Income Tax Appellate Tribunal - Chandigarh
Shivalik Hatcheries (P.) Ltd. vs Deputy Commissioner Of Income-Tax on 27 April, 1995
Equivalent citations: [1995]54ITD550(CHD)
ORDER
Agrawal
1. These are four appeals by the assessee relating to assessment years 1982-83 to 1985-86.
2. The common ground in all the four appeals relates to the assessee's claim for depreciation and investment allowance on the poultry shed. The assessee had claimed depreciation on the poultry shed treating it as plant whereas the Assessing Officer allowed depreciation treating it as building. Investment allowance was, however, not allowed on the poultry shed. In the assessment years 1984-85 and 1985-86, the assessee had claimed depreciation on water-lines for sheds and residential quarters also. In these two assessment years also, investment allowance was claimed on additions made to the poultry sheds and water-line sheds.
3. The assessee was a private limited company engaged in the business of hatchery. In the assessment year 1982-83, investment allowance was allowed by the Assessing Officer on plant and machinery costing Rs. 9,04,922 after excluding cost of poultry shed No. 1 at Rs. 2,89,701. Depreciation on the poultry shed was allowed @ 5% only treating the same as building. Investment allowance was not allowed in any of the four assessment years either on the poultry sheds or on the water-line sheds. The assessee went in appeal but failed.
4. The learned counsel for the assessee has submitted that poultry sheds were very much in the nature of plant because the shed constituted an apparatus/tool for the assessee and was not merely a space. The nature and type of construction was very much different so far as a poultry shed was concerned and, therefore, it was unlike any other building. It was contended that the word "plant" must be broadly construed having regard to the fact that technical specifications and details like the provision for proper light and air, scientific feeding arrangements, proper watering system, proper arrangement for collection of manure and droppings, arrangement for medication and vaccination, etc., have to be kept in view because these factors were of paramount importance. A poultry shed is specially designed from technical point keeping in view the productivity and prevention of diseases and also to facilitate various hatchery operations on scientific lines. These sheds are specifically designed and constructed in a manner that would facilitate hatchery operations on a large scale on scientific lines. It has been contended that the relevant test which has to be applied was does it fulfil the function of a plant in the assessee's trading activities and is it a tool of assessee's trade? It has been pointed out that the chicks start concocting under a strict and scientifically controlled environment. Selected and graded eggs are fumigated in the fumigation chambers. Incubation and hatching process of eggs take place under certain controlled conditions. Room-temperature, humidity, etc., are required to be maintained through air-conditioning and other mechanical device. Eggs are also transferred to hatching machines where they are processed for about three days. Chicks are vaccinated against various diseases and then packed as commercial chicks for sale to poultry farmers. Since the assessee carried on the business of poultry breeding on scientific basis on a large scale, the poultry shed is said to be definitely in the nature of a plant. As per the learned counsel, considerations of operations and functional use made it very clear that poultry shed was employed as an apparatus and tool for carrying on the business of poultry-farming. It is the functional test which is required to be applied for determining if the poultry shed was a plant. A modern poultry shed required design, structure system, compartments, water channels, etc., so as to carry on the poultry operations on a large scale. It has been stated that a poultry shed constructed with a special design and specifications could not be used for any purpose other than poultry operations.
5. Our attention has been drawn to the definition of "plant" contained in Section 43(3) of the Income-tax Act which reads as under :
"Plant" - includes ships, vehicles, books, scientific apparatus and surgical equipment used for the purposes of the business or profession.
Since it is an inclusive definition, it is stated that the expression "plant" must be construed in the context of the particular kind of trade or the manufacture carried on by the assessee. Our attention has been drawn by the learned counsel on certain decisions of the Tribunal in this respect. In the case of Patel Enterprises v. ITO [1986] 15 ITD 114, the Ahmedabad Bench of the Tribunal held that theatre building has to be treated as plant for purpose of depreciation allowance. In the case of Bhagya Laxmi Hatcheries P. Ltd. [IT Appeal Nos. 569 and 570 of 1988] the Hyderabad Bench held that poultry sheds and hatchery buildings have to be treated as plant within the meaning of Section 43(3) of the Act. The Bombay Bench also took the same view in the case of Deccan Poultry Industries [IT Appeal No. 4046 of 1982], vide its order dated 28-4-1984.
