TMI Blog2014 (11) TMI 354X X X X Extracts X X X X X X X X Extracts X X X X ..... eceives a concession from the public sector or for that matter private sector to finance, design, construct and operate a facility stated in the concession contract - This enables the project proponent to recover its investment, operating and maintenance expenses in the project. The facility shall be transferred to the public sector at the end of the concession period - The word ‘build’ signifies construction of a road, whereby the tax payer brings into existence a structure/surface and nothing more - The word ‘operate’ signifies the understanding between the assessee and the public authority to collect charges for the usage of the road - The road is a surface on which the vehicles ply - No special features have been pointed out which serves as tool or apparatus while operating the road - No doubt in some roads toll plazas are erected for collecting the usage charges - These are small booths which are manned at some places and unmanned at some, where the user deposits the money in a machine which opens the gate - To cut costs and minimize the time delay, the usage charges are collected by some form of automatic or electronic toll collection equipment - the manned toll booths/tol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he order insofar as the aforesaid aspect is concerned. On further appeal, the Tribunal confirmed the order of CIT (Appeals). 4. ITA No.65/2014 The appellant on November 27, 2003 filed an income tax return declaring loss of ₹ 25,94,56,570/-. The case was selected for scrutiny and notice under Section 143(2) was issued to the appellant on October 15, 2004. The Assessing Officer vide assessment order dated July 28, 2005 allowed depreciation on toll road @ 10%, instead of 25% as claimed by the appellant assessee. The balance 15% was directed to be added to the income of the appellant assessee. The appellant assessee has filed an appeal before the CIT (Appeals), who in his order dated October 11, 2006 held that the road cannot be said to be plant but would fall under the head building for the purpose of allowing depreciation and accordingly rejected the appeal. On further appeal, the Tribunal upheld the order of CIT (Appeals), inter-alia, stating that depreciation with respect to the roads had to be allowed only @ 10%. 5. ITA No.81/2014 The appellant on October 27, 2004 filed an income tax return declaring loss of ₹ 20,83,84,640/-. The Assessing Officer vide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xman 333 (All. HC) (n) CIT vs. Anand Theatres [2000] 244 ITR 192 (SC) 7. On the other hand, Mr.Balbir Singh, learned counsel for the respondent-revenue would support the order of the authorities inasmuch as the toll road cannot be construed as a plant as sought to be contended by the learned counsel for the appellant. He would refer to Note under the table to Appendix 1 to the Rules, which relates to rate at which depreciation is admissible, wherein buildings have been defined/referred to include roads, bridges, culverts, wells and tube-wells, to contend that the road being a building for the purpose of rate of depreciation, cannot be held a plant . He has also drawn our attention to clause 3 to Section 43 under which certain terms have been defined relevant to income from profits and gains of business or profession, wherein the term plant has been defined in the following manner:- Plant includes ships, vehicles, books, scientific apparatus and surgical equipment used for the purposes of the business or profession [but does not include tea bushes or livestock] [or buildings or furniture and fittings]. (The underlined portion was inserted w.e.f. 01.04.2004) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3) Buildings acquired on or after the 1st day of September, 2002 for installing machinery and plant forming part of water supply project or water treatment system and which is put to use for the purpose of business of providing infrastructure facilities under clause (i) of sub-section (4) of section 80-IA. (4) Purely temporary erections such as wooden structures. Note 1 below the table stipulates buildings include roads, bridges, culverts, wells, and tubewells. (emphasis supplied) It is a settled law that depreciation generally speaking is an allowance for diminution in the value due to wear and tear of capital asset employed by the assessee in his business. Section 32 of the Act provides for depreciation of capital assets in respect of machinery, plant or furniture etc. It does not include roads per se. 11. The issue whether roads would be included within the meaning of buildings had come up for interpretation before the Supreme Court in Gwalior Rayon Silk Manufacturing Co. Ltd. (supra). The Supreme Court in that case was considering facts wherein roads laid within the factory premises were links or provided approach to the buildings as necessary adjuncts to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respondent revenue does not dispute that the appellant assessee is entitled to depreciation on the toll road as a building . Rightly so, as buildings include roads . On the other hand in terms of Section 43(3), plant does not include buildings . What follows is plant does not include road . It must be held so as the legislative intent was to include roads as buildings and not as a plant . That being the intent of the legislature, it must be held that road is a building and cannot be construed or held as a plant in any circumstance, even if the tests laid down to decide what is a plant in various judgments are fulfilled. Otherwise an anomalous situation would arise when even though road is a building which is not a plant , still the appellant is calling upon this Court to hold a road is a plant . In other words, building is not a plant and to hold to the contrary is being against the legislative intent. A special provision, will override and have pre-eminence, over a more general provision. Road , by specific stipulation would necessary allowed depreciation at rates applicable to building and cannot be treated as a plant . This is plain meanin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 