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2016 (5) TMI 158 - ITAT MUMBAI

2016 (5) TMI 158 - ITAT MUMBAI - [2016] 51 ITR (Trib) 542 - Grant of Depreciation on advertising hoarding structures - treated as‘Plant’ or ‘Building’ - Held that:- These hoarding structures which are permanent structures embedded in the building having foundation, which were constructed and erected by the assessee firm do not satisfy functional test and it cannot be said that these hoarding structures are tools or apparatus with which the assessee firm is carrying on the business rather these h .....

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ioning of the assessee firm’s business but rather these hoarding structures constructed and erected by the assessee firm are building simplicitor constructed and erected for entities to put their advertisements and erected by the assessee firm for entities to put their advertisment. Thus, functional test also is not satisfied in the case of these hoarding structures and it cannot be treated as ‘Plant’ and are merely a ‘Building’ constructed and erected by the assessee firm which are given on com .....

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Held that:- We have observed that the assessee firm has borrowed funds which were utilized for the purpose of its business. The assessee has made turnover of ₹ 54.23 lacs which was with respect to transactions with M/s Creations Publicity P. Ltd., assessee’s group concern and this is the only sale made by the assessee firm during the assessment year . The assessee firm stated that the said sale has been made based on commercial expediency. Thus we allow the claim of interest expenditure o .....

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the appeal to held the assessee is entitled to deduction on account of hoarding expenditure being in the nature of revenue expenditure. - I .T.A. No. 2349/Mum/2013 - Dated:- 23-3-2016 - SHRI AMIT SHUKLA, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER For The Assessee : Shri Hemant J. Vora For The Revenue : Shri Ganesh Bare (Sr.DR) ORDER PER RAMIT KOCHAR, Accountant Member This appeal, filed by the assessee firm, being ITA No. 2349/Mum/2013, is directed against the orders dated 31-12-2 .....

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acts and circumstances of the case and in law, the learned CIT (A) erred in confirming the Hoarding Structures as Building (depreciation @ 10% ₹ 16195) instead of Plant (depreciation @ 15% ₹ 24292) . 1.3 The learned CIT (A) failed to appreciate that the asset hoarding structures being in the nature of plant also meets the condition laid down under the act 2. Interest on loan 2.1 On the facts and circumstances of the case and in law, the learned CIT (A) erred in confirming addition of .....

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facts and circumstances of the case and in law, the learned CIT (A) erred in confirming treatment of Hoarding Expenses incurred in respect of Hoardings amounting to ₹ 4,94,500/- being 50% of two bills of hoarding expenses amounting to ₹ 9,89,000/- as Capital Expenditure and adding ₹ 4,94,500/- to the appellants income after allowing depreciation at 10%. 3.2 The learned CIT (A) failed to appreciate that the said expenses were revenue in nature and as such allowable u/s. 31 and/o .....

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hown at ₹ 54.23 lakhs. The assessee firm has claimed depreciation at the rate of 15% on its hoarding sites . As per the learned assessing officer (Hereinafter called the AO ) , it is in the nature of a physical site being a part/extension of building and entitled for depreciation @10% . The assessee firm submitted before the AO that it is carrying on the business of outdoor publicity which is done through the use of hoardings. The assessee firm takes on lease various locations on which it .....

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tures not only pass the durability test but also fulfills the condition laid down in section 32 of the Act and entitled for depreciation @ 15% under the category Plant & Machinery . In support, the assessee firm relied upon the decision of Hon ble Supreme Court in the case of CIT v. Alps Theatre reported in (1967) 65 ITR 377(SC) wherein it was observed by Hon ble Supreme Court that the term building means structure and does not include site as there is no question of destruction of the site .....

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any article or object fixed or movable, live or dead, used by businessman for carrying on his business and is not necessarily confined to an apparatus which is used for mechanical operations or processes or is employed in mechanical or industrial business.. The A.O., however, rejected the contentions of the assessee firm and held that by no stretch of imagination can the hoarding site be considered as a plant which on itself can actively or passively result in generation of a service/product to .....

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not be construed strictly by its literary meaning but has to be extended to any structure which has utility in the business of accommodating the activity. The A.O. in view of the above discussions held that hoarding site are in the nature of building on which depreciation is allowable at 10% and accordingly determined the allowable depreciation at ₹ 16,195/- as against ₹ 24,292/- claimed by the assessee firm, vide assessment orders dated 30.11.2009 passed by the AO u/s 143(3) of the .....

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the CIT(A) , the assessee firm has preferred an appeal before the Tribunal. 7. The ld. Counsel for the assessee firm submitted that hoarding structure should be treated as plant and machinery and depreciation at the rate of 15% should be allowed. But, the authorities below erred in allowing the depreciation @ 10% by treating the same as building. The ld. Counsel for the assessee firm submitted that for the assessment year 2007-08, depreciation have been allowed on hoarding structure @ 15% by the .....

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09-10 wherein the same issue was allowed by the CIT(A) depreciation @ 15% on the hoarding constituting the same as structure, which were used as an apparatus generating revenue to the appellant. Having taken note of the facts available on record and after taking note of decision cited by the appellant in the submissions, I am of the considered view that the AO's action was completely unjustified and incorrect in restricting the depreciation @ 10%. This is also a fact on record that the appel .....

