TMI Blog1982 (6) TMI 20X X X X Extracts X X X X X X X X Extracts X X X X ..... roduction premises to another, an alternative contention was also raised that " roads " were part and parcel of the " plant " within the meaning of s. 32 of the I.T. Act and were entitled to depreciation allowable on that ground also. The Department's case before the Tribunal was that roads were nothing but a portion of the land and were indistinguishable from land as such and not only did the roads not amount to a structure but they were also not buildings. The Tribunal took the view that the roads were not buildings within the meaning of the relevant provisions of the I.T. Act. However, relying on the decision of the Supreme Court in CIT v. Taj Mahal Hotel [1971] 82 ITR 44, the Tribunal took the view that the Said decision laid down that " plant " includes whatever apparatus, arrangement or contrivance is used by a businessman for carrying on his business excluding stock-in-trade and roads must be treated as " plant ". The Tribunal referred extensively to a decision of another Bench of the Tribunal on the same question in which the Tribunal had held that where roads are used for transporting materials from place to place, roads served the purpose of linking one part of the plant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Taj Mahal Hotel [1971] 82 ITR 44, Mr. Dastur has contended that roads in the instant case must be treated as " plant ". Apart from this decision, heavy reliance has been placed by Mr. Dastur on a decision of the Court of Appeal in Jarrold (H. M. Inspector of Taxes) v. John Good Sons Ltd. [1962] 40 TC 681, in which a special partitioning which allowed the assessee-company to sub-divide the floor space available in any way that it chose and did not form part of the structure of the building was treated as " plant " and the company was held entitled to allowances under Chap. II, Pt. X of the I.T. Act, 1952 (U.K.). Apart from these decisions the learned counsel has relied on certain other decisions in which a dry dock, a swimming pool, soil or well, sanitary fittings and safe deposit vaults have been treated as plants. We shall deal with these decisions later. According to Mr. Dastur, roads within the factory premises must be treated as " plant " because a road was essential for the operation of the whole factory, as, without a road, goods could not be taken from one part of the factory to another. The learned counsel contended that an asset which is in the nature of a building c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us factory buildings lying within the premises and were used for carrying raw materials for finished products and the expenditure incurred on the roads or roadways will have to be regarded as expenditure on buildings and depreciation must, therefore, be allowed. So far as the second question, viz., whether the roads or roadways laid out by the assessee-company constitute plant or not, the Division Bench found that it was not necessary to deal with that question since the first question was answered in favour of the assessee. The observations of the Division Bench in the last para of the judgment are as follows (p. 329 of 106 ITR): " On the question as to whether the roads or roadways laid out by the assessee-company in the factory premises constitute plant or not, which is the subject-matter of the second question referred to us, we are clearly of the view that the frame of the second question itself suggests that that question will not arise in view of our answer to the first question, for the second question arises only if the first question is answered in the negative. Since we have answered the first question in the affirmative, there is no necessity to deal with the second ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other category depends on all the circumstances of the case ". Summarising the tests, Lord Donovan in IRC v. Barclay, Curle Co. Ltd. [1970] 76 ITR 62 (HL), which, for brevity, may be referred to as " judgment in the dry dock case ", observed as follows (p. 82): " There is no statutory definition of the word. But it is at least clear from section 276 of the Income Tax Act of 1952, that the terms 'plant' and 'building or structure' are not mutually exclusive. There may, in other words, be some buildings or structures which can also properly be called 'plant'. What, however, are the tests which enable one to recognise any such case ? These have been left to the courts to formulate. Lindley L.J. did it in Yarmouth v. France [1887] 19 QBD 647, in language which despite the great technological advances since his day is still of great help. Uthwatt J. (as he then was) said in J. Lyons Co. Ltd. v. Attorney-General [1944] 1 Ch 281 (Ch D), that plant did not include the place where the business was carried on: and my noble and learned friend, Lord Pearson, when sitting in the Court of Appeal in Jarrold v. John Good Sons Ltd. [1962] 40 TC 681, spoke of plant being that with which th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... observed that a plant may include whatever apparatus or instruments as are used by a businessman in the carrying on of business but it would, not include the stock-in-trade or the place in which the business is carried on, and proceeding on the footing that there was no finding by, nor claim before, any of the taxing authorities that the electric installations in respect of which the claim for development rebate was made, were " special electrical installations absolutely necessary for the purposes of carrying on the banking business of the assessee ", it was held that it would be difficult to regard electrical installation as plant with which the assessee's business is carried on, and " they would appear merely to be part of the premises in which the business is carried on or, to use the words in J. Lyons case [1944] 1 Ch 281 (Ch D), a part of the setting in which the business is carried on " (p. 817-818 of 118 ITR). The electrical installations were, therefore, held not to be plant. The same test was also applied in Emco Electro P. Ltd.'s case [1979] 118 ITR 864 (Bom). That was a case, in which the question whether the technical know-how sold to the assessee under an agreement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... equirements, the company made use of special partitioning which allowed it to sub-divide the floor space available in any way that it chose. The partitions were secured by screws to the structure of the building only at the floor and ceiling and it was relatively a simple operation to move them from one position to another. It was common ground that the partitioning did not form part of the structure of the building. The statement of the case refers to the following facts which were either proved or admitted (p. 682): " (i) The