JUDGMENT B.K. Mehta, J.

1. In the course of the assessment year 1970-71, the assessee-company, which has a textile manufacturing unit at Ahmedabad, made a two-fold claim : firstly, in respect of a sum of Rs. 1,03,437 being a payment made to the Textile Commissioner as compensation for the shortfall in production of controlled variety of cloth and, secondly, being the development rebate on the air-conditioner and electric fans admittedly installed in the office premises of the company. The first head of the claim was disallowed by the ITO on the short ground that the impugned payment was for infringement of the statutory order and was, therefore, in the nature of penalty.

2. The AAC, however, in appeal at the instance of the assessee, allowed the claim following the decision of the Tribunal in the case of Rustom Jehangir Vakil Mills Ltd.

3. The view of the AAC was confirmed by the Tribunal on appeal at the instance of the Revenue.

4. As regards the claim for the development rebate, the ITO was of the view that the fans and air-conditioner cannot be said to be machinery or "plant" directly or wholly used for the purposes of business and, therefore, disallowed the claim. The AAC confirmed the view of the ITO. However, on appeal at the instance of the assessee, the Tribunal upheld the claim of the assessee since in its opinion the items were within the expression ""plant" and machinery" as specified in ss. 32 and 33 of the 1961 Act. On these facts, at the instance of the Revenue, the following two questions have been referred to us for our opinion :

"1. Whether, on the facts and in the circumstances of the case, the payment of Rs. 1,03,437 made to the Textile Commissioner under the provisions of clause 21c(1)(b) of the Cotton Textile (Control) Order, 1948, was business expenditure allowable under section 28 or under section 37 of the Act ?

2. Whether the Tribunal was right in holding that the air-conditioner and the electric fans are "plant" or machinery within the meaning of section 32 and section 33 of the Income-tax Act, 1961, and they are, therefore, entitled to depreciation and development rebate, irrespective of the fact as to whether they are installed in the office premises ?"

5. So far as the first question is concerned, it has been concluded by the decision of this court in Addl. CIT v. Rustam Jehangir Vakil Mills Ltd. [1976] 103 ITR 298, which the Tribunal followed and which reference was sought by the Revenue, where the Division Bench of this court held that the nature of payment made under clause 21C(1)(b) of the Cotton Textile (Control) Order, 1948, was not of penalty or akin to penalty since the producer has an option to make it in lieu of producing and packing the whole or part of the minimum quantity and such payment would fairly and squarely fall within s. 37(1) of the 1961 Act which are allowable as business expenditure.

6. That takes us to the second question. An interesting and lively debate ensured as to whether the air-conditioner and electric fans admittedly installed in the office of the mill-company can be said to be "plant" or machinery entitled to depreciation and development rebate under s. 32 and s. 33 of the I.T. Act, 1961. The learned counsel for the Revenue argued this point in the alternative. In the first place, he urged that since these appliances are fixtures in the office building in which manufacturing activity is carried on, they form part of the premises and, therefore, on principle as well as on authority, cannot be claimed to be "plant" or machinery. In the alternative, it was urged that they are "office appliances" and, therefore, not within the term "machinery" or ""plant"" as specified in s. 33 of the I.T. Act, 1961.

7. So far as the first limb of the contention is concerned, we do not think that the learned counsel is justified in advancing it. The reasons are obvious. It cannot be urged successfully without violence to the language that fixtures like electric fans or air-conditioner can be said to be part of the premises in which the business is carried on and, therefore, outside the purview of "plant" or machinery. This court has considered at length as to what would be the essential characteristics of an article or goods as to be within the meaning of the term "Plant and machinery". The Division Bench, speaking through P. D. Desai J., reviewed the entire case-law and referred to the relevant and material English as well as Indian decisions and summed up the legal position on the conspectus of reading of these decisions. The position has been stated succinctly in the following terms in CIT v. Elecon Engineering Co. Ltd. [1974] 96 ITR 672 (Guj) at page 698 :

"On reviewing these authorities, a broad consensus emerges from which the essential characteristics of "plant" can be clearly gleaned. The word '"plant"', in its ordinary meaning, is a word of wide import and in the context of section 32 it must be broadly construed. It includes any article or object fixed or movable, live or dead, used by a businessman for carrying on his business. It is not necessarily confined to an apparatus which is used for mechanical operations or processes or is employed in mechanical or industrial business. It would not, however, cover the stock-in-trade, that is, goods bought or made for sale by a businessman. It would also not include an article which is merely a part of the premises in which the business is carried on as distinguished from a part of the "plant" with which the business is carried on. An article to qualify as "plant" must furthermore have some degree of durability and that which is quickly consumed or worn out in the course of a few operations or within a short time cannot properly be called ""plant"". But an article would not be any the less "plant" because it is small in size or cheap in value or a large quantity thereof is consumed while being employed in carrying on the business. In the ultimate analysis the inquiry which must be made is as to what operation the apparatus performs in the assessee's business. The relevant test to be applied is : Does it fulfil the function of "plant" in the assessee's trading activity ? Is it the tool of the taxpayer's trade ? If it is, then it is "plant" no matter that it is not very long-lasting or does not contain working parts such as a machine does and plays a merely passive role in the accomplishment of the trading purpose."

