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Issues:
- Dispute over the rate of depreciation on electrical installations in an Acetic Acid manufacturing unit for the assessment year 1981-82. Analysis: The appeal concerned the rate of depreciation on electrical installations in an Acetic Acid manufacturing unit for the assessment year 1981-82. The Revenue claimed that only 10% depreciation should be allowed on the electrical installations, while the assessee argued for a 15% depreciation rate since the installations formed part of the plant. The C.I.T.(A) supported the assessee's claim, stating that the electrical installations should be entitled to 15% depreciation as they were part of the plant. The Department, dissatisfied with this decision, contended that the electrical installations, including transformers, were stationary items and should only receive a general rate of 10% depreciation. The key issue revolved around whether the electrical installations qualified for a special depreciation rate of 15% under Item III(ii)B(7) of the Income-tax Rules, 1962, which allows for depreciation on machinery coming into contact with corrosive chemicals. The Tribunal analyzed the relevant provisions and observed that while the general rate of depreciation for certain electrical machinery was 10%, specific items under Item III(ii) allowed for a special rate of 15% depreciation for machinery coming into contact with corrosive chemicals. The Tribunal examined whether the electrical installations in question, including transformers and other components, came into contact with corrosive chemicals during the manufacturing process of Acetic Acid. The Tribunal determined that the electrical installations were an integral part of the plant used in the manufacturing process and were exposed to corrosive chemicals, thereby meeting the criteria for special depreciation at 15%. The Tribunal referred to the Supreme Court's definition of "plant" as any apparatus used in carrying on a business, emphasizing that the functional test for determining whether an item constitutes plant is whether it fulfills the function of a plant in the trading activity. Applying this test, the Tribunal concluded that the electrical installations were indeed part of the plant used in manufacturing Acetic Acid and were essential tools for the business operations. Consequently, the Tribunal upheld the C.I.T.(A)'s decision to allow 15% depreciation on the electrical installations, dismissing the Department's appeal and affirming the assessee's entitlement to the higher depreciation rate. In summary, the Tribunal's judgment clarified that the electrical installations in the Acetic Acid manufacturing unit qualified for a special depreciation rate of 15% as they formed an essential part of the plant coming into contact with corrosive chemicals. By applying the functional test to determine the nature of the items as plant machinery, the Tribunal upheld the assessee's claim for higher depreciation, highlighting the specific provisions under the Income-tax Rules that supported the allowance of 15% depreciation rate in this case.
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