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lowed. 8. On the other hand, the ld. D.R. relied upon the order of the CIT(A) . 9. We have considered the rival submissions and also perused the material on record. It is observed that the assessee firm has claimed depreciation @ 15% on hoarding structure s under the category of plant and machinery while the Revenue authorities have allowed depreciation @ 10% being part of the building. We have observed that the assessee firm is in the business of exhibiting cinema slides and short films in thea .....

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Act is stipulated with respect to buildings, machinery, plant or furniture, being tangible assets and depreciation u/s 32(1) (ii) of the Act is stipulated with respect to know-how, patents, copyrights, trade marks, licences, franchises or any other business or commercial rights of similar nature being intangible assets acquired on or after 01-04-1998, owned, wholly or partly by the tax-payer and used for the purposes of the business or profession. We have observed that depreciation is specifica .....

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and fittings. The word plant is given inclusive meaning under section 43(3) of the Act which nowhere includes buildings. The word Building on the other hand has not been defined under the Act and must therefore be construed in its ordinary meaning. Building means structures and does not include the site on which it is erected. The Dictionary meaning of the word building is a structure with a roof and walls (Concise Oxford English Dictionary) . The word Building has been defined by Lord Esher in .....

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rd plant which is an inclusive definition and not an exhaustive definition, to includes ships, vehicles, books, scientific apparatus and surgical equipment used for the purposes of the business or profession. The term Plant should be given its ordinary meaning as understood by common man and has to be read in the context of particular trade or manufacturing carried on by the tax-payer. The Oxford English dictionary has defined the word plant means fixtures, implements, machinery and apparatus us .....

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ayer carries on his business. If the building or structure or part thereof is, something by means of which the business activities are carried on, it would constitute plant but where the structure plays no part in carrying on of these activities but merely constitutes a place within which they are carried on, it cannot be regarded as a plant. Thus, the true test is whether it is a means of carrying on the business or the location for so doing. In order for a building or concrete structure to qua .....

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stinction between Plant and Building in details while deciding whether building used for running hotel or cinema business is a plant or building , after considering the various meaning and definitions assigned to the word Plant and Building by various judicial pronouncements , as under: Hence, the controversial question for consideration is - whether building used for running hotel or cinema business could be held a plant as provided under section 43(3) ? 21. We would first refer to the judgment .....

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ect access to the Clyde and floor below the level of high tide to enable ships to float in and out could be considered to be a plant for the purpose-of trade of the company within the meaning of section 279 of the Income-tax Act, 1952. Relevant part of section 279 as applicable, which was considered, reads thus : "...where a person carrying on a trade incurs capital expenditure on the provisions of machinery or plant for the purposes of the trade, there shall be made to him, for the year of .....

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apparatus is used by a businessmen carrying on his business-not his stock-in-trade which he buys or makes for sale; but all goods and chattels, fixed or movable, live or dead, which he keeps for permanent employment in his business." Thereafter it was observed as under : ". . . The dry dock was in our view not the mere setting or premises in which ships were repaired. It was different from a factory which housed machinery, for in the operation of the dock, the dock itself played a par .....

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ck plays an essential part in getting large vessels into a position where the work on the outside of the hull can begin, and that it is wrong to regard either the concrete or any other part of the dock as a mere setting or part of the premises in which this operation takes place. The whole dock is, I think, the means by which, or the plant with which, the operation is performed." [Emphasis supplied] 22. Lord Guest agreed with the view taken by Lord Reid. In the judgment rendered by him it w .....

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t iron keel blocks, electrical installation, pipe work installation, pumping installation and other subsidiary equipment, expenditure on which clearly qualifies for initial allowance as having been incurred in paying for machinery or plant." Further with regard to building it was observed : "A building or structure is normally to be regarded in the context of this statute as something more durable than machinery or plant, hence the differentiation in favour of the less durable. The doc .....

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but equally clearly the factory, the bricks and mortar, would not be plant." 25. It was finally observed that to regard the dock as apparatus was wrong as it was something quite different from the generally accepted conception of plant . 26. Lord Upjohn also disagreed with the majority view by observing that too much emphasis on a functional element ought not to have been given. In a modern sophisticated factory purpose built for a particular manufacture without which the factory would be u .....

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on-whether expenditure incurred in electric lighting installation and conduit and cables to socket outlets, constituted expenditure on the provision of plant so as to qualify for capital allowance. For the expression plant Lord Hailsham observed : "...that the word plant in the relevant sense, although admittedly not a term of art, and therefore, part of the general English tongue, is not, in the sense, an ordinary word, but one of imprecise application, and, so far as I can see, has been a .....

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quot; (p. 351) The Court further observed : "To this admirable precept Oliver L.J. [1981] STC 671, 682E in delivering the leading judgment in the Court of Appeal in the instant case, warily, and perhaps wearily, added the cautionary rider that "the English speaker must, I think, be assumed to have studied the authorities." These however, as he cautiously admitted in an earlier passage (p. 676) cannot be pretended to be at all easy to reconcile, and, as he said in a still earlier p .....

