Delhi High Court
Commissioner Of Income-Tax, Delhi-I vs National Air Products Ltd. on 25 April, 1980
Author: S. Ranganathan
Bench: S. Ranganathan
JUDGMENT
1. M/s. National Air Products Ltd. (hereinafter referred to as "the assessed") is a private limited company. During the accounting year which ended on June 30, 1964, relevant for the assessment year 1965-66 the assessed-company started the business of manufacture of oxygen gas. In the course of its assessment for the assessment year 1965-66, the assessed claimed depreciation on cylinders used for storing oxygen gas. The ITO rejected the assessed's claim on the ground that all the cylinders were not used but were simply purchased and stored in godowns. Observing that the number of cylinders used in the accounting year was neglible, he disallowed the assessed's claim for depreciation. The total amount of investment by the assessed in the cylinders was Rs. 8,59,562.
2. The assessed preferred an appeal to the AAC. The AAC observed that gas cylinders did not find a mention in any of the heads in the Schedule prescribed under r. 5 of the I.T. Rules. Apart from that, he observed that these cylinders did not form part of plant and machinery but were merely containers or packages returnable by the customers. They did not get worn out easily and, therefore, no particular rate of depreciation could be applied to them. Further, the AAC referred by way of analogy to the reference to returnable packages mentioned as an item under the head "Refineries" in the Schedule. These were not entitled to depreciation; only the cost of packages actually used could be allowed as a revenue expense. So he held that no depreciation could be allowed in respect of the gas cylinders. He, however, directed that the cost of replacement of the cylinders as and when effected should be allowed as a deduction.
3. The assessed preferred a further appeal to the Income-tax Appellate Tribunal. The Appellate Tribunal was of the view that the gas cylinders constituted "plant" within the meaning of the I.T. Act, 1961. In arriving at this conclusion, they relied upon the definition of "plant" contained in s. 43(3) as including ships, vehicles, books, scientific apparatus and surgical equipment. The Tribunal also referred to the decision of the House of Lords in Hinton (Inspector of Taxes) v. Maden and Ireland Ltd. [1960] 39 ITR 357, adopting the definition given by Lindley L.J. in Yarmouth v. France [1887] 19 QBD 647 (QB). The Tribunal, therefore, held that the assessed was entitled to depreciation on the gas cylinders. This conclusion was followed by the Tribunal in the subsequent year 1966-67.
4. At the instance of the Commissioner, the following question of law has been referred in respect of each of the two years above mentioned :
"Whether, on the facts and in the circumstances of the case, the Tribunal's decision in allowing depreciation on gas cylinders is correct in law ?
5. We are of opinion that the view taken by the Tribunal is correct. The meaning of "plant" as given in Yarmouth v. France [1887] 19 QBD 647 has been unanimously endorsed by all the subsequent decisions. Lindley L.J. explained that in its ordinary sense the word includes whatever apparatus is used by a businessman for carrying on his business other than the stock-in-trade which he buys or makes for sale and that it includes all goods and chattels, fixed or movable, live or dead, which he keeps for permanent employment in his business. It is unnecessary to refer to the English decisions on the subject because the Supreme Court of India has considered the meaning of the word, after referring to the definition suggested by Lindley L.J. in CIT v. Taj Mahal Hostel [1971] 82 ITR 44 (SC). In that case, the Supreme Court was concerned with the question whether sanitary and pipeline fittings installed in a hotel could be treated as plant for the purposes of development rebate. Answering the question in the affirmative the court pointed out, that the intention of the Legislature was to give the expression a very wide meaning and that is why articles like books and surgical equipments were expressly included in the definition of plant and in decided cases also the High Courts had rightly understood the meaning of the term in a very wide sense. The court also referred to the meaning given to the expression in Webster's Third New International Dictionary as follows : "Land, buildings, machinery, apparatus and fixtures employed in carrying on trade or other industrial business" It appears to us that the gas cylinders in the present case clearly come within the scope of the definition of the expression as explained in the above decisions.