8. The learned counsel for the Revenue laid a great emphasis on one of the exceptions indicated by the Division Bench in the paragraph extracted and set out above. One of the articles which has been excluded on principle and authority from the meaning of the term ""plant" or machinery" is "a part of the premises in which the business is carried on as distinguished from a part of the "plant" with which the business is carried on". The learned counsel for the Revenue, therefore, advanced this first limb of the contention that since these appliances, namely, electric fans and air-conditioners, have been fixed in the office building situate in the factory premises they would be part of the premises and, therefore, they cannot be said to be "plant" or machinery. With respect to the learned counsel for the Revenue this is too spacious a contention to which we can agree. Office premises are no doubt part of the premises where the business is carried on. But all the fixtures and fittings in the office premises cannot be said to be part of the premises in which the business is carried on. What the Division Bench has meant, since the Division Bench has relied on the decision in Lyons (J) & Co. Ltd. v. Attorney-General [1944] 1 Ch D 281 was that it must be a part of the structure itself. It cannot mean that appliances which are fixed and which are capable of being detached are part of the premises in which the business is carried on. It is the part of the structural premises where the business is carried on which is excluded from the purview of the term ""plant" and machinery". Two decisions - one of the Supreme Court and another of the Madras High Court - have been relied upon by the Division Bench which throw light on the question with which we are confronted. The decision of the Supreme Court is in CIT v. Taj Mahal Hotel [1971] 82 ITR 44, which has been heavily relied upon by the Division Bench for purposes of finding out the exact characteristics of "plant" and machinery. In Taj Mahal Hotel's case, the question was about the admissibility of the development rebate on sanitary and pipeline fittings installed by the assessee-hotel company in its hotel. All the Revenue authorities including the Tribunal disallowed the claim since in their opinion the fittings did not fall within the meaning of the word ""plant"". On a reference, the High Court opined that the fittings in question were "plant". On further appeal to the Supreme Court, the same rival contentions were reiterated on behalf of the Revenue as well as the assessee. In that context, the Supreme Court ruled by referring to the two English decisions, viz., Lyons and Co. Ltd.'s case [1944] 1 Ch 281 and Yarmouth v. France [1887] 19 QB 647. The word ""plant"" includes whatever apparatus or instruments as are used by a businessman in carrying on his business and the restrictive meaning of the word in the sense of apparatus used in mechanical or industrial business or manufacturing of finished goods from raw material did not find favour with the Supreme Court. The decision in Jarrold (Inspector of Taxes) v. John Good and Sons Ltd. [1962] 40 TC 681 (CA) was referred to by the Supreme Court and particularly they adverted to the decision of Donovan L.J., in that case, where the learned judge illustrated the assets such as heating, air-conditioning and water softening installations as articles which can be included within the meaning of ""plant"" and "machinery" although they may not be playing an active role. The Supreme Court also emphasised that the intention of the Legislature was to give widest meaning to the term ""plant"" under s. 10(2)(vib) read with s. 10(5) of the 1922 Act, since the Legislature has included articles like books and surgical instruments within the definition of the term ""plant"".

9. The next decision of importance is of the Madras High Court which has been relied upon by the Division Bench. The question in Sundaram Motor Pvt. Ltd. v. CIT [1969] 71 ITR 587 (Mad) was whether development rebate was allowable under s. 10(2)(vib) in respect of electric fans, bicycles, etc., used by the assessee who were dealers in motor cars, trucks, jeeps, motor parts and accessories, tractors, etc. The Madras High Court, having regard to the genesis of development rebate opined that the Tribunal's view that in order to be "plant" or machinery, the articles should be such that the income can be deemed to be derived from the direct use of the articles was a proposition which could not be warranted having regard to the historic development in law in the grant of such concessions to industries with a view to afford an impetus and an encouragement to them to secure more of such machinery and "plant" so that they could be an aid to the development economy of the country. The Madras High Court held that the assessee was entitled to claim development rebate on, inter alia, electric fans. In the ultimate analysis, as pointed out by the Division Bench in Elecon Engineering's case [1974] 96 ITR 672 (Guj), the inquiry must be as to what operation the apparatus performed in the assessee's business and the relevant test is : Does it fulfil the function of "plant" in the assessee's trading activity ? Or is it a tool of the taxpayer's trade ? On applying this test, we are of the opinion that it would be difficult to agree with the learned counsel for the Revenue that they are parts of the premises. On the contrary, in our opinion the appliances are the instruments which, on the application of the functional test, would advance the performance of the business of the assessee. They are, in our opinion, therefore, entitled to be included within the term

