Allahabad High Court
Harijan Evam Nirbal Varg Avas Nigam Ltd. vs Commissioner Of Income-Tax on 13 December, 1995
Equivalent citations: (1996)131CTR(ALL)183, [1998]229ITR776(ALL)
Author: M. Katju
Bench: M. Katju
JUDGMENT Om Prakash, J.
1. For the assessment years 1982-83, 1983-84 and 1984-85, the assessee made Reference Applications Nos. 376, 377 and 378 of 1989, respectively, and the applications of the Revenue for the said assessment years are numbered as 379, 380 and 381 of 1989, respectively.
2. Both sets of applications were partly allowed by the Appellate Tribunal by a combined order. On the applications of the assessee, the Appellate Tribunal referred the following questions under Section 256(1) of the Income-tax Act, 1961 (briefly, the Act), for the opinion of this court :
R. A. Nos. 376 and 377 (All) of 1989 :
"1. Whether, on the facts and in the circumstances of the case, the Tribunal is justified in holding that the assessee is not eligible to exemption under Section 10(26B) of the Income-tax Act, 1961 ?
2. Whether, on the facts and in the circumstances of the case, the Tribunal is justified in holding that the assessee was not entitled to exemption under Section 10(20A) of the Income-tax Act, 1961 ?
3. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in confirming the dismissal of the claims of the assessee for investment allowance, relief under Section 80J, and deduction of ex gratia payment even in respect of the taxable portion of the income of the assessee ?"
R. A. No, 378 (All) of 1989 :
"1. Whether, on the facts and in the circumstances of the case, the Tribunal is justified in holding that the assessee is not eligible to exemption under Section 10(26B) of the Income-tax Act, 1961 ?
2. Whether, on the facts and in the circumstances of the case, the Tribunal is justified in holding that the assessee was not entitled to exemption under Section 10(20A) of the Income-tax Act, 1961 ?
3. Whether, on the facts and in the circumstances of the case, the Tribunal was correct in confirming the levy of interest under Section 139(8) of the Income-tax Act, by holding that the charge of interest under this section was automatic ?"
Before reproducing the questions referred by the Appellate Tribunal at the instance of the Revenue, we take up first, the questions referred to this court at the instance of the assessee.
3. As both the sets of applications were disposed of by the Appellate Tribunal by a consolidated order, we too dispose of them by a consolidated order for the sake of convenience.
4. So far as question No. 1 arising from R. A. Nos. 376, 377 and 378 relating to the consecutive assessment years 1982-83, 1983-84 and 1984-85 is concerned, it will suffice to say that this question is covered by our judgment dated December 6, 1995, given in I. T. R. No. 86 of 1986 (CIT v. Harijan Evam Nirbal Varg Avas Nigam [1997] 226 ITR 696 (All)), relating to the assessment year 1979-80, referred to this court at the instance of the instant assessee. In that order, we found that the income having accrued to the assessee from executing the housing schemes undertaken for the promotion of the members of the Scheduled Castes only is exempt and the income relatable to the main objects Nos. 2, 3, 4 and 5 of the memorandum of association of the assessee and the income from the housing schemes, in so far as it related to the promotion of backward classes and other categories was not exempt.
5. Following our order dated December 6, 1995, given in I. T. R, No. 86 of 1986 (CIT v. Harijan Evam Nirbal Varg Avas Nigam [1997] 226 ITR 696 (All)), question No. 1 pertaining to each assessment year is partly answered in favour of the assessee.
6. Sri G. C. Sharma, learned counsel for the assessee, stated before us that he does not press questions Nos. 2 and 3 arising from R. A. Nos. 376 and 377 relating to the assessment years 1982-83 and 1983-84 and questions Nos. 2 and 3 arising from R. A. No. 378 relating to the assessment year 1984-85 (all referred to this court at the instance of the assessee). These questions are, therefore, returned unanswered in view of the statement of counsel for the assessee.
7. Then, we turn to Reference Applications Nos. 379, 380 and 381 filed by the Revenue for the consecutive assessment years 1982-83, 1983-84 and 1984-85.
8. On the applications of the Revenue, the Appellate Tribunal referred the following questions for the opinion of this court :
R. A. No. 379 (All) of 1989 :
"Whether, on the facts and in the circumstances of the case, the Tribunal was, in law, justified in holding that the relief under Section 32A(2) is allowable to the assessee ?"
R. A. No. 380 (All) of 1989 :
"Whether, on the facts and in the circumstances of the case, the Tribunal was, in law, justified in holding that the relief under Section 32A(2) is allowable to the assessee ?"
R. A. No. 381 (All) of 1989 :
"1. Whether, on the facts and in the circumstances of the case, the Tribunal was, in law, justified in holding that the relief under Section 32A(2) is allowable to the assessee ?