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s carrying electricity, they held that it was an exceptional case where the Commissioners were right in taking each component separately as each was serving a different purpose and held that each of them was not plant . 28. In IRC v. Scottish & Newcastle Breweries Ltd. [1982] 1 WLR 322 the question was whether the moneys spent on electrical rewiring, installation of new electric light fittings and of various categories of decor and murals in the hotel was on the provision of plant . Lord Wil .....

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nary man, literate or semiliterate, would think that a horse, a swimming pool, movable partitions, or even a dry dock was plant- yet each of these has been held to be so: so why not such equally improbable items as murals, or tapestries, or chandeliers ?" [Emphasis supplied] 29. The House of Lords observed that even the functional test was inconclusive. Therefore, the Court suggested that each case must be resolved by considering carefully the nature of the particular trade being carried on .....

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to create a shipboard feeling , in other words, a certain kind of atmosphere, among the patrons. But the distinction is that the ship, although a chattel, was the place in which the trade was carried on and was therefore the equivalent of the various premises in which the present taxpayer company carry on their trade and not of the apparatus used as an adjunct of the trade carried on in those premises." It was further observed that "the dry dock in Barclay Curle & Co. Ltd. (supra) .....

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other than ships ordinarily playing on inland waters, such percentage on the actual cost thereof to the assessee as may, in any case or class of cases or in respect of any period or periods, be prescribed : Provided that different percentages may be prescribed for different periods having regard to the date of acquisition of the ship; (ii) in the case of buildings, machinery, plant or furniture, other than ships covered by clause (i) , such percentage on the written down value thereof as may in .....

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where such motor-car is acquired by the assessee after the 28th day of February, 1975, and is used otherwise than in a business of running it on hire for tourists; (iia) in the case of any new machinery or plant (other than ships and aircraft) which has been installed after the 31st day of March, 1980, but before the 1st day of April, 1985, a further sum equal to one-half of the amount admissible under clause (ii) (exclusive of extra allowance for double or multiple shift working of the machine .....

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any office appliances or road transport vehicles; and (c) any machinery or plant, the whole of the actual cost of which is allowed as a deduction (whether by way of depreciation of otherwise) in computing the income chargeable under the head profits and gains of business or profession of any one previous year. Explanation - For the purpose of this clause,- (a) new machinery or plant shall have the meaning assigned to it in clause (2) of t he Explanation below clause (vi) of this sub-section; (b .....

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e written down value thereof: ****** Explanation - (i) to (iii) ****** (iv) in the case of any building which has been newly erected after the 31st day of March, 1961, where the building is used solely for the purpose of residence of persons employed in the business and the income of each such person chargeable under the head Salaries is ten thousand rupees or less, or where the building is used solely or mainly for the welfare of such persons as a hospital, creche, school, canteen, library, rec .....

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ompany as a hotel and such hotel is for the time being approved in this behalf by the Central Government, a sum equal to twenty-five per cent of the actual cost of erection of the building to the assessee, in respect of the previous year in which the erection of the building is completed or, if such building is first brought into use as a hotel in the immediately succeeding previous year, then in respect of that previous year; but any such sum shall not be deductible in determining the written d .....

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f the articles or things specified in items 1 to 24 (both inclusive) in the list in the Ninth Schedule or in the case of new machinery or plant (other than office appliances or road transport vehicles) installed after that date in a small-scale industrial undertaking for the purposes of business of manufacture or production of any other articles or things, a sum equal to twenty per cent of the actual cost of the ship, aircraft, machinery or plant to the assessee, in respect of the previous year .....

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mises or any residential accommodation, including any accommodation in the nature of a guest-house, ****** (1A) Where the business or profession is carried on in a building not owned by the assessee but in respect of which the assessee holds a lease or other right of occupancy and any capital expenditure is incurred by the assessee for the purposes of the business or profession after the 31st day of March, 1970, on the construction of any structure or doing of any work in or in relation to, and .....

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n this section, unless the context otherwise requires- (1) and (2) ****** (3) Plant includes ships, vehicles, books, scientific apparatus and surgical equipment used for the purposes of the business or profession." 32. Rule 5 of the Income-tax Rules, 1962 provides for calculation of depreciation at the percentages specified in second column of the Table in Part I of Appendix I to the Rules. Appendix I to rule 5 is as under : PART I (See rule 5] TABLE OF RATES AT WHICH DEPRECIATION IS ADMISS .....

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pect of any structure of work in or in relation to a building referred to in sub-section (1A) of section 32,- (a) Where such structure is constructed or such work is done by way of renovation or improvement to any such building. The percentage specified against sub-Items 1, 2 or 3, as may be appropriate to the class of building in or in relation to which the renovation or improvement is effected ; (b) Where the structure is constructed or work is done by way of extension to any such building The .....

