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Mangalore Tiles Ltd. Vs. First Income-tax Officer - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Madras
Decided On
Judge
Reported in(1983)6ITD169(Mad.)
AppellantMangalore Tiles Ltd.
RespondentFirst Income-tax Officer
Excerpt:
.....depreciation on the kiln in which tiles and ridges are baked. according to the assessee, the kiln is a plant and depreciation should be allowed at the rate applicable to the plant. the ito did not accept the assessee's plea. he held that the kiln is only an extension of the factory building and cannot constitute machinery for claiming extra depreciation in both these years. the assessee appealed to the commissioner (appeals). he held that the kiln is part of the factory building but constructed with certain modifications so as to withstand the heat in the baking process, but this itself would not entitle it to be called plant. the kiln is nothing but a factory building. thus, he confirmed the assessments in both the years. against the said order, the assessee has preferred these.....
Judgment:
1. The assessee is engaged in the manufacture and sale of roofing tiles and ridges. It claimed depreciation on the kiln in which tiles and ridges are baked. According to the assessee, the kiln is a plant and depreciation should be allowed at the rate applicable to the plant. The ITO did not accept the assessee's plea. He held that the kiln is only an extension of the factory building and cannot constitute machinery for claiming extra depreciation in both these years. The assessee appealed to the Commissioner (Appeals). He held that the kiln is part of the factory building but constructed with certain modifications so as to withstand the heat in the baking process, but this itself would not entitle it to be called plant. The kiln is nothing but a factory building. Thus, he confirmed the assessments in both the years. Against the said order, the assessee has preferred these appeals.

2. The learned counsel strongly urged that the kiln is an apparatus in which tiles and ridges are baked. Hence, it is a plant. The lower authorities were wrong in treating it as a factory building. He relied on the decisions in CIT v. Kanodia Warehousing Corpn. [1980] 121 ITR 996 (All.) and Addl. CIT v. Dyer's Stone Lime Co. (P.) Ltd. [1982] 136 ITR 8 (Delhi). The learned departmental representative strongly urged that the kiln is an extension of the factory building and it cannot be treated as a plant. In the definition of plant in Section 43(5) of the Income-tax Act, 1961 ('the Act') kiln is not included. Thus, he supported the orders of the lower authorities.

3. We have considered the rival submissions. Under Section 32 of the Act, depreciation is allowed as deduction in respect of buildings, machinery, plant or furniture owned by the assessee and used for the purposes of the business or profession. Under Rule 5 of the Income-tax Rules, 1962, depreciation shall be calculated at the percentages specified in the second column of the Table in Part I of Appendix I to the Rules, Different rates are prescribed for the various types of buildings, machinery and plant. The contention of the assessee is that the kiln where tiles and ridges are baked is a plant and depreciation should be allowed at the rate applicable to the plant. We find force in the submission. The definition of plant in 3(3) reads as under : " 'plant' includes ships, vehicles, books, scientific apparatus and surgical equipment used for the purposes of the business or profession ; " It is only an inclusive definition. In CIT v. Taj Mahal Hotel [1971] 82 1TR 44, the Supreme Court considered the question whether sanitary pipeline fittings installed in a hotel, fell within the definition of 'plant'. While considering the definition of'plant' in Section 10(5) of the Indian Income-tax Act, 1922 the Supreme Court observed as under : "Now it is well settled that where the definition of a word has not been given, it must be construed in its popular sense if it is a word of every day use. Popular sense means 'that sense which people conversant with the subject-matter with which the statute is dealing, would attribute to it'. In the present case, Section 10(5) enlarges the definition of the word 'plant' by including in it the words which have already been mentioned before. The very fact that even books have been included shows that the meaning intended to be given to 'plant' is wide. The word 'includes' is often used in interpretation clauses in order to enlarge the meaning of the words or phrases occurring in the body of the statute. When it is so used, these words and phrases must be construed as comprehending not only such things as they signify according to their nature and import, but also those things which the interpretation clause declares that they shall include. The word 'include' is also susceptible of other constructions which it is unnecessary to go into." (p. 47) It was held therein that the very fact that even books have been included shows that the meaning intended to be given to 'plant' is wide. The intention of the Legislature is to give the word 'plant' a wide meaning and that is why, articles like books and surgical equipment were expressly included in the definition of 'plant'. It was further observed that where the definition of the word has not been given, it must be construed in its popular sense if it is a word of daily use. On the facts of that case, the Supreme Court held that sanitary fittings in bathrooms in a hotel fell within the definition of 'plant'.

4. The above ratio squarely applies to the instant case. The meaning to be given to 'plant' is wide. The definition of 'plant' in Section 43(3) is only an inclusive definition. Then, construed in the popular sense, kiln can never be called as a building. The kiln is specially constructed for the purpose of baking tiles and ridges and for producing heat for baking purposes providing with a chimney blower, fuel feed holes, etc. It cannot be called as a building. It is an apparatus used by the assessee for the purpose of baking tiles and ridges. In order to decide whether kiln constitutes 'plant' or not, the functional test has to be applied. If the building or apparatus is employed in carrying on the activity of the business then it shall be treated as plant even though it consisted of some structure or building. It has to be seen whether it constituted an apparatus or tool of the assessee or whether it is merely a place where he carries on his business. If it is an apparatus with which the business is carried on, it is a plant. But, if it merely constitutes a place within which the business is carried on, it cannot be regarded as a plant. In the instant case, the kiln where tiles and ridges are baked is an apparatus or a tool with which the business itself is carried on and so, it constitutes 'plant'.

