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Additional Commissioner of Income-tax Vs. Madras Cements Ltd. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtChennai High Court
Decided On
Case NumberTax Case Nos. 376 of 1974 and 423 of 1974 (Reference Nos. 189/74 and 226/74)
Judge
Reported in[1977]110ITR281(Mad)
ActsIncome Tax Act, 1961 - Sections 43(3)
AppellantAdditional Commissioner of Income-tax
RespondentMadras Cements Ltd.
Appellant AdvocateA.N. Rangaswami and ;Nalini Chidambaram, Advs.
Respondent AdvocateK.R. Ramamani and ;S.V. Subramaniam ;for Subbaraya Iyer, Padmanadhan and ;Ramamani, Adv.
Excerpt:
.....of a word has not been given, it must be construed in its popular sense if it is a word of every day use. , in a bath room is one of the essential amenities or conveniences which are normally provided in any 'good hotel in the present times. [1976]102itr260(bom) and the safe deposit vault has been similarly taken as coming within the scope of the word 'plant 'in commissioner of income-tax v. [1976]102itr270(bom) .all these decisions would go to show clearly that the expression 'plant 'has to be construed in the context of particular kind of trade or manufacture carried on by the assessee and if in the context it could be taken as 'plant' as understood in the popular sense it would be eligible for the allowance of depreciation and development rebate......constructed for the purpose of installing the rotary kiln could be taken as plant or not. the word 'plant' has been defined in section 43(3) of the income-tax act, 1961, as including ships, vehicles, books, scientific apparatus and surgical equipment used for the purposes of the business or profession. it is, therefore, an inclusive definition. the meaning of the term ' plant ' would, therefore, comprehend its ordinary meaning as understood by the common man. the tribunal has pointed out in its order as follows : ' in the instant case, if we consider the role which the machinery foundation is expected to play, namely, to keep the machines from going out of alignment, plumb, etc., causing unbalanced rotational and torsional oscillations and vibrations, it is possible to hold that the.....
Judgment:

Sethuraman, J.

1. At the instance of the Additional Commissioner of Income-tax, Madras, the Income-tax Appellate Tribunal, Madras Bench, had referred the following question for the opinion of this court in T.C. No. 376 of 1974:

' Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the special reinforced foundation constructed at a cost of Rs. 2,68,584 constitutes an item of plant and machinery and not a building and the depreciation and the development rebate should be allowed thereon on such basis '

2. The question referred to in T.C. No. 423 of 1974 runs as follows:

' Whether, on the facts and in the circumstances of the case, it has been rightly held that the special reinforced foundation constructed at a cost of Rs. 8,21,617 would constitute an item of plant and machinery and, therefore, would be entitled to depreciation and development rebate '

3. The assessments to which these two references relate were made for the assessment years 1962-63 and 1965-66. The assessee-company carries on business in the manufacture and sale of cement. The rotary kiln which forms part of the production machinery was supported on a specially reinforced foundation, the cost of which worked out to Rs. 2,68,584 for the assessment year 1962-63. There were further expansions to the said structure as a result of which the special reinforced foundation cost Rs. 8,21,617 in relation to the assessment year 1965-66. The foundation was treated as part of the kiln itself and depreciation and development rebate was allowed at the time of the original assessments for the assessment years 1962-63 and 1963-64. Later on, the Income-tax Officer reopened the assessments under Section 147 and came to the conclusion that the special foundation for supporting the rotary kiln should be classified as building and not as plant and machinery and accordingly withdrew the depreciation and development rebate which had been allowed earlier in the assessment for 1962-63. For the assessment year 1965-66, the allowance of depreciation and development rebate on the said special reinforced concrete foundation came up for consideration in the original assessment itself and the Income-tax Officer disallowed the assessee's claim. On appeal, the Appellate Assistant Commissioner held that the special foundation for supporting the rotary kiln was a masonry structure of extra strength and that it did not cease to be a building merely because it was adapted to the special needs of the business or cost more than the general run of construction. The assessee thereafter appealed to the Tribunal and the contention taken before the Tribunal was that having regard to the fact that the foundation forms part of the plant and the plant cannot function without the foundation, there was no justification to treat the machinery foundation as building and thus depriving the relief of development and depreciation rebate on the basis that the foundation was not plant. The Tribunal upheld the assessee's contention and it is this conclusion of the Tribunal that is challenged in the two references that are now before us.