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Special rates: 15 ** ** ** C (I) Cinematograph films- Machinery used in the production and exhibition of cinematograph films (N.E.S.A.) (a)Recording equipment, reproducing equipment, developing machines, printing machines, editing machines, synchronisers and studio lights except bulbs. 20 (b) Projecting equipment of film exhibiting concerns ** ** ** D (1) Aeroplanes-Aircraft, Aerial photographic Apparatus (N.E.S.A.) 30 ** ** ** E (1) Aeroplanes-Aero-engines [N.E.S.A.] 40 ** ** ** (2) Cinematogra .....

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se of business or profession. From a careful scrutiny thereof what emerges is: (1) The scheme of section 32 is to provide different rates of depreciation for building, machinery, plant or furniture, ships, buildings used for hotels, aeroplanes and other items mentioned therein. Clause (ii) of section 32(i) specifically provides for grant of depreciation for building, machinery, plant or furniture at prescribed percentage on the written down value thereof. The rates are prescribed under the Incom .....

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the Legislature has divided building into different categories, namely, (i) buildings used for office premises or (ii) for residential accommodation; or (iii) premises used for other purposes. Meaning to the phrase residential accommodation is also given under the Explanation which includes accommodation in the nature of a guest house and it specifically excludes premises used as a hotel . So, the Legislature has not considered hotel building by itself as a plant. The phrase is premises used as .....

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rom the hotel business and building is not considered as a plant for running the hotel. Therefore, building and the use of such building as a hotel are considered distinct. (4) All throughout section 32 for building it is specifically mentioned that whenever it is erected , while for machinery and plant, the words used are whenever it is installed and there is no question of installing building. Section 32(1) (iia) uses the phrase machinery or plant installed in any premises used as a hotel and .....

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to (i) building generally, (ii) special rate in respect of factory building and (iii) temporary erections such as wooden structures. In the remarks column (3) it is stated that buildings include roads, bridges, culverts, wells and tubewells. Furniture and fittings is also divided into (i) general rate and (ii) rate for furniture and fittings used in hotels, restaurants and boarding houses, cinema house theatres etc. Similarly, Machinery and Plant are under one heading and are divided into two pa .....

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ing machines, editing machines, synchronisers and studio lights except bulbs and (b) projecting equipment of film exhibiting concerns. Further different rates have been provided for machinery for cinematograph films that includes studio lights except bulbs under the heading C(1) (b) and for bulbs of studio lights under the heading F(2) . From the aforesaid discussion, it is apparent that for a building used as a hotel there is a specific provision for granting depreciation allowance at specified .....

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ips, building used for hospital, aeroplanes, cinematograph films, machinery used in the production and exhibition of cinematograph films, recording equipment, reproducing equipment, developing machines, printing machines, synchronisers and studio lights except bulbs, projecting equipment of film exhibiting concerns, even though the word plant may include building or structure in certain set of circumstances as per the dictionary meaning, but to say that building used for running the business of .....

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gs, however helpful in understudying the general sense of the words cannot control where the scheme of the statute or the instrument considered as a whole clearly conveys a somewhat different shade of meaning. It is not always a safe way to construe a statute or a contract by dividing it by a process of etymological dissection and after separating words from their context to give each word some particular definition given by lexicographers and then to reconstruct the instrument upon the basis of .....

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e idea which emerges on a consideration of the entire context." (Emphasis supplied) 34. Applying the said test, we have to gather the meaning of words building and plant in context of Scheme of section 32 and it is not necessary that we should adopt a judge sense meaning, which is artificial and imprecise in application, given to the word plant in context of different statutory provisions. The Scheme of section 32 unequivocally leads to the conclusion that building and plant are treated sep .....

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efinition, a diesel engine is clearly machinery . indeed, rule 8 of the Income-tax Rules treats aero-engines separately from aircraft. It is true that this rule cannot be used to interpret the clauses in the Act but it does show that components of an aircraft, which are machinery, can be treated separately." [Emphasis supplied] (P. 172) For the words plant and installed the court held : "Further, when the assessee purchased the diesel engines, they were not Plant or part of a plant : b .....

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all and held that when an engine is fixed in a vehicle it is installed within the meaning of sections 10(2) (vi) and 10(2) ( via) of the 1922 Act. Similarly, in the present case, the word plant is given meaning under section 43(3) to include ships, vehicles, books, scientific apparatus and surgical equipment used for the purposes of the business or profession, but this would not mean that it includes building which is treated separately from machinery and plant. Wider meaning to word plant is gi .....

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on clause declares that they shall include. Further, it is to be stated that section 43 itself provides that unless the context otherwise requires the word plant is to be given wider meaning as stated therein. This wider meaning does not include building. But in any case even for the time being presuming that the judge-made meaning of the word plant includes building in certain set of circumstances, in context of section 32 such wider meaning cannot be given and plant would not include building .....

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a shelter or a home for conduct of such business. The learned counsel also pointed out the decision of the Madras High Court in. CIT v. N. Sathyanathan & Sons (P.) Ltd. [2000] 242 ITR 514 wherein the Court observed that in the case of Taj Mahal Hotel (supra) even after noticing the fact that the dictionary definition of plant includes buildings, the Court did not proceed to hold that the building in which the hotel was run, and wherein the sanitary fittings were used was itself plant , and .....