The Chandigarh Bench had also an occasion to examine a similar issue is the case of SudarshalLal [IT Appeal No. 1431 of 1993] and, vide order dated 31-1-1994, poultry shed was held to be in the nature of a plant. While examining the issue, the Tribunal took note of the decision of the Andhra Pradesh High Court in CIT v. Sri Venkateswara Hatcheries (P.) Ltd [ 1988]174ITR 231. Two earlier orders of the Tribunal, one in the case of Gurprit Singh [IT Appeal No. 743 of 1984, dated 11-5-1987] and the other in trie case of Sandeep Poultry Farms [IT Appeal No. 611 of 1988, dated 4-3-1993] were also looked into. The learned counsel also invited our attention to the decision of the Supreme Court in the case of CIT v. Taj Mahal Hotel[ 1971 ] 82 ITR 44 for the proposition that sanitary and pipeline fittings installed in a hotel have been treated to be part of plant. On the basis of the said ratio, the learned counsel has argued that in the present case also, poultry shed has to be treated as a plant looking to the intention of the Legislature to give the word "plant" a wider meaning. The Gujarat High Court had also an occasion to examine the word "plant" in the case of CIT v. Elecon Engg. Co. Ltd. [1974] 96 ITR 672. It was held that the drawings and patterns acquired from a foreign company constituted plant. It was observed that the word "plant" in its ordinary meaning is a word of wider 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". It includes any articles or objects, 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. It would also not include an article which is merely a part of the premises in which the business is carried on. The learned counsel has on the strength of the said decision vehemently argued that in the case of the assessee, the poultry shed as well as water-line shed have to be treated for all intents and purposes as "plant". The Allahabad High Court had also an occasion to examine the meaning of the word "plant" in the case of CIT v. Kanodia Cold Storage [ 1975] 100 ITR 155 (AIL). It was observed that the definition of "plant" in Section 43(3) was inclusive and did not exclude things normally included in it. Where a building with insulated walls was used as a freezing chamber, though it is not machinery or part thereof, it was part of the air-conditioning plant of the cold storage and will be entitled to special depreciation. The Bombay High Court had also an occasion to examine the meaning of the word "plant" in the case of CIT v. Caltex Oil Refining (I) Ltd. [1976] 102 ITR 260. Fencing around the oil refinery was held to be plant. It was noted that where the refinery processing unit could not be put into use without a protective fencing, such fencing could be regarded as a part of the processing unit. There was considerable degree of durability to the fencing and, therefore, the fencing surrounding the refinery processing units should be regarded as part of the plant. In the case of CIT v. Union Bank of India Ltd. [1976] 102 ITR 270 (Bom.), the same High Court again examined a similar question and held that a safe deposit vault in a bank was an apparatus or fixture employed in carrying on a trade or business which is not its stock-in-trade and would fall within the meaning of "plant". The Madras High Court has in the case of Addl CIT v. Madras Cements Ltd. [ 1977] 110ITR 281 also held the same view while examining the definition of "plant" in Section 43(3). It has been observed in that case that the expression "plant" has to be construed in the context of particular kind of trade or manufacture. The dictionary meaning of the word "plant" apprehends buildings employed in carrying on trade or the other industrial business. Special reinforced concrete foundation for the purpose of locating or installing the rotary kiln in the factory was, therefore, held to be "plant". The Allahabad High Court had again an occasion to examine the meaning of "plant" in the case of CIT v. Kanodia Warehousing Corpn. [1980] 121 ITR 996 (All.). That was a case where the assessee had claimed the warehouse as a plant. It was noticed by the Court that warehouse had been used for temporary storage and could not be regarded as plant. It was observed that in order to find out if a building or structure constituted "plant", the functional test must be applied. It must be seen whether the subject matter involved, i.e., the building or a structure or part thereof constituted an apparatus or a tool of the taxpayer. In that case the assessee had stored potatoes of the customers in its warehouses for sorting and grading and thereafter in loading the same in cold storage. It was held that the warehouses were not something by means of which the assessee's business activity was carried on. The warehouses merely provided a place within which the business activity was carried on and, therefore, warehouses of the assessees did not fall within the definition of "plant" as contained in Section 43(3). The learned counsel has contended that the said decision did make a distinction between a building which was simply used as a storage and the one used for any specific purposes. In the case of CIT v. Tata Chemicals Ltd. [1986] 162 ITR 662 (Bom.), the Bombay High Court has held that internal telephone system and power transformers were eligible for the purposes of development rebate. The Karnataka High Court in the case of CIT v. Dr. B. Venkata Rao [1993] 202 ITR 303 has held that a nursing home was not an ordinary building. To find out whether a building is to be treated as a mere building or should be considered as "plant", the functional test has to be applied. A wider meaning is attributed to the word "plant" because of the functional test. It was, therefore, held that a nursing home building was a plant and entitled to depreciation at 10% under Section 32 of the Income-tax Act. In the case of Mahindra Ugine Steel Co. Ltd. v. CIT[1993] 203 ITR 383, the Bombay High Court had an occasion to examine a question whether the fans installed in the workers housing colony constituted plant. The question was answered in the affirmative.
6. The learned counsel for the assessee has, on the strength of the aforesaid judicial pronouncements, submitted that poultry sheds as well as the water-line sheds definitely fell within the definition of "plant" under Section 43(3) of the Income-tax Act. The learned counsel has conceded that water-line in the residential quarters would not qualify for this purpose and, therefore, he would not press assessee's claim for depreciation and investment allowance at higher rate in respect of water-line in the residential quarters.