5. In Jarrold {Inspector of Taxes) v. John Good & Sons Ltd. [1963] 40 TC 681, the Court of Appeals held that the partitions installed in the office of the assessee could be regarded as plant. In IRC v. Barclay, Curie & Co. Ltd. [1970] 76 ITR 62, the House of Lords held that dry dock could be regarded as a plant. It was held therein that in order to decide whether a particular subject is an 'apparatus', enquiry has to be made as to what operation it performs. The functional test is essential. On the facts of that case, it was held that every part of the dry dock plays an essential part and the whole dock is, the means by which, or plant,with which, the operation is performed. In CIT v.Indian Turpentine & Rosin Co. Ltd. [1970] 75 ITR 533, the Allahabad High Court held that the definition of 'plant' in Section 10(5) is very wide and there should, therefore, be no difficulty in treating the poles, cables, conductors and switch boards for distribution of electricity as plant. This decision has been approved by the Supreme Court in Taj Mahal Hotel's case {supra). In CIT v. Elecon Engg. Co.

Ltd. [1974] 96 ITR 672, the Gujarat High Court held that the drawings and patterns were plant within the meaning of Section 32 of the Act.

After reviewing the case law it was observed as under : 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 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.

It was observed therein that 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. In C1T v. Kanodia Cold Storage [1975] 100 ITR 155 the Allahabad High Court held that the Legislature intended to give to the word 'plant' in Section 43(5) extended meaning which went beyond that conveyed by it in common parlance and it surely did not intend to exclude from its ambit things which would normally be included in it. On the facts of that case, it was held that the building in question would be part of the plant used for air-conditioning the assessee's cold storage and the assessee would be entitled to depreciation at 15 per cent. In CIT v.Caltex Oil Refining {India) Ltd. [1979] 116 ITR 404 the Bombay High Court held that the fencing round the refinery processing units constituted 'plant' so as to be entitled to depreciation and development rebate. In CIT v. Warner Hindustan Ltd. [1979] 117 ITR 15 the Andhra Pradesh High Court held that the definition of 'plant' in Section 43(5) is of wide amplitude so as to take in even a well, provided that the well was dug for the purpose of carrying on the business of the assessee. This decision was followed again by the same Court in CIT v. Warner Hindustan Ltd. [1979] 117 ITR 68. In CIT v.Kanodia Warehousing Corpn. [1980] 121 ITR 996 the Allahabad High Court held that the definition of the word 'plant' in Section 43(5) is an inclusive definition and the very fact that even books have been included shows that the meaning intended to be given to 'plant' is wide. It was observed as under : In our opinion in a case where the subject-matter is the building or some other kind of structure a distinction is to be made with a view to find out whether the building or the structure is something by means of which the business activities are carried on or the building or structure is such that it does not play any part in the carrying on of those activities, but is merely a place within which they are carried on. In order to decide this question, what is said to be the functional test, is to be applied. If on the application of this test it is found that the subject-matter, a building or apparatus or a part thereof, is employed in carrying on the activity of the business, then it shall be treated as a plant, no matter that it consisted of some structure or building which is attached to the soil. If on the other hand it is found that the structure or a building or a part thereof does not constitute a part of the apparatus employed in carrying on the activities of the business, then it cannot be regarded as a plant. . . .

It was held therein that in order to decide the question, the functional test is to be applied. It was held that if the building or apparatus is employed in carrying on the activity of the business, then it shall be treated as a plant and if it does not constitute a part of the apparatus employed in carrying on the activities of the business, then it cannot be regarded as a plant. It was further held that it is to be seen whether it constituted an apparatus or a tool of the trade of the taxpayer or it is merely a space where the assessee carries on his business. If the building, structure or a part thereof is something by means of which the business activities arc 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. In that case, the assessee claimed development rebate in respect of warehouses on the ground that they constituted plant. The Allahabad High Court held that the wherehouses cannot be treated as a structure by means of which the assessee carries on its business. They only serve as a place within which the business is being carried on and the warehouses do not fall within the definition of plant. In CIT v. Union Bank of India Ltd. [1976] 102 ITR 270 the Bombay High Court held that the definition of 'plant' in Section 43(5) is only an inclusive one and not exhaustive.

It was considered there whether the safe deposit vault is an apparatus used by the assessee for carrying on its business. It was held that it is clearly an apparatus or fixture used by a businessman for carrying on his business and the safe deposit vault will clearly be 'plant' within the ordinary meaning of that word. This decision has been followed by the same Court in CIT v. Bank of India Ltd. [1979] 118 ITR 809. In CIT v. Central Bank of India Ltd. [1976] 103 ITR 196 the Bombay High Court held that the air-conditioning equipment installed in a safe deposit vault of a bank is 'plant' and is entitled to development rebate.

6. The ratio laid down in the above cases squarely applies to the instant case. In the instant case, the assessee is engaged in the manufacture and sale of roofing tiles and ridges. In the kiln, tiles and ridges are baked. The kiln is an apparatus or a tool by means of which the business activities are carried on and so, it constitutes 'plant'. But for the kiln, it is not possible to heat the tiles and ridges and the assessee will not be able to manufacture the tiles and ridges without the kiln. Thus, in our view, the kiln would constitute 'plant' within the meaning of Section 32 for allowance of extra shift depreciation. Accordingly, we allow the claim of the assessee.


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