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ma will be a plant because in the said case majority view was that the dry dock was not the mere setting or the premises in which ships were repaired. It was not mere shelter or home but itself played an essential part in the operations which took place in getting a ship into the dock, holding it securely and then returning it to the river. It was a complete unit by itself, therefore, it was a plant . Against that, for a hotel premises, under the Act, building is not considered to be an apparatu .....

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d with seats that rise as they recede from a platform, especially adapted to lectures, surgical demonstrations, etc.; (4) Any place of semi-circular form with seats rising by easy gradations; (5) Any place or region that is the scene of events: a theatre of operations in war." This would mean that cinema business can be run in a premises adapted for that purpose which may or may not be specially designed. Further, on the basis of test laid down in the case of Barclay, Curle & Co. Ltd. ( .....

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business but are mere shelter for carrying on such business activities. Therefore, even functional test, which is followed and which according to us would not be conclusive in all cases, is also not satisfied. 39. In England also, there are conflicting decisions involving the question whether structure would be a plant or not and it is stated that each case is required to be decided on facts of that case in Scottish & Newcastle Breweries Ltd. s case (supra) (decided by the House of Lords) th .....

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t of the setting of a trade may nevertheless be plant if it is more a part of the apparatus than part of the setting {Jarrold v. John Good & Sons Ltd. [1963] 1 WLR 214 : 40 TC 681]}. (iii) The term plant is not apt to cover the permanent structure of a building in which a business is carried on [John Good & Sons Ltd. s case]. (iv) Something which is a structure or part of a structure may nevertheless be plant, if it fulfils the function of plant in the trader s operations. {Commissioners .....

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d the distinction made by Shaw L.J. in Benson s case (supra) and relied upon following observation : "A characteristic of plant appears to me to be that it is an adjunct to the carrying on of a business and not the essential site or core of the business itself." (p. 358) Applying the aforesaid characteristic of plant , in our view, building for hotel or cinema cannot be stated to be adjunct, that is to say, (as per the dictionary meaning of the word adjunct ) something added to another .....

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ises in which trades were carried on. The appellants contended that all the items were installed to improve the ambience of the restaurant and to attract customers and were thus plant. The Court held that they were not plants. The Court took up each and every item of decoration separately for analysing whether it constituted a plant or not. Like for shop fronts or doors, the Court agreed with the observations of the Chancery Division that none of the shop fronts or doors qualifies as plant by ho .....

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rities the position appears to me to be this. There is a well-established distinction, in general terms, between the premises in which the business is carried on and the plant with which the business is carried on. The premises are not plant. In its simplest form that is illustrated by Lord Lowry s example of the creation of atmosphere in a hotel by beautiful buildings and gardens on the one hand and fine china, glass and other tableware on the other. The latter are plant; the former are not. Th .....

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in the rare case where the premises are themselves plant". I do not think that what Oliver L.J. was saying in Cole Brothers is at variance with Lord Lowry s approach. It is proper to consider the function of the item in dispute. But the question is what does it function as? If it functions as part of the premises it is not plant. The fact that the building in which a business is carried on is, by its construction particularly well-suited to the business, or indeed was specially built for th .....

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r tiles and shop fronts are more naturally to be regarded as part of the "housing" of the business than as mere embellishments having a separate identity." In Carr (H.M. Inspector of Taxes) v. Sayer 65 Tax Cases 15, the Chancery Division considered a case where the taxpayers carried on business of providing quarantine kennels and transport services for dogs and cats brought into the United Kingdom from abroad. Quarantine kennels were constructed at their premises. Some of the kenn .....

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es and no more, which did not result in structures being characterised as anything other than buildings or lead to the end result having the character of equipment or apparatus. For this purpose, the Court referred to various principles in context of section 41(i) of the Finance Act, 1971, which is applicable to machinery or plant . In the context of that section, the Court observed that plant carries with it a connotation of equipment or apparatus, either fixed or unfixed. It does not convey a .....

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spital for infectious diseases. This might require special layout and other features, but this does not convert the buildings into plant. A purpose-built building, as much as one which is not purposebuilt, prima facie is no more than the premises on which the business is conducted. 41. In Gray v. Seymour Garden Centre 67 Tax cases 401, the Court of Appeal dealt with a case where assessee expended on the construction of planetaria which was a fix structure designed to maintain plants of many diff .....

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he business was carried on. It was a structure to which plants were brought which required special treatment. However, the fact that planteria provided the function of nurturing and preserving the plants while they were there could not transform it into something other than part of the premises in which business was carried on; the highest it could be put was that it functioned as a purpose-built structure, but that was not enough to make the structure plant. Hence, to rely upon Barclay Curle &a .....

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hotel. As against that, the aforesaid decisions by Courts in England are based upon section 41 of the Finance Act, which provide for allowance for capital expenditure incurred on the provisions of machinery or plant for the purposes of the trade and the Courts were only dealing with general meaning of the word plant . Even there, as quoted above, Courts have specifically held that creation of atmosphere in a hotel by beautiful buildings and gardens would not make such buildings as plants. Suitab .....

