TMI Blog1993 (7) TMI 61X X X X Extracts X X X X X X X X Extracts X X X X ..... 1,328 on the cost of the capital dredging? (3) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the shipway, Kasara Basin, and building berths constituted parts of the 'plant' and that the assessee is entitled to development rebate on such items ? (4) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessee is entitled to relief under section 80J of the Income-tax Act, 1961, in respect of the Frigate Project, for the year under consideration ?" It is agreed by learned counsel for the parties that out of the above questions, three questions, viz., questions Nos. 1, 3 and 4 are covered by a decision of this court in the assessee's own case in CIT v. Mazagaon Dock Ltd. [1991] 191 ITR 460, and in view of the same, these three questions should be answered in the affirmative, i.e., in favour of the assessee and against the Revenue. These questions are answered accordingly. The only question that is left for our consideration is question No. 2 which relates to the controversy whether the dredging of the sea could be treated as "plant" for the purpose of allowance of deve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d stage of construction of the ship was to proceed. The technical consultants, Messrs. Bruce White, Wolfe Barry and Partners, who were appointed to give guidance to the assessee on the dredging work as recommended above, advised that it would be cheaper to carry out the work departmentally instead of giving a contract to an outsider on turn key basis. In order to obtain a minimum depth of 25 at mean high tide, capital dredging was undertaken and an approach channel of 1 1/4 mile in length was dug in the sea bed. The creation of this approach channel consisted of dredging silt, murrum and rock. The assessee, therefore, purchased a dredger at a cost of Rs. 47.35 lakhs and also constructed two Hopper Barges for removing silt. The dredging of rocks was, however, entrusted to a contractor by the name of Ivan Mulutinovic Pim Contractors for Rs. 46.21 lakhs, the work being of a specialised nature. The total cost incurred by the assessee on this capital dredging amounted to Rs. 1,26,85,312. In spite of this capital dredging, the assessee is required annually to remove silt, etc., with which, however, we are not concerned. As a result of expanding the dry dock, constructing a new wet dock ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nel. While dealing with the claim of the assessee for allowance of development rebate on the cost of construction of shipways by dredging the approach channel, the Tribunal held that by dredging the channel in the sea bed and connecting the same with the main channel of the Bombay Port Trust, a major capital asset was created by Mazagaon Dock Ltd. and the expenditure incurred was in the nature of "plant" with the help of which ship construction in Mazagaon Dock Ltd. was possible and, as such, the cost of such dredging had to be treated as capital expenditure on the acquisition of "plant" necessary for ship building. It, therefore, held that dredging which had deepened the sea bed to about 15 feet so that the ship built may be taken out, was "plant" entitled to development rebate. It may be pertinent to mention that this conclusion of the Tribunal goes counter to its own finding in the earlier part of the same order where dealing with the rate of depreciation applicable to the cost of capital dredging, it held that the shipway constructed by dredging the approach channel was on par with construction of roads and culverts in factory buildings and affirmed the finding of the Appellate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dia) Ltd. [1981] 132 ITR 401. Reliance is also placed on the decision of the Andhra Pradesh High Court in the case of CIT v. Warner Hindustan Ltd. [1979] 117 ITR 15, where even a "well" has been held to be a "plant". Reference was also made to the decision of this court in the case of CIT v. Caltex Oil Refining (I.) Ltd. [1976] 102 ITR 260 where "fencing" was held to be a "plant". Great reliance was placed by Mr. Dastur on the decision of the House of Lords in IRC v. Barclay, Curle and Co. Ltd. [1970] 76 ITR 62, wherein the functional test has been discussed and applied. It was also submitted that the controversy as to whether the particular asset amounted to "plant" or not, has to be determined on the facts and circumstances of each individual case depending upon the function the asset is intended to perform. Reference was also made to the decision of the Supreme Court in the case of CIT v. Taj Mahal Hotel [1971] 82 ITR 44, wherein the Supreme Court has given a wide meaning to the expression "plant" and held "furniture and fittings" also to be a "plant" in the case of a hotel. The latest decision of the Supreme Court in the case of Gwalior Rayon Silk Mfg. Co. Ltd. [1992] 196 ITR 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ission of learned counsel for the assessee that, judging from the functional test, the approach channel constructed by dredging the sea can be treated as a "plant". 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 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". This controversy, as rightly pointed out by counsel for the Revenue, has now been set at rest by the Supreme Court in Gwalior Rayon Silk Mfg. Co. Ltd.'s case [1992] 196 ITR 149. In that case, the Supreme Court considered the decisions of various courts, some of which had treated roads as "plant" and it was held that (at page 159) : "We have no hesitation to hold that the roads laid withi ..... 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