Gujarat High Court
Commissioner Of Income Tax vs Gujarat Narmada Valley Fertilizer Co. ... on 10 March, 2005
Equivalent citations: (2005)195CTR(GUJ)404, [2006]281ITR297(GUJ)
JUDGMENT D.A. Mehta, J.
1. The Income Tax Appellate Tribunal, Ahmedabad Bench "B" has referred the following questions under Section 256(1) of the Income Tax Act, 1961 (the Act) at the instance of Commissioner of Income Tax, Baroda.
"(1) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that the drainage and sewerage network constituted plant and machinery and was entitled to investment allowance u/s 32A of the I.T. Act on its cost of rs.63,54,058/-?
(2) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that tractor-trailers used for lifting and carrying equipments and materials constituted plant and machinery and were entitled to investment allowance u/s 32A of the I.T. Act?"
2. The respondent assessee company is a Public Limited Company carrying on business of manufacture of chemical fertilizers. The Assessment Year is 1983-84 and the relevant accounting period is calender year 1982. The assessee company installed drainage and sewerage network costing Rs. 63,54,058/- and claimed investment allowance on the said sum on the basis that the same formed part and parcel of plant and machinery. The claim was rejected by the Assessing Officer and Commissioner (Appeals).
3. The assessee carried the matter in appeal before the Tribunal and the Tribunal held that the assessee was entitled to the investment allowance claimed by holding that the drainage and sewerage network was installed for the purpose involving handling of waste quantities of materials obtained on chemical reaction while manufacturing fertilizers. That the said network was utilised to channelize the fluids consisting of effluent, blowout washing spillage and leakage from various sections and units of the main plant, which were either pumped or otherwise collected thereafter for the purposes of treatment and re-cycling or being released. The Tribunal, therefore, found that the drainage and sewerage network running through the factory and attached to the plant and machinery was a part and parcel of plant and machinery itself.
4. In relation to the second question, the assessee claimed that certain tractor trailers were used in factory premises for lifting and carrying equipments and materials. The cost of such tractor trailers was Rs.2,82,508/- and on the said sum , investment allowance was claimed. The Assessing Officer rejected the claim by holding that they were road transport vehicles. The CIT (Appeals) confirmed the said finding.
5. The Tribunal, for the reasons stated in paragraph No.9 of its order, held that huge quantities of raw materials, finished products and equipments were required to be handled and transported within the factory premises and for such handling and transportation, the tractor trailers were used entitling the assessee to claim investment allowance.
6. The matter has been heard on 9th and 10th March 2005, but the learned advocate for the applicant is absent. However, the learned advocate for the respondent assessee Shri Manish J. Shah is present and has made his submissions in support of the order made by the Tribunal.
7. In relation to question No.1, the issue stands concluded by ratio of decision rendered by this Court in case of Commissioner of Income-Tax v. Gujarat State Fertilizers Co. Ltd., reported at 240 ITR 536. For the reasons stated in the aforesaid decision of this Court, question No.1 is answered in the affirmative i.e. in favour of the assessee and against revenue. The Tribunal was right in holding that the drainage and sewerage network was entitled to investment allowance under Section 32A of the Act on the investment cost of Rs.63,54,058/-.
8. In relation to the second question, the following decisions were cited on behalf of the assessee to submit that various courts have held that tractors - trailers used in the factory premises for lifting and carrying equipments and materials would be "plant" within the meaning of definition of the said term under Section 43(3) of the Act. It was further submitted that, for the purposes of ascertaining whether an item of plant or machinery is entitled to investment allowance or not, has to be tested by considering the function such plant or machinery performs during the conduct of the business of an assessee.
(1) Shiv Construction Co. v. Commissioner of Income Tax, 165 ITR 160 (Guj.) (2) Commissioner of Income Tax v. U.P. Paschimi Kshetriya Vikas Nigam Ltd., 264 ITR 273 (Alh.) (3) Commissioner of Income Tax v. Tarun Commercial Mills Ltd., 151 ITR 75 (Guj.) (4) Commissioner of Income Tax v. SLM Maneklal Industries Ltd., 205 ITR 547 (Guj.) (5) Commissioner of Income Tax v. Progressive Engineering Co., 230 ITR 729 (A.P.) (6) Commissioner of Income Tax v. Sibson Construction & Co. 221 ITR 468 (Gauhati) (7) Commissioner of Income Tax v. Nandlal Parshuram, 239 ITR 497 (Gauhati)
9. It is apparent that the Tribunal has found that the tractor trailers were used to transport huge quantities of raw materials, finished products and equipments within the factory premises. In light of this finding of fact, it is not possible to state that the tractor trailers would fall within the meaning of road transport vehicles. Road transport vehicles would, in common parlance, mean vehicles which are used for transportation of goods or passengers by road. In normal circumstances, a tractor trailer is not used for transportation of people at least, though in given set of circumstances it may be involved in transportation of goods. However, what is material is as to where such transportation takes place. In the facts of the case, as noted hereinbefore, the Tribunal has found on facts that the tractor trailers have been used for handling and transportation of raw materials, finished products and equipments within the factory premises only. In these circumstances, applying the functional test, it may be safely stated that the decision of the Tribunal holding that the assessee is entitled to investment allowance by treating such tractor trailers as "plant" under Section 32A of the Act, is correct.
10. However, there is one more aspect of the matter. Section 32A(1) of the Act stipulates that investment allowance equal to 25% of the actual cost of the plant or machinery is allowable as a deduction in respect of the previous year in which the machinery or plant was installed, or first put to use in the immediately succeeding previous year, then, in respect of that previous year. Therefore, whether tractor trailer could be termed to have been installed in the previous year, even if it is treated to be a plant, is required to be answered.
11. In the case of Commissioner of Income Tax v. Thyristors Controls Pvt. Ltd., 207 ITR 317, this Court was called upon to decide whether books containing practical know-how kept in the office premises were entitled to investment allowance under Section 32A of the Act. After holding that books would be plant within the meaning of section 32A(1) of the Act, the Court held that:
"The word "installed" occurring in section 32A(1) would not necessarily mean that it should be fixed in a position, but the word is also used in the sense of "induct" or "introduce" or "placing an apparatus in position for service or use" as held by the Supreme Court in CIT v. Mir Mohammad Ali [1964] 53 ITR 165. The word "installed" would mean to place in position for service or use or to set up for service or use. The books would be installed when they would be placed for use in the premises in question"
11.1 It may be noted that similar view is expressed by the Bombay High Court in case of Commissioner of Income Tax v. Bharat Radiators P. Ltd., 239 ITR 608 in relation to patterns and dyes and electrical installations.
12. Therefore, applying the aforesaid test, it is apparent that the tractor trailer was inducted or introduced in the business and was, therefore, installed for the purposes of the business of the assessee entitling the assessee to claim investment allowance.
13. In the result, question No.2 is answered in the affirmative i.e. in favour of the assessee and against revenue. The Tribunal was justified in holding that tractor trailers used for lifting and carrying equipments and materials constituted plant and machinery and were entitled to investment allowance under Section 32A of the Act.
14. The Reference stands disposed of accordingly. There shall be no order as to costs.