Bombay High Court
Commissioner Of Income-Tax vs Bharat Radiators P. Ltd. on 5 March, 1998
Equivalent citations: [1999]239ITR608(BOM)
Author: S. Radhakrishnan
Bench: S. Radhakrishnan
JUDGMENT B.P. Saraf, J.
1. By this reference under Section 256(1) of the Income-tax Act, 1961, the Income-tax Appellate Tribunal has referred the following question of law to this court for opinion at the instance of the Revenue :
"Whether, on the facts and in the circumstances of the case, the asses-see is entitled to investment allowance in respect of patterns and dies of the value of Rs. 63,710 and electric installations of the value of Rs. 1,30,226 under Section 32A of the Income-tax Act, 1961 ?"
2. This reference pertains to the assessment year 1979-80. The assessee is a company carrying on the business of manufacture of radiators. In its return of income under the Income-tax Act, 1961 ("the Act"), for the assessment year 1979-80, the relevant previous year being the year ended on March 31, 1979, the assessee claimed investment allowance, inter alia, in respect of patterns and dies of the value of Rs. 63,710 and electrical installations of the value of Rs. 1,30,226. The Income-tax Officer did not allow investment allowance in respect of these items as, in his opinion, they did not constitute plant and machinery. He was of the view that the claim for investment allowance could be allowed only if the patterns and dies were inseparable parts of the plant. In the present case, they were separable from the plant. So far as investment allowance on electrical installation of Rs. 1,30,226 is concerned, no reason was given for disallowance of the same.
3. Against the above order of the Income-tax Officer, the assessee appealed to the Commissioner of Income-tax (Appeals). The Commissioner (Appeals) took note of the fact that the Income-tax Officer had himself allowed deduction in respect of depreciation of the very same items, i.e., patterns and dies and electrical installations, under Section 32 of the Act in the case of the assessee itself. He also observed that the assessee was not producing any items mentioned in the Eleventh Schedule which could have disentitled him to get investment allowance in respect of plant and machinery installed for the purpose thereof. He held that the assessee was entitled to investment allowance on the above items subject to fulfilment of the conditions set out in Section 32A, i.e., creation of reserves. He, therefore, allowed the appeal and directed the Income-tax Officer to re-examine the claim of the assessee for investment allowance under Section 32A of the Act and allow the same, if he was entitled to it. Aggrieved by the above order of the Commissioner of Income-tax (Appeals), the Revenue appealed to the Income-tax Appellate Tribunal ("the Tribunal"). The Tribunal upheld the order of the Commissioner (Appeals) and dismissed the appeal of the Revenue. Hence, this reference at the instance of the Revenue.
4. We have heard learned counsel for the parties and perused the order of the Tribunal holding the assessee to be entitled to investment allowance in respect of patterns and dies and electrical installations and also the order of the Income-tax Officer by which the claim of the assessee was rejected. Under Section 32A of the Act, at the material time, the assessee was entitled to investment allowance equal to 25 per cent, of the actual cost of machinery or plant specified in Sub-section (2) thereof, if such machinery or plant was owned by the assessee and wholly used for the purposes of the business carried on by him. The plant and machinery referred to in Sub-section (2), include inter alia, new machinery or plant installed after March 31, 1976, in any industrial undertaking for the purposes of business of construction, manufacture and production of any article or thing, not being an article specified in the list in the Eleventh Schedule. The allowance is, however, subject to fulfilment of other conditions, like, creation of reserves. The Income-tax Officer rejected the claim of the assessee for investment allowance in respect of patterns and dies only on the ground that they were separable from the plant with which they were used. According to him, the claim would have been allowed if they were inseparable parts of the plant. The Commissioner of Income-tax (Appeals) did not agree with this view of the Income-tax Officer. According to him, patterns and electrical installations were plant. He, therefore, directed the Income-tax Officer to re-examine the claim of the assessee and to allow the same if the other conditions were fulfilled. This order was affirmed by the Tribunal. The question that falls for determination is whether patterns and dies can be treated as machinery or plant. "Plant" is a word of wide import. It is not necessarily confined to an apparatus which is used for mechanical operations or processes or is employed in mechanical or industrial business. The true meaning of the expression "plant" came up for consideration before the Supreme Court in Scientific Engineering House P. Ltd. v. CIT [1986] 157 ITR 86. The Supreme Court referred to the definition of plant given by Lindley L.J., in Yarmouth v. France [1887] 19 QBD 647, and held that (page 96) : ... "plant would include any article or object, fixed or movable, live or dead, used by a businessman for carrying on his business and it is not necessarily confined to an apparatus which is used for mechanical operations or processes or is employed in mechanical or industrial business." The Supreme Court said (page 96) : "The test would be : Does the article fulfil the function of a plant in the assessee's trading activity ? Is it a tool of his trade with which he carries on his business ? If the answer is in the affirmative, it will be a plant." Applying the above test, the Supreme Court held that the drawings, designs, charts, plans, processing data and other literature comprising "documentation service" in the agreement fell within the definition of plant.
5. Applying the ratio of the above decision, it is clear that in the instant case, patterns and dies, and electrical installations would fall within the definition of "plant".
6. It appears that the Income-tax Officer did not examine the controversy in proper perspective. He applied a wrong test. He was of the opinion that in order to be a plant, it must be installed in the, sense that it is fixed in position or is an inseparable part of a plant or machinery so fixed. As patterns and dies do not form an inseparable part of any plant or machinery, he held that they could not be regarded as "plant". This approach, in our opinion, is not correct. The expression "installed" in Clause (b) of subsection (2) of Section 32A of the Act does not necessarily mean fixed in position. It is used in the sense of "induct" or "introduce" or "placing an apparatus in position for service or use". Reference may be made in this connection to the decision of the Supreme Court in CIT v. Mir Mohammad Ali [1964] 53 ITR 165, wherein, dealing with the meaning of the expression "installed" in the second paragraph of Clause (vi) and Clause (via) of Section 10(2) of the Indian Income-tax Act, 1922, it was held that the expression ''installed" did not necessarily mean fixed in position but was also used in the sense of "induct" or "introduce" or "placing an apparatus in position for service or use". It was held that when an engine was fixed in a vehicle, it was installed within the meaning of the expression appearing in the above clauses. Reference may also be made to the decision of this court in CIT v. Baker Mercer India P. Ltd. [1992] 196 ITR 667, wherein, it was held that the expression "installed" under Section 32A should be interpreted as used in the sense of something which is inducted or introduced.
7. In view of the above, we answer the question referred to us in the affirmative, i.e., in favour of the assessee and against the Revenue. Reference disposed of accordingly with no order as to costs.