work of each Department fluctuates from time to time over the years and throughout any particular year, necessitating increases in or a diminution of the staff of such Department with the consequent need for more or less office accommodation to accommodate that Department's staff. Moreover, the gain or loss of an agency involves the setting up of a new department or the closure of an existing department. (ii) There was, therefore, a commercial necessity for the office accommodation of the respondent as a whole to be highly flexible so that the section thereof devoted to any particular department any be increased or diminished as occasion requires..." T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he following observations of Donovan L.J. may also be quoted (p. 695): " The definition given of 'plant' by Lindley L.J. in Yarmouth v. France [1887] 19 QBD 647 clearly embraces them. I would agree, however, that there may be cases, like J. Lyons Co. Ltd. v. Attorney General [1944] 1 Ch 281 (Ch D), where an asset or some article can be excluded from the definition because it is more a part of the setting than part of the apparatus for carrying on the trade. In the present case, however, the contrary is found. These partitions are required by the nature of the respondent's trade, as the lamps in the case of J. Lyons Co. Ltd. v. Attorney-General were not." Pearson L.J., posing the question as to whether the partitioning is part of the premises in which the business is carried on, or part of the plant with which the business is carried on, observed, " either view could have been taken ". The two views were that the so called partitioning, when erected, constitutes the internal walls of the building, which have the advantage of being movable, but until they are moved will stand firm and solid, fully performing the functions of internal walls and so regarded, the partitioning wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der, it is incomprehensible how sanitary fittings can be said to have no connection with the business of the hotelier. He can reasonably expect to get more custom and earn larger profit by charging higher rates for the use of rooms if the bathrooms have sanitary fittings and similar amenities. We are unable to see how the sanitary fittings in the bathrooms in a hotel will not be 'plant' with in section 10(2)(vib) read with section 10(2)(5) when it is quite clear that the intention of the Legislature was to give it a wide meaning and that is why articles like books and surgical instruments were expressly included in the definition of 'plant' ." We are unable to read the decision of the Supreme Court in Taj Mahal Hotel's case [1971] 82 ITR 44, as laying down any general proposition ; that decision must be restricted to the facts of that case. But it is important to point out that the test laid down in Yarmouth I v. France [1887]19 QB 647, referred to by Uthwatt J., in J. Lions Co. Ltd..'s case [1944] 1 Ch 281 (Ch D), and relied upon on behalf of the Revenue has not been held to be an incorrect test and all that the Supreme Court has said was that so far as the facts of Taj Mahal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arded as plant, but I think that one would have to find some good reason for excluding such a structure. And I do not think that mere size is sufficient. " (underlining ours). Lord Reid further observed (p. 67): "It seems to me that every part of this dry dock plays an essential part in getting large vessels into a position where 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.." It was pointed out that the plant, viz., the dock, could not even be made until the necessary excavation had been done. In the same case, Lord Guest applied the functional test and observed as follows (p. 75): " In order to decide whether a particular subject is an " apparatus it seems obvious that an inquiry has to be made as to what operation it performs. The functional test is, therefore, essential at any rate as preliminary. The function which the dry dock performs is that of hydraulic lift taking ships from the water on to dry land, raising them and holding them in such a position that inspection and repairs can conveniently be effected to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n park at a seaside resort. In order to attract customers it provided flush lavatories, showers, water, shops, laundries, children's playground, amusement hall, licensed bars, and heated swimming and paddling pools. Two pools were constructed to a detailed specification commissioned by the company. They were excavated, concreted and lined with a material called marblite, and they stood in a substantial area paved with slabs 2 ft. square. They had an estimated life of 25 to 30 years. On grounds of amenity and public health, they were provided with an elaborate system for filtering, chlorinating and heating the water. The assessee-company claimed that the whole of the expenditure on the construction of the pools, amounting to pounds 7,000 qualified for capital allowances as expenditure on the provision of plant for the purposes of its trade. The inspector of taxes agreed and allowed expenditure attributable to filtration, heating and recirculation, plumbing, fittings and electrical installations as expenditure on the provision of the plaint but disallowed the cost of terracing, construction of the pools and excavation. On appeal by the company the Special Commissioners accepted the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... RC v. Barclay, Curle Co. Ltd. [1970] 76 ITR 62 (HL)], and held that the silos were plant for the purpose of capital allowances. This decision was uphold by Lowry C.J. It is pointed out that the silos were treated by the learned judges as " in the nature of a tool in the trade". In all these cases, therefore, the functional test was applied and assets which were treated as plants were assets with which the business operation was carried on. Same is the case in CIT v. Union Bank of India Ltd. [1976] 102 ITR 270 (Bom), where the question was whether the safe deposit vault was an apparatus or fixture employed in carrying on the trade or business and it was held that the safe deposit vault in a bank is apparatus or fixture employed in carrying on a trade or business which is not its stock-in-trade and would fall within the meaning of a " plant ". All these cases turned mainly in the nature of assets and the role they played in the business of the assessee. These cases are, therefore, of no assistance to the assessee in the instant case. In the view which we have taken, the roads within the factory premises cannot be treated as something with which the business of the assessee is c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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