2. Whether, on the facts and in the circumstances of the case, the Tribunal was, in law, justified in holding that depreciation on shuttering material is allowable ?
3. Whether, on the facts and in the circumstances of the case, the Tribunal was in law, justified in holding the losses on account of theft, pilferage, etc., aggregating to Rs. 5,68,849 were allowable ?"
Sri G. C. Sharma, learned counsel for the assessee, stated before us that question No. 1 arising from R. A. Nos. 379, 380 and 381 of 1989 be answered in the negative. In view of this statement question No. 1 for all the three assessment years, arising from the reference applications of the Revenue is, therefore, answered in the negative.
9. Then we take up question No. 2 arising from R. A. No. 381 of 1989. The question for consideration is whether depreciation on shuttering material as claimed by the assessee is allowable. The material finding by the Tribunal in this regard is as follows :
"Shuttering is normally used to support the roof when concerete is being laid on it. These are not items of consumable stores, for they are retrieved after the roof has been laid, and used again elsewhere. It is like any other tool with the help of which construction is done, say, "Karni', "Tasla", "Kudel" or "Spade". It is not, therefore, correct to hold that shuttering material is not plant or machinery. In our opinion, it is plant and machinery just as a concrete mixer or any other tool, with which the Karigars and masons work would be. The assessee is, therefore, entitled to depreciation on shuttering material and the same be allowed to it."
Under Section 43 of the Act, "plant" 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. The word "plant" has come up for interpretation before various courts on numerous occasions in the context of different statutes and the catena of judicial decisions shows that it is a word of wide and varied import, susceptible of diverse meanings depending upon its setting in the scheme of the statute. The word "plant" in its ordinary meaning is a word of wide import and it must be broadly construed having regard to the fact that articles like books and surgical equipment are expressly included in the definition of plant in Section 43(3) of the Act. It includes any article or object, fixed or movable, live or dead, used by the businessman for carrying on his business. It is not necessarily confined to an apparatus which is used for mechanical operation or processing or is employed in mechanical or industrial business. It, however, does not cover the stock-in-trade or an article which is merely a part of the premises in which business is carried on.
10. To reach a correct conclusion whether a given item is plant or not, 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 activities ? 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 merely a passive role in the accomplishment of the trading purpose. So the main test is whether a given item is such without which business cannot be carried on.
11. The assessee being engaged, inter alia, in the activity of building construction, it can be said with certainty that without shuttering no building can be erected and, therefore, the shuttering material is an essential part for carrying on the construction work by the assessee.
12. We, therefore, fully agree with the conclusion reached by the Appellate Tribunal that the shuttering material being plant, the depreciation will be allowable to the assessee on that material.
13. Question No. 2 is, therefore, answered in the affirmative, i.e., in favour of the assessee and against the Revenue.
14. Then we come to question No. 3 referred to this court at the instance of the Revenue arising from R. A. No. 381 of 1989. The question for consideration is whether the assessee was entitled to write off the losses on account of theft, pilferage, etc., aggregating to Rs. 5,68,849. The assessee had written off the losses aggregating to Rs. 5,68,849 on account of theft, pilferage, etc., by the employees. The Commissioner of Income-tax (Appeals) disallowed the assessee's claim on the ground that the losses did not occur in the assessment year 1984-85 as the possibility of recovery from the employees was not exhausted and that losses itself were noticed at the end of the accounting year and, therefore, in his opinion, its write off was premature. The Appellate Tribunal held as follows :
"In our opinion, the finding of the learned Commissioner of Income-tax (Appeals) is not correct. The loss is genuine and real and it has taken place and has also been detected from the accounting period under consideration. We do not see any possibility of its recovery merely on the ground that notices to that effect have been issued to some of the employees. In any case, if any recovery is subsequently made, it would be possible to bring the same to tax under Section 41(2) of the Income-tax Act, 1961. The assessee's claim is accordingly accepted."
The genuineness of the loss not being doubted by the Commissioner of Income-tax (Appeals), we find substance in the view taken by the Appellate Tribunal, despite notice having been given to the concerned employees, that the assessee having lost hope of the recovery should claim deductions of such losses, pilferage, etc. The finding of the Tribunal that there was no hope of recovery is essentially a finding of fact and no question of law arises therefrom. From the mere fact that the notice was given, no inference could legitimately be drawn that hope of recovery was not lost by the assessee.
15. Question No. 3 is, therefore, answered in the affirmative i.e., in favour of the assessee and against the Revenue.
16. The record of these two sets of references (three on behalf of the assessee and three on behalf of the Revenue) be sent down to the Appel late Tribunal within fifteen days to enable it to pass orders conformably to our order.