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eld to be a plant by observing that a purpose-built building is no more than the premises on which the business is conducted. Further, there are hotels of all kinds and hotel business can be carried on in all kinds of buildings, may be pucca or kacha constructions. A building intended to be used or in fact used earlier either as a residential accommodation or business purpose can be converted for running hotel business. Section 32 itself contemplates, hotel business being carried on in residenti .....

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and constructed for running a hotel or cinema would be covered by a plant and other buildings used for the same purpose would not get depreciation as plant , even though such business is carried on in such premises. In our view, the Delhi High Court has in the case of R.C. Chemical Industry (supra) rightly observed that mere fact that manufacture of saccharine would be better carried on in a building having atmospheric controls would not convert the building from the setting to the means for car .....

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t all industries or for carrying on any trade or business building is required on occasions building may be designed and constructed to suite the requirement of a particular industry, trade or business. But that would not make such building a plant. It only shelters running of such business. For each and every business, trade or industry, building is required to carry on such activity. That means building plays some role and in other words, its function is to shelter the business, but it has no .....

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submitted that the words plant and building are not mutually exclusive. Plant may include building in certain set of circumstances and, therefore, applying the functional tests assessee would be entitled to depreciation under the head it is more beneficial to it . He submitted that in the modern era, theatre building and hotel building are integral part of operation for carrying out such business and, therefore, such building should be considered as a plant . 43. As discussed above, the aforesa .....

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come of the business. Hence, it can be inferred that the Legislature never intended to give such benefit of depreciation to a building which is usually more durable than machinery or plant . In CIT v. Alps Theatre AIR 1967 SC 1437, the Court considered the question - whether the cost of land is entitled to depreciation under the Schedule to the Income-tax Act along with the cost of the building standing thereon? The Court observed thus :- "(6) It would be noticed that the word used is depre .....

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ole object of section 10 is to arrive at the assessable income of a business after allowing necessary expenditure and deductions. (8) Depreciation is allowable as a deduction both according to accountancy principles and according to the Indian Income-tax Act. Why? Because otherwise one would not have a true picture of the real income of the business. But land does not depreciate, and if depreciation was allowed it would give a wrong picture of the true income." (p. 1439) 44. Under the 1961 .....

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ubject. The learned counsel for the assessee further submitted that even though the Legislature was alive to the issue and amended section 43(3) of the Act by the Finance Act, 1995 by excluding tea bushes and livestock with retrospective effect from 1962, it has not excluded the buildings which are used for running hotel or cinema business. It has not clarified or carried out any amendment in the provision and, therefore, it should be held that interpretation given by the High Courts was accepte .....

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use : (1) The scheme of section 32, as discussed above, clearly envisages separate depreciation for a building, machinery and plant. furniture and fittings etc. The word plant is given inclusive meaning under section 43(3) which nowhere includes buildings. The rules prescribing the rates of depreciation specifically provide grant of depreciation on buildings, furniture and fittings, machinery and plant and ships. Machinery and plant includes cinematograph films and other items and the building i .....

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sanitary fittings used in bath room was plant. (3) For a building used for a hotel, specific provision is made granting additional depreciation under section 32(1) (v) . (4) Barclay, Curle & Co. Ltd. s case (supra) decided by the House of Lords pertains to a dry dock yard which itself was functioning as a plant that is to say, structure for the plant was constructed so that dry dock can operate. It operated as an essential part in the operations which took place in getting a ship into the do .....

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de sense." Lord Wilber- force commented by stating that "no ordinary man, literate or semi- literate, would think that a horse, a swimming pool, movable partitions, or even a dry-dock was plant." (6) For the hotel building and hospital in the case of Carr (H.M. Inspector of Taxes) (supra) , it has been observed that a hotel building remains a building even when constructed to a luxury specification and similarly, a hospital building for infectious diseases which might require a sp .....

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uilding is specially designed and constructed with some special features to attract the customers and a building not so constructed but used for the same purpose, namely, as a hotel or theatre would be unreasonable. Hence, the question is answered in favour of the revenue and against the assessee by holding that building which is used as a hotel or a cinema theatre cannot be given depreciation as plant. If we now analyze the Hoarding Structures constructed and erected by the assessee in context .....

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tion Publicity Private Limited , who in-turn allows the entities desirous of advertising their products and services to place and put their advertisements in these hoarding structures. The said Creation Publicity Private Limited has paid revenue of ₹ 54.23 lacs to the assessee firm for the use of these hoarding structures during the impugned assessment year. Thus, in our considered view, these hoarding structures which are permanent structures embedded in the building having foundation, wh .....

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putting their advertisements on these hoarding structures. Thus, it cannot be said that these hoarding structures play any operative role as apparatus or tool in the carrying of the trade by the assessee firm or in the functioning of the assessee firm s business but rather these hoarding structures constructed and erected by the assessee firm are building simplicitor constructed and erected for entities to put their advertisements and erected by the assessee firm for entities to put their adver .....

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ermanent structures embedded in the building having foundation being constructed and erected by the assessee firm and are used for the purposes of advertisements by the entities desirous of advertising their products and/or services on these hoarding structures . Our view is fortified by the decision of Hon ble Supreme Court in the case of CIT v. Anand Theaters (supra) .Thus, in our considered view, these advertising hoarding structures which are permanent structures embedded in the building hav .....

