TMI Blog2000 (5) TMI 31X X X X Extracts X X X X X X X X Extracts X X X X ..... vely? 2. Whether, on the facts and in the circumstances of the case, the Tribunal is correct in law in holding that the assessee-bank is an industrial company for the purpose of rate of tax ? 3. Whether, on the facts and in the circumstances of the case, the Tribunal is correct in law in holding that the assessee is entitled to deduction under section 80J ? 4. Whether, on the facts and in the circumstances of the case, the Tribunal is correct in law in holding that the provision for gratuity amounting to Rs. 66,708 is an admissible deduction in the assessment year 1971-72 ?" The factual position relevant for adjudication of the dispute essentially is as follows : The assessee is engaged in the business of banking. For the assessment years 1970-71 and 1971-72 disallowances were made by the Assessing Officer in respect of certain deductions claimed as depreciation and development rebate. Depreciation was claimed in respect of lockers, counters, guns, steel equipment, electrical fittings and cooling equipment. Development rebate was also claimed in respect of such items. The Assessing Officer disallowed the claim for depreciation on the ground that the articles do not fall wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... strength, capability, etc., of every such object gradually exhausts by the factors of use and time. Depreciation is a provision made for proper recompense of such diminution. As indicated by William Pickles in his illustrious book Accountancy it is the inherent decline in the value of an asset whatsoever. Depreciation is allowable in terms of section 32 on plant and machinery apart from tangible assets like buildings or furniture. The expression "plant" must be given a wide meaning having regard to the fact that articles like books, scientific apparatus, surgical instruments are expressly included in the definition of plant. Its meaning is not confined only to an apparatus used in industry or business of manufacturing of finished goods from raw goods. In its ordinary meaning it is a word of wide import and it must be broadly construed. It includes any article or object, fixed or movable, live or dead, used by a businessman for carrying on his business. It would not cover the stock-in-trade of a businessman. It would also not include an article which is part of the premises in which the business is carried on. An article to qualify as plant must have some degree of durability and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntire matter must be considered as a single unit unless, of course, the component parts can be treated as separate units having different purposes. The functional test is a decisive test. Furniture in the business can be said to mean article of convenience or decoration used to furnish a house, apartment, place of business or of an accommodation. Webster's New International Dictionary defines it to be so. In the Shorter Oxford English Dictionary, the expression is defined as to fit up with all that is requisite, including movable furniture, which is now the predominant notion. The term furniture can apply to equipment to be employed in several places for ornament or to promote comfort or to facilitate business therein. The expression "plant" has been defined in clause (3) of section 43 of the Act to include ships, vehicles, books, scientific apparatus and surgical equipment used for the purposes of the business or profession. Obviously, it is an inclusive definition. Its intention is to enlarge the meaning of the expression "plant" occurring in the Act to include not only such items as are commonly known as plant but also those which are enumerated therein. To decide whether a pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... following words : "In our opinion, the functional test has to be applied rationally. Too liberal an application of this test, may bring in everything including the roads within the factory, which have already been held by the Supreme Court to be 'building', within the expression 'plant', On such liberal interpretation, even the 'factory building', itself may have to be held to be a 'plant' because, without it, the 'plant', cannot be operated in the open. But that is not so. Structures which fall within the expression 'building' or pathways like roads, etc., required for providing approach to the factory have been held to be buildings or, roads and not 'plant'...." Reference may also be made at this stage to the decisions of the House of Lords in Cole Bros. Ltd. v. Phillips [1982] 55 TC 188 ; IRC v. Scottish and New Castle Breweries Ltd. [1982] 55 TC 252, and the decision of the Court of Appeal in Wimpy International Ltd. v. Worland [1988] 61 TC 51. In Cole Bros. Ltd. v. Phillips [1982] 55 TC 188 (HL), the controversy was whether lighting and other apparatus installed in shop premises qualified as plant within the meaning of sections 40 and 41 of the Finance Act, 1971. The Reve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... licensed to sell liquor and offered table services. These companies expended money on improving and modernizing their restaurants e.g., shop fronts, floor and wall tiles, suspended ceilings, raised floors, light fittings, wall finishes, fire doors and fire proofing and other decorative items. In their assessments to corporation tax they claimed that this expenditure qualified for capital allowance under section 41 of the Finance Act, 1971, as plant used in the carrying on of their respective trades. The special commissioners disallowed the claims in respect of shop fronts, floors and wall tiles, wall finishes and the other non-decorative items, which they held, were part of the setting or premises in which the trades were carried on but allowed those in respect of certain decorative items such as murals, decorative brickwork and wall panels, as being embellishments not part of the premises. On appeal by the company, the Chancery Division held : "1. Although one test to be applied in determining whether an item was plant was whether the item, not being stock-in-trade, was used for carrying on the business (the 'functional' or 'business use' test), an item still might not qualify ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssions used are "buildings, machinery, plant or furniture being tangible assets." Therefore, if any article falls within the category of plant or furniture, depreciation will be admissible. So far as "development rebate" is concerned, it is dealt with in section 33. Sections 32 and 33 are independent provisions. The latter is allowable by way of an incentive for industrial growth and expansion while former is normally an annual feature, the latter is allowable only once that too in the year of installation or fixed use of a new ship, or new machinery or plant (other than office appliances or road transport vehicles). Therefore, we think it proper to direct the Tribunal to re-examine factual aspects to determine whether development rebate is allowable, though depreciation is allowable in view of user of the expression "plant or furniture". Coming to guns, they are used by security personnel. Though there is no elaborate discussion in that regard, it is not disputed that they are used by guards for security and protection purposes. Guns cannot be said to be without any link with the assessee's business. On the other hand, they are intrinsically linked with it. A bank without secur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to in rate schedules in the Finance Act. It was defined under section 109(ia) between April 1, 1976, and March 31, 1978. It was referred to in section 109(iii)(1) up to March 31, 1988. According to section 2(7)(c) of the Finance Act, 1981, an industrial company means a company which is mainly engaged in the business of generation of electricity or any other form of power or in the construction or manufacture of goods. The test for fulfillment of the condition mainly is laid down in the Explanation to that section that income attributable to any one or more of the aforesaid activities included in its total income before it has considered deduction under Chapter VI-A, sections 80A to 80U. A banking company cannot prima facie be held to be an industrial company. It is to be noted that the Tribunal did not use the expression "industrial company", but used the expression "industrial undertaking". It was observed as follows : "So far as the question of allowability of the claim in respect of provision for gratuity and relief under section 80J is concerned since we have already stated that the bank is an industrial undertaking, we do not think there is any infirmity in the order of th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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