4. As may be seen from the questions extracted already, though there are two references, both of them raise only a common question and that is whether the special reinforced foundation constructed for the purpose of installing the rotary kiln could be taken as plant or not. The word 'plant' has been defined in Section 43(3) of the Income-tax Act, 1961, as including ships, vehicles, books, scientific apparatus and surgical equipment used for the purposes of the business or profession. It is, therefore, an inclusive definition. The meaning of the term ' plant ' would, therefore, comprehend its ordinary meaning as understood by the common man. The Tribunal has pointed out in its order as follows : ' In the instant case, if we consider the role which the machinery foundation is expected to play, namely, to keep the machines from going out of alignment, plumb, etc., causing unbalanced rotational and torsional oscillations and vibrations, it is possible to hold that the machinery foundation in combination with the machinery can be construed as a mechanical contrivance whose combined movement and interdependent operation is directed to effect a definite and specific result. Viewed in this line, it is possible to hold that the machinery foundation can be regarded as machinery entitled to the claim of depreciation and development rebate.'

5. Though there is no direct decision with reference to concrete foundation under consideration in the present case, the concept of the word 'plant' has come up for consideration in other cases. The Supreme Court had occasion to go into the question as to the content of the word 'plant' in Commissioner of Income-tax v. Taj Mahal Hotel : [1971]82ITR44(SC) . In the course of the decision the Supreme Court referred to the dictionary meaning of the word 'plant' in Webster's Third New International Dictionary wherein it is stated that ' plant ' means : ' Land, building, machinery, apparatus and fixtures employed in carrying on trade or other industrial business...' When once the term 'plant' comprehends buildings employed in carrying on trade or other industrial business, it would be clear that in the present case the special reinforced concrete foundation for the purpose of locating or installing the kiln would come within the scope of the expression ' plant '. The Supreme Court in that case was concerned with the question as to whether the sanitary and pipeline fittings would come within the scope of the expression 'plant'. The sanitary and pipeline fittings had been fitted in a building in which a hotel was run. It is in this context that the Supreme Court came to observe at page 47 of the report as follows :

'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) of the Indian Income-tax Act, 1922, 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 fooxy 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,'

6. As regards sanitary fittings under consideration there the Supreme Court at page 48 observed as follows :

'It cannot be denied that the business of a hotelier is carried on by adapting a building or premises in a suitable way to be used as a residential hotel where visitors come and stay and where there is arrangement for meals and other amenities are provided for their comfort and convenience. To have sanitary fittings, etc., in a bath room is one of the essential amenities or conveniences which are normally provided in any 'good hotel in the present times.'

7. While referring to a decision of the Court of Appeal in Jarrold's case reported in [1963] 1 WLR 214, the Supreme Court observed (page 48):

' If the partitions in Jarrold's case [1963] 1 WLR 214 could be treated as having been used for the purpose of the business of the trader, it is incomprehensible how sanitary fittings can be said to have no connection with the business of the hotelier.'

8. The term 'plant' has been understood by the Gujarat High Court in Commissioner of Income-tax v. Elecon Engineering Co. Ltd. : [1974]96ITR672(Guj) as including the drawings, patterns, blue-prints, specifications, etc., as they formed the basis for manufacturing the machinery and they were, so to say, the basic tools of the assessee's trade. In holding that even drawings, etc., constituted 'plant ', the Gujarat High Court has gone into the meaning of the term ' plant ' very exhaustively. Even the fencing around an oil refinery has been construed as coming within the scope of the term 'plant' in Commissioner of Income-tax v. Caltex Oil Refining (I) Ltd. : [1976]102ITR260(Bom) and the safe deposit vault has been similarly taken as coming within the scope of the word ' plant ' in Commissioner of Income-tax v. Union Bank of India Ltd. : [1976]102ITR270(Bom) . All these decisions would go to show clearly that the expression ' plant ' has to be construed in the context of particular kind of trade or manufacture carried on by the assessee and if in the context it could be taken as 'plant' as understood in the popular sense it would be eligible for the allowance of depreciation and development rebate. It follows from the above that in the present case the Tribunal acted rightly in holding the special reinforced concrete foundation as ' plant' within the scope of Section 43(3) of the Income-tax Act, 1961. The questions referred to us in these two references are answered in the affirmative and against the revenue.

9. The assessee will be entitled to its costs. Counsel's fee one set--Rs. 500.


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