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td. It was also noticed by the A.O. from the P&L A/c and Balance sheet of earlier years that the major activities were with its group concerns and a major amount of its receivables from the said parties is still shown as outstanding. The total amount of debtors as per Balance Sheet is ₹ 111 lakhs which includes amount due from group concerns in earlier years which is substantial as compared to the turnover of around of ₹ 54.23 lacs annually for the last many years. The fund flow .....

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; 2.63 lakhs. Further there are unsecured loans of ₹ 59.72 lakhs on which the assessee firm is paying interest @ 12% which has been claimed as an expense. The assessee firm has average non-interest bearing funds available of ₹ 83.21 lakhs out of total average funds available of ₹ 142.93 lakhs and the major portion has been utilized for processing balances recoverable from debtors which is ₹ 126.91 lakhs at the beginning of the year and ₹ 111.20 at the end of the yea .....

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turnover of the assessee firm is entirely related to the Creation Publicity P. Ltd. submitted that the transaction is done purely on commercial basis keeping in view the prevailing market rate. It was further stated that the said Creation Publicity Private Limited has total turnover of ₹ 26.24 crores , out of which there were debtors outstanding of ₹ 20.59 crores which is nearly 78.46%, hence, there was no option but to allow credit to the said company. The A.O. rejected the contenti .....

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hout deduction of tax at source and only an amount of ₹ 90,000/- was subjected to deduction of taxes at source. The A.O. relied upon the judgment of Hon ble Supreme Court in the case of Mcdowell & Co. Ltd. v. CTO reported in 154 ITR 148 and held that the entire interest cannot be attributed to the business requirement of the assessee firm and in the interest of natural justice , only 25% of the interest expense claimed i.e. ₹ 1,74,519/- was disallowed by the A.O. , vide assessmen .....

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ot be held that the assessee firm has utilized its business funds for non-business purposes. The CIT(A) rejected the contentions of the assessee firm and held that during the previous year, the entire sales of the assessee firm is only to its sister concern of ₹ 54.23 lakhs , whereas the sundry debtors outstanding at the end of the year is ₹ 111 lakhs and thus sundry debtors outstanding are equivalent to two years' turnover of the assessee firm, hence, it cannot be said that the .....

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he business is ₹ 141.61 lakhs, thus the average cost of the funds to the assessee firm is ₹ 6.98Iakhs / ₹ 141.61 lakhs, which comes to 4.92%. On the other hand, the sundry debtors of ₹ 111 lakhs is on the higher side as the entire turnover during the previous year is only ₹ 54.23 lacs. As submitted by the assessee firm, during the course of appellate proceedings that in the case of its sister concern the sales are made to 3rd parties and even in that situation, the .....

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the assessee firm to its sister concern. The CIT(A) held that even if the same percentage is applied , then the reasonable sundry debtors at the end of the year would only be ₹ 40 lakhs being 74% of ₹ 54.23 lakhs being the annual turnover while remaining ₹ 71 lakhs on account of sundry debtors is in the nature of interest free credit advanced by the assessee firm to its group concern. As the average cost of funds by the assessee firm is 4.92%, the same has been applied on ͅ .....

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itted that in the case of group concern of the assessee firm i.e. M/s Creasons, identical matter came before the Mumbai-Tribunal in ITA No. 6846/Mum/2013 for the assessment year 2007-08 and the Mumbai-Tribunal vide orders dated 27.5.2014 held as under:- 8. I have carefully considered the submissions of learned Departmental Representative and perused the record. It is not in dispute that the assessee has obtained loan for business purpose and utilised the same for the purpose of business. Interes .....

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the instant case the assessee explained the reasons for permitting group concerns long term credits. Merely because the Assessing Officer views its otherwise, expenditure incurred for the purpose of business cannot be disallowed, particularly in the light of the decision of Hon'ble Apex Court in the case of S.A.Builders Ltd. (supra) . 9. Having regard to overall circumstances of the case, I am of the firm view that the tax authorities have not made out any case for disallowance of 25% of th .....

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ee on identical situation. In the case of another group concern M/s Empress Advertising for the assessment year 2007-08 whereby the CIT(A) vide order dated 2-3-2012 also allowed the ground raised by the said Empress Advertising on identical facts had allowed the claim of the interest expenditure based on commercial expediency, copy of the CIT(A) s order is placed on record vide page No. 71 to 81. Thus, the ld counsel for the assessee firm submitted that the claim of the assessee firm for interes .....

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e s group concern and this is the only sale made by the assessee firm during the assessment year . The assessee firm stated that the said sale has been made based on commercial expediency. We have observed that identical matter of allowability of claim of interest expenditure was decided by the Mumbai-Tribunal in ITA No. 6846/Mum/2013 for the assessment year 2007-08 vide orders dated 27.5.2014 in the case of group concern of the assessee firm i.e. M/s Creasons and the issue was decided in favour .....

