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From the Courts »
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MORADABAD TOLL ROAD CO. LTD. Vs. ASSISTANT COMMISSINER OF INCOME TAX
November, 12th 2014
*       IN THE HIGH COURT OF DELHI AT NEW DELHI

                                         Judgment Reserved on September 09, 2014
                                        Judgment delivered on November 05, 2014

+       ITA 51/2013 & CM 1558/2013
        MORADABAD TOLL ROAD CO. LTD.
                                                           ..... Appellant
                                     Through:   Mr.Ramesh Singh, Ms.Swati
                                                Sumbly and Mr.Ashish Goel,
                                                Advocates

                                          Versus

        ASSISTANT COMMISSINER OF INCOME TAX
                                      ..... Respondent

                                     Through:   Mr.Sanjeev Sabharwal, Sr.
                                                Standing Counsel with
                                                Ms.Swati Thapa, Advocate

+       ITA Nos. 65/2014 with CM 2740/2014 & 81/2014 with CM
        3796/2014
        MORADABAD TOLL ROAD CO. LTD.
                                               ..... Appellant

                                     Through:   Mr.Ramesh Singh, Ms.Swati
                                                Sumbly & Mr.Ashish Goel,
                                                Advocates

                                          Versus

        DEPUTY COMMISSIONER OF INCOME TAX
                                      ..... Respondent

                                     Through:      Mr.Balbir    Singh,    Sr.
                                                   Standing Counsel with
                                                   Mr.Abhishek         Singh
                                                   Baghel and Mr.Arjun
                                                   Harkauli, Advocates

ITA No.51/2013 & connected appeals                                  Page 1 of 26
CORAM:
HON'BLE MR. JUSTICE SANJIV KHANNA
HON'BLE MR. JUSTICE V.KAMESWAR RAO

V.KAMESWAR RAO, J.

        These three appeals involve a common substantial question of law,

which is reproduced as under:-

        "Whether the Income Tax Appellate Tribunal was correct
        in law in holding that Moradabad Bypass Toll Road
        (Highway) was a building and not a plant?"
2.      The appeals relate to assessment years 2007-08 (ITA 51/2013),

2003-04 (ITA 65/2014) and 2004-05 (ITA 81/2014).

3.      ITA No.51/2013

        The appellant is a 100% subsidiary of National Highways

Authority of India (NHAI) and was formed with the sole object of

constructing the highway and bypass at Moradabad, covering a total

stretch of 18.2 kms, which was ultimately executed on Build, Operate

and Transfer (BOT) basis. The appellant filed an income tax return in

electronic form declaring a loss of Rs.10,02,63,570/- for the assessment

year 2007-08. The case was selected for scrutiny and notice under

Section 143(2) of the Income Tax Act, 1961 (,,Act for short) was issued

to the appellant. The Assessing Officer held that the assessee could claim

depreciation @ 10% on roads and not @ 25%, as claimed by the


ITA No.51/2013 & connected