all the floors are constructed with specifically reinforced RCC materials as per technical requirements and the structure is made with heavy reinforced steel and concrete to hold the weight of heavy machines installed in each floor with a load bearing capacity of one ton per square meter and that all the four walls of the structure and ceiling are fitted with flow pipes and other electrical fittings and that the plant cannot be held and run without the said specially designed structure. It can be said that the structure holds the entire plant and machinery and therefore is a integral part of the plant. From this report, it is clear that the building has been constructed specifically for carrying out the manufacturing of atta and flour. The manufacture activities cannot be carried out in any other building except in a building specifically designed for that purpose.

16. The building is specifically designed and constructed for the purpose of manufacture of the assessee's commodities. Considering these factors we have no hesitation in holding that the building in question is an integral part of the plant being necessary for the purpose of manufacture of atta and maida, a business carried out by the assessee. The distinction drawn by the Tribunal between the building and plant is artificial and is not borne out from the pronouncement of the High Courts and the apex court. The Tribunal has completely misdirected itself when it has held that the building and machinery and equipment, etc., are to be separated for the purpose of depreciation. If this test is applied then no building or factory or manufacturing unit can be a plant because in every case building and equipment, machinery, etc., fitted therein can be separated and can be valued and assessed as separate items and as such in every case every building would be a building and can never be a plant which is not the intention of the Legislature. In the present case, we hold that the building in question is a plant and therefore the assessee is entitled to higher rate of depreciation as claimed by him.

17. For the reasons stated above, the appeals are allowed and the order of the Tribunal is set aside thereby the order of the Commissioner of Income-tax (Appeals) is restored.