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usiness. The assessee is at liberty to arrange its affairs in such a way which would strengthen business relations and the Assessing Officer cannot put himself in the shoes of the businessman to decide as to what would be the course of action that needs to be taken in a given situation. In the instant case the assessee explained the reasons for permitting group concerns long term credits. Merely because the Assessing Officer views its otherwise, expenditure incurred for the purpose of business c .....

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l issue, we allow the claim of interest expenditure of ₹ 34,932/- of the assessee company which was disallowed by the CIT(A) vide orders dated 31.12.2012. We order accordingly. 17. In its last ground, the assessee firm challenged the action of the A.O. in treating the hoarding expenses incurred by the assessee company as being treated as capital expenditure. The assessee firm, in its profit and loss A/c claimed hoarding expenses of ₹ 14.05 lakhs. The assessee firm was required to pro .....

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harges for painting the permanent steel structure after scraping the aforesaid existing structure and applying red oxide colour to prevent corrosion/ decay thereon due to rain and-weather effect. With respect to M/s. Raj Enterprises and M/s Sai Enterprises the major expense of ₹ 4,94,000/- and ₹ 4,95,000/- was due to extensive/heavy repairing of the existing permanent cement foundations and painting the structures embedded in the building on the hoarding sites. The charges and expens .....

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31 of the Act as the same are not in the nature of current repairs. The assessee firm has not been able to substantiate as to how the same is in the nature of current repairs allowable as a revenue expense. It was also observed by the A.O. that the amount on repairs are stated to be of ₹ 14.05 lakhs which is substantial when compared to the depreciated cost of the asset at the beginning of the year which was only ₹ 1,61,949/-. The assessee firm relied on the decision in the case of .....

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.O. treated the said expense of ₹ 14.05 lacs as capital expenditure and added to the income of the assessee firm and eligible depreciation @ 10% i.e. ₹ 1.41 lakhs was allowed on account of depreciation by the AO vide assessment orders dated 30-11-2009 passed u/s 143(3) of the Act. 18. Aggrieved by the assessment orders dated 30-11-2009 passed by the A.O. u/s 143(3) of the Act, the assessee firm preferred an appeal before the CIT(A) . 19. Before the CIT(A) , the assessee firm reiterat .....

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e entire expenses are on account of painting of the hoarding steel structure and therefore, it cannot be said that any asset of enduring nature has been created by incurring the expenses. Painting is required as a part of the maintenance of the structure and hence in respect of this amount, no addition is warranted. With respect to the 2nd bill that is dated 21st October 2006 for a sum of ₹ 4,94,000/- which was on account of heavy and extensive repairing to the existing structure consistin .....

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t mainly towards painting. Therefore, the addition to the extent of ₹ 2,47,000/- on account of this bill is sustained. With respect to the 3rd bill, it shows that on account of labour charges for heavy and extensive repairing of the parapets wall cement, foundation and steel structure in respect of two other sites aggregating to ₹ 4,95,000/-. The description in this bill is almost identical and it is seen that the expenses were on account of labour and material cost such as cement, m .....

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ned to the extent of ₹ 5,94,500/- , vide orders dated 31.12.2012. 20.Aggrieved by the orders dated 31.12.2012 of the CIT(A) , the assessee firm is in appeal before the tribunal. 21. The ld. Counsel for the assessee firm submitted that these are major hoarding expenses which the assessee firm has incurred for the purpose of its business of outdoor advertising business. The repairs to the permanent structure have been undertaken and it was not extensive repair of permanent structure. The A.O .....

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epair expenses as the identical issue has come before the Tribunal in the case of the sister concern of the assessee firm, M/s Empress Advertising v. ITO in ITA No. 4184/Mum/2012 for the assessment year 2007-08 whereby Mumbai tribunal vide its order dated 31-07-2014(copy of the order placed in paper book at page 108-111) held as under:- 3. We have heard the arguments of both the sides and also perused the relevant material available on record. As submitted by the ld. Counsel for the assessee, th .....

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e done. Similarly, cementing and plastering of foundation was also required to be done regularly in order to maintain the hoarding structures. Keeping in view the nature of business activity carried on by the assessee, we are of the view that the expenditure incurred by the assessee to maintain the structures used for hoardings is of revenue in nature especially when the quantum of expenditure incurred is considered in the light of the fact that there were 15 hoardings which were exposed to clim .....

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enditure. As such, considering all the facts of the case, we are of the view that the assessee is entitled to deduction on account of hoarding expenditure being in the nature of revenue expenditure. In that view of the matter, we delete the disallowance made by the A.O. and confirmed by the ld. CIT(A) on this issue and allow the appeal of the assessee. 22. The ld. D.R., on the other hand, supported the orders of authorities below. 23. We have considered the rival submission and also perused the .....

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ar 2007-08 whereby Mumbai Tribunal vide its order dated 31-07-2014(copy of the order placed in paper book at page 108-111) held as under:- 3. We have heard the arguments of both the sides and also perused the relevant material available on record. As submitted by the ld. Counsel for the assessee, the assessee was having 15 hoardings installed in the city during the course of its business of outdoor advertisement and total income of about ₹ 88 lacs was generated from this activity giving a .....

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