3(a) of the said Section. In other words, it was the intent of the legislature to construe buildings and plant separately or not to construe a buildings as a plant and vice-versa. Further the object of prescribing a lower rate of depreciation in case of buildings as compared to plant as they have higher durability. On this ground also, a road cannot be construed as a plant . Even assuming that it is for the first time clarified/prescribed that the plant does not include buildings with effect from 01.4.2004 in cases earlier to it, a building (road in the case) can still be construed as a plant , if it satisfies the functional test as propounded in various judgments and which is the submission of Mr.Singh that the road is a Tool/Apparatus in the business of the assessee and must be construed as a plant . We note that the word plant as defined by Section 43(3) as including ships, vehicles, books, scientific apparatus and surgical equipments. The Supreme Court in Scientific Engineering House (supra) has held that plant would include any article or object fixed or moving, live or dead used by a businessman for carrying on his business and it is not necess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atisfy the functional test indicated above. Obviously, the purpose of rendering such documentation service by supplying these documents to the assessee was to enable it to undertake its trading activity of manufacturing theodolites and microscopes and there could be no doubt that these documents had a vital function to perform in the manufacture of these instruments; in fact it was with the aid of these complete and up-to-date sets of documents that the assessee was able to commence its manufacturing activity and these documents really formed the basis of the business of manufacturing the instruments in question. True, by themselves, these documents did not perform any mechanical operations or processes but that cannot militate against their being a plant since they were in a sense that the basic tools of the assessee s trade having a fairly enduring utility, though owning to technological advances, they might or would in course of time become obsolete. The Supreme Court, therefore, clearly of the view that the capital asset acquired by the assessee, namely, the technical know-how in the shape of drawings, designs, charts, plans, processing data and other literature falls within ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies but merely constituted a place where they were carried on, building could not be regarded as a plant . 19. In Karnataka Power case, the Supreme Court while considering the appeal filed by the revenue whereby the authorities below has held the generating station to be a plant was of the view that its judgment in Anand Theatre (supra) cannot be read so broadly and held as under:- It is difficult to read the judgment in the case of Anand Theatres [2000] 244 ITR 192 (SC) so broadly. The question before the Court was whether a building that was used as a hotel or a cinema theatre could be given deprecation on the basis that it was a plant and it was in relation to that question that the court considered a host of authorities of this country and England and came to the conclusion that a building which was used as a hotel or a cinema theatre could not be given depreciation on the basis that it was a plant. We must add that the court said: To differentiate a building for grant of additional depreciation by holding it to be a plant in one case where a building is specially designed and constructed with some special features to attract the customers and the building not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... part of the plant. From this report, it is clear that the building has been constructed specifically for carrying out the manufacturing of atta and flour. The manufacture activities cannot be carried out in any other building except in a building specifically designed for that purpose. 21. Similarly in Kamla Selvaraj (supra) the Madras High Court considering the case of a doctor who claimed extra shift allowance of depreciation treating the business of her nursing home as a plant for the assessment year 1983-84, the Assessing Officer disallowed the claim on the ground that it is not a plant , which order was upheld by CIT (Appeals) but the Tribunal concluded that the assessee is entitled to extra shift allowance by holding nursing home as a plant . The High Court by holding that the Tribunal had not considered based on evidence what was the area available in the assessee s nursing home which should be construed as a plant and what was the remaining area which would come within the meaning of the word building not attracting the definition of word plant , remanded the matter to the Tribunal for fresh consideration. 22. This Court in R.C. Chemicals (supra) has evolved ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accharine in normal buildings. The Court held that the correct query in the present context appears to be whether the particular features incorporated in the building in question were essential to the manufacturing process and the functioning of the equipment making it an integral part of the plant . According to this Court, the answer being in the negative it is apparent that the building in question remained the location and was not converted into the means for carrying on the business. 24. In Astra IDL Ltd. (supra), wherein the Karnataka High Court on a finding of the Tribunal that the building was used only for manufacturing and supplying medicine and no other business has held the building to be a plant . According to the High Court, it constituted an apparatus and a tool for the assessee by means of which business activities were being carried out. 25. The Allahabad High Court in Tulsi (SK) Sons case (supra) has held a cinema building to be a plant by holding that in order to find out whether a building or structure or part thereof constitutes a plant ,the functional test must be applied. If it is found that building or structure constitute an appar ..... X X X X Extracts X X X X X X X X Extracts X X X X
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