7. The learned Departmental Representative has, in reply, submitted that a poultry shed could not be distinct from a factory shed and, therefore, there was no justification to treat a poultry shed as a plant. A factory building is also designed as per specifications and requirements and the factory sheds are also constructed for carrying on the manufacturing activity. Reliance has been placed by the learned Departmental Representative on the decision of the Supreme Court in the case of Scientific Engg. House P. Ltd. v. CIT [1986] 157 ITR 86. That was a case where various documents such as drawings, designs, charts, plans, processing data and other literatures were claimed to be part of plant. While examining the question, it was observed that in order to qualify as plant, the particular article had to have some degree of durability. We, however, find that the said decision does not help the revenue at all. Our attention has also been drawn to a decision of the Andhra Pradesh High Court in the case of CIT v. Sri Krishna Bottlers (P.) Ltd. [1989] 175 ITR 154. There the question had arisen about the bottles and shells used by the assessee. The assessee in that case manufactured and sold soft drinks. It was held that the bottles were essential tools of the trade for it was through them that soft drinks was passed from the assessee to the customers, and, therefore, these were treated to be plant. We again find that this case also does not help the revenue.
8. Looking to the entire facts of the case and the judicial pronouncements, we are of the view that the poultry shed and water-line sheds are in the nature of plant keeping in view the business activities of the assessee. Therefore, depreciation has to be allowed on these two structures/items treating them as plant. Investment allowance is also to be allowed on them. The assessee's claim in regard to water-line in residential quarters is rejected as not pressed.
9. The next issue relates to the ESA on poultry shed, fencing, well and water-tank. In the assessment year 1983-84, assessee claimed ESA (extra shift allowance) on fencing only. In 1984-85, ESA was claimed on poultry shed along with fencing, well and water-tank. In the assessment year 1985-86, ESA was again claimed on the poultry shed, fencing, well and water-tank. The learned counsel has submitted that fencing has been treated to be part of plant and machinery by the Assessing Officer in the assessment year 1983-84 and depreciation was granted accordingly. Since fencing was treated as plant, ESA was to be allowed accordingly. Similarly, water-tank and well are also said to be part of plant and, therefore, ESA has been claimed. So far as the poultry sheds are concerned, claims have beer made only for the assessment years 1984-85 and 1985-86. No such claim was made in the earlier two assessment years. The learned counsel has submitted that in the light of the CBDT letter No. 10/83/69-IT(A)-H dated 28-9-1970, ESA has to be allowed in proportion to the number of days for which the concern worked double shift or triple shift. Where a concern worked double shift or triple shift, ESA should be allowed in respect of the entire plant and machinery used by the concern. The learned counsel has argued that in the light of the Board's circular, ESA has to be allowed on concern basis and there was no justification to treat the fencing as part of the plant but not to allow ESA. So far as the question of ESA on poultry shed is concerned, it is pointed out that once the poultry shed is held to be plant, ESA has to be allowed on it.
10. The learned Departmental Representative has, in reply, contended that there was no additional wear and tear so far as the fencing was concerned and, therefore, ESA could not be allowed.
11. We have considered the rival contentions and we are of the view that in the light of the Board's circular, ESA has to be allowed on concern basis and not on the number of days each plant worked double shift or triple shift. Therefore, in the light of Board's circular, ESA has to be allowed as allowable on the poultry shed as well as on fencing, water-tank and well, in the assessment years 1983-84, 1984-85 and 1985-86.
12. In the assessment year 1983-84, ground No. 2 relates to the question of subsidy. The Assessing Officer reduced the cost of assets by subsidy amounting to Rs. 4,20,085 while working out the depreciation.
13. We are of the view that the question stands finally settled by the decision of the Supreme Court in the case of CIT v. P.J. Chemicals Ltd. [ 1994] 210ITR 830. In the light of the said decision, ground No. 2 stands allowed and it is held that the cost of assets shall not be reduced by the amount of subsidy while allowing depreciation.
14. In the assessment year 1984-85, ground No. 4 relates to the disallowance of Rs. 900 in respect of expenditure on the staff and guests. The Assessing Officer disallowed the sum of Rs. 900 out of the total expenditure shown at Rs. 1,800. The learned counsel for the assesseehas submitted that there was no justification to make the disallowance at 50% and moreover, expenditure could be allowed up to the ceiling limit of Rs. 5,000. We are in agreement with the learned counsel and find no justification to make the disallowance at Rs. 900 on an ad hoc basis. There appears no decision to make the disallowance at 50% of the total expenditure shown at Rs. 1,800. Therefore, ground No. 4 succeeds and the disallowance is deleted.
15. In the assessment year 1985-86, ground No. 4 relates to the entertainment expenses but this ground was not pressed by the learned counsel at the time of hearing. This ground is, therefore, rejected.
16. In the result, all the four appeals stand partly allowed.