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TMI Blog2008 (4) TMI 704X X X X Extracts X X X X X X X X Extracts X X X X ..... owing interest expense, post substantial completion of the parts of Mumbai Pune Expressway carried forward in books as deferred revenue expense and claimed as expense of the year under tax return. The assessee has also filed the Annual Report wherein the expenditure capitalised on projects during construction period advanced to PWD, Andheri Flyover interest on temporary deployment of funds deferred interest cost during gestation period amounts to Rs. 60,88,05,000. 4. The assessee aggrieved by the order of the Assessing Officer came up on appeal before the CIT(A) and explained that interest for the prior period has been capitalised whereas the balance interest pertains to post construction which has been amortised as deferred revenue expenditure. Further the assessee is only claiming current year interest expenses. In the Annual report under the head 'Capital work-in-progress', it has been declared as follows: "Mumbai Pune Expressway was opened to traffic in the portion from Kon to Adoshi (sections A and B) on 1st May, 2000/section C from Kusgaon to Ozarde and section D in part from Ozarde to Somatnephata was opened to traffic from 27th July, 2000 and (Somatnephata top Kiwale) wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... over a period of five years. 9. The Apex Court in the case of Dy. CIT v. Core Health Care Ltd. [2008] 298 ITR 1941, Bombay High Court in the case of CIT v. Tata Chemicals Ltd. [2002] 256 ITR 3951 and the Madras High Court in the case of Carborandum Universal Ltd. among other decision, they held that if the borrowings is for the purpose of business and is utilised in the business, interest payable thereon is an allowable business expense. The ratios of judgments on such treatment of interest cost as deferred revenue in the books and writing off the same under Income-tax Act, is not prohibitive and is an allowable expenditure. Therefore, the interest so written off in tax computation is allowable expenditure irrespective of its treatment in the books of account by the assessee since project has to be consi-dered as substantially completed and post that date interest has to be allowed as revenue expenditure irrespective of the fact that the same has been capitalised by the assessee in the books of account. 10. We find that the lower authorities have not examined this issue in detail and the facts are not before us to enable us to decide on this issue, we, therefore, set aside the m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f CIT v. Gwalior Rayon Silk Mfg. Co. Ltd. [1992] 196 ITR 1491 . 17. The ld. counsel for the assessee submitted as follows: "That the assessee's claim for higher rate of depreciation with reference to the flyovers, bridges, etc., treating the same as Plant is to be appreciated in the context of a specific nature of business as explained in the preceding paragraphs and also the judicious understanding of the term 'Plant' which has been subject-matter of legal debates at the highest forums. In this context, the ld. counsel invited my attention to section 43(3) of the Income-tax Act wherein the term 'Plant' has been defined as under: "(3) "Plant" includes "Ships, vehicles books, scientific apparatus and surgical equipments used for the purpose of business or profession but does not include tea, bushes and livestock or building or fixtures and fittings." With reference to the aforesaid definition, the ld. counsel pointed out that it is an inclusive and not exhaustive definition. The word "Plant" includes anything which can be comprehended within its ordinary meaning, such as fixtures, machinery, tools, apparatus or appliances, etc., necessary to carry on any trade or mechanical ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ities had to be provided to the market forces as per world standard and strict expectations of the varied consumers interests. No wonder, the idea of the business in the infrastructure services being new to the Income-tax Act, no thought has ever been given to the issue of allowing higher depreciation to the roads, flyovers, bridges, ROBs, Express Highways, etc., treating the same as plants. At the best, they could be thought merely as part of 'Buildings' that too by way of footnote to clarify that it "includes roads, bridges, culverts, well and tubewells". Going by the concept of normal 'buildings', the said inclusive definition would be correct only if they happen to be part of any given buildings. However, here in the case of the assessee, these "Roads, bridges", etc., and also "flyovers, Rail Over Bridges, Express Highways", etc., cannot be part of any given buildings which are rather connecting nerves of the national economy from one village, suburbs, city, metropolitan towns and regions to another by way of life support system all through the year round the clock. 2.6 The ld. counsel pointed out that these "Plants" i.e. the roads, bridges, flyovers, ROBs, etc., are having a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... machinery entitled to depreciation of 25 per cent or whether they should be classified as building entitled to depreciation only of 10 per cent. Section 43(3) defines plant as under:- "'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]" 19. The definition of 'plant' has been subject-matter of consideration and interpretation in various cases. The Supreme Court in the case of Scientific Engg. House (P.) Ltd. v. CIT [1986] 157 ITR 861 was considering whether technical know-how would constitute plant entitled to depreciation. In that case, the test to determine whether particular assets would constitute plant thereof, was laid down as under "Does the article fulfil the function of a plant in assessee's trading activity? Is it a tool of his trade with which he carries on the business? If the answer is in the affirmative, it will be a plant." Applying this test the Supreme Court observed that the documents containing technical know-how enabled the assessee to undertake its activity of manufacturing and there can be no doubt these documents had a vital ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed on, the building could not be regarded as a plant. 23. The jurisdictional High Court in the case of CIT v. Mazagoan Dock Ltd. [1991] 191 ITR 4601 (Bom.) applying the functional test has held that concrete walls constructed on the sides of the dock constituted plant entitled to depreciation and development rebate. 24. Thus, the test for determining whether a building is to be considered as a plant is the functional test, viz., whether the premises are merely a site in which the business is carried on or adjunct with which the business is carried. In the case before us, the assessee is building flyover, roads, bridges, express highway, ROB, etc. It is by permitting vehicles to ply over these structure the assessee is carrying on its activities of developing and maintaining infrastructure facilities. These assets cannot be consi-dered as merely setting in which the business is carried on. They are essential tools of the trade and adjuncts of business without which the assessee could not have carried on their business. Without these there is no business of the assessee. 25. Thus we find, if the functional test for a plant enunciated by Apex Court and jurisdictional Court in their ..... X X X X Extracts X X X X X X X X Extracts X X X X
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