6. On behalf of the respondent, reference was made to the decision of the Bombay High Court in Jayasingrao Piraji Rao Ghatge v. CIT [1962] 46 ITR 1160, where it was held that a water storage tank constructed by the assessed in connection with his business of supplying water to farmers could not be said to be plant eligible for depreciation allowance under s. 10(2)(vi) of the 1922 Act. The court observed that the primary meaning of the word "plant" had connection with mechanical or industrial business or manufacture of finished goods from raw products. The extended meaning of the word also, in the opinion of the court, had reference to capital invested in the manufacturing trade or business other than that spent on the raw material or the manufacture of products. In the case before the Bombay High Court, there was no manufacture or industrial business involved while in the present case there is and even the narrow definition applied in that case would satisfy the requirements so far as the present case is concerned. But that apart, it appears to us that the Bombay High Court in the above decision has taken a very narrow view of the meaning of the word "plant" in confining it to industrial business or manufacturing business. The reference in the definition of "plant" to books, vehicles and surgical equipments would clearly show that the expression is not applicable only to the case of manufacturing or industrial concerns. A transport company plying vehicles, a lawyer using, books and a doctor utilising surgical equipment are not carrying on any manufacture or industry but they can rightly claim that the above items constitute plant in their hands. Our attention has also been invited to the decision of the Gujarat High Court in CIT v. Elecon Engineering Co. Ltd. [1974] 96 ITR 672, where at pages 697 and 698, the Bombay case is discussed. The Gujarat High Court has came to the conclusion that the above decision of the Bombay High Court cannot be taken as good law any longer in view of the decision of the Supreme Court in the Taj Mahal's case [1971] 82 ITR 44 and the decision of the House of Lords in Barclay's case [1970] 76 ITR 62 (HL).
7. It appears to us that in the present case the gas cylinders clearly form part of the plant of the assessed-company in the light of the above discussion. We, therefore, do not consider it necessary to embark upon an elaborate discussion of the case law on this subject. Innumerable cases have arisen which have involved an interpretation of the above expression. Almost all the cases bearing upon the interpretation of the above word have been listed by the Gujarat High Court in the decision, above referred to, at pages 686 and 687. There have also been subsequent decisions, some of which are : CIT v. Kanodia Cold Storage , Nippon Electronics (P.) Ltd. v. CIT [1979] 116 ITR 231 (Kar), CIT v. Swadeshi Mining & Manufacturing Co. Ltd. , CIT v. Caltex Oil Refining (India) Ltd. , CIT v. Warner Hindustan Ltd. , CIT v. Bank of India Ltd. , CIT v. Emco Electro Pvt. Ltd. and CIT v. Kanodia Warehousing Corporation . No useful purpose would be served by discussing these cases at length because each of them turned upon the nature of the particular asset or apparatus which had to be considered by the court. We, however, think that the position is succinctly summed up in the headnote of the Gujarat case [1974] 96 ITR 672 in the words of P.D. Desai J. We quote :
"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 instruments 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 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. 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 assessed's business. The relevant test to be applied is : does it fulfill the function of plant in the assessed'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. Before concluding we may also mention that the Schedule to r. 5 underwent a very elaborate revision in 1969 consequent on the recommendations of the Administrative Reforms Committee and the Boothalingam Committee's recommendations. We find that in the new Schedule which has been introduced in Para. III(F)(4), there is a provision for allowing depreciation on gas cylinders including valves and regulators at 100% This clearly indicates that gas cylinders are capable of being considered as the plant of a concern carrying on business in the manufacture and supply of gas. Actually, the present assessed, we are told, had claimed depreciation on the gas cylinders only at 9%. This was apparently based on the depreciation rates prescribed in respect of aerated gas cylinders forming part of the machinery and plant used in aerated gas factories (vide,item I under the letter A in para. III of the old Schedule).
9. We, therefore, answer the question that has been referred to us in each of the two years in the affirmative and in favor of the assessed. As the Commissioner has failed, he will pay the costs of the respondent in one of the two cases, ITR No. 13/77 : Counsel's fee Rs. 300.