"plant"

10. This would require us to consider the alternative contention which has been urged on behalf of the Revenue. Alternatively it was contended that under s. 33(1)(a) of the I.T. Act, 1961, the "office appliances" or road transport vehicles have been excluded from the "machinery" or ""plant"" on which an assessee is entitled to claim development rebate. It was, therefore, urged on behalf of the Revenue that inasmuch as the electrical fans and the air-conditioners fixed in the office premises of the assessee-company do not fall within the meaning of the term "machinery" or ""plant"" since they would be in the nature of "office appliances" and, therefore, an assessee is not entitled to claim development rebate thereof. On behalf of the assessee, this contention was sought to be repelled by urging that merely because electrical fans or air-conditioning machines have been fixed in the office premises those fixtures in a particular place would not render them as "office appliances". We have, therefore, to consider as to what is precisely the import of the term ""office appliances"". An appliance is distinct from the materials from which it is made and an appliance as an apparatus, device or instrument is a means to an end. In order, therefore, that an article may be an appliance, it should be capable of rendering the desired service. (Vide State of Gujarat v. Sukan Industries [1979] 43 STC 344 and Star Radio Electric Company v. CST [1971] 27 STC 367). In both these cases, the Division Bench of this court was concerned with the width and the import of the term "domestic electrical appliance". In Sukan Industries' case [1979] 43 STC 344 (Guj), the Division Bench also held that "domestic appliance" means an apparatus which is capable of being used in the house. It is difficult to lay down a strait jacket formula for determining the nature of the articles, but the initial test for determining the nature of the article is what is known as the test of common or popular parlance as understood by a person dealing with those articles. The second test would be the principal and primary use for which the goods are required and for which the same are capable of being used. The third test is what is known as the commercial test in things how the article or goods are known in the world of "trade and commerce". On application of any of these tests we find it difficult to agree that the electrical fans and air-conditioners would be "office appliances". By no stretch of imagination in the world of "trade and commerce" or in popular parlance they can be said to be "office appliances" or equipments. Even on the application of primary use test, we do not think that the contention advanced on behalf of the Revenue can be sustained. Merely because these appliances are fixed in the office premises they do not become, by that fact of their adoption, "office appliances". They are capable of being adopted for the purpose for which they are meant, namely, for maintaining a particular bearable climatic temperature in laboratories, workshops, surgical and nursing homes and even in private residential buildings. The learned advocate for the Revenue, therefore, urged that with the sophistication of the working conditions in commercial places and offices, the fixtures of electrical fans and for that matter air-conditioners in a bare necessity so as to obtain optimum efficiency of the persons working in such offices or commercial places and, therefore, having regard to industrial and commercial development, if in order to have better working conditions, these fixtures are required to be provided in commercial places or offices of companies, they must be treated as "office appliances". We are afraid, this is too specious a contention with which we can agree. The reason is obvious. On the logic of the learned counsel of the Revenue, if such electrical appliances merely by their use in the particular context, namely, in offices in the present case, they become "office appliances", they would be on the same reasoning by their use in the factorial appliances and by their use in the residential houses would become domestic appliances. We do not find such a legislative intent in the section. The word "appliance" is qualified by the word "office" and, therefore, we must give some meaning to the word "office" and unless an appliance is capable of being primarily used in an office, it cannot be termed as "office appliance". It must be, therefore, an appliance which is generally used in office as an aid or a facility for the proper functioning of the office (Vide CIT v. I.B.M. World Trade Corporation [1981] 130 ITR 739 (Bom). In the case of CIT v. Mohan Meakin Breweries Ltd. [1980] 122 ITR 203, the Division Bench of the Himachal Pradesh High Court was concerned with a somewhat similar question as to whether the internal telephone system installed by the assessee-company in their factories with 50 telephone lines was a ""plant"" and not an "office appliance". In that context, the Division Bench held that if some of the appliances were put in the offices of the technical and managerial executives, that would not make any difference because the technical executives and the managers were expected to see that the machines installed in the factories were working and giving proper production. The installation of internal telephone system was, therefore, not construed as "office appliance" and was entitled to development rebate under s. 33 of the Act.

11. In view of the above legal position, we are of the opinion that the contention urged on behalf of the Revenue that these appliances be treated as

"office appliances"

12. The result, therefore, is that we must answer question No. 2 in the affirmative, that is, in favour of the assessee and against the Revenue. The Commissioner shall pay the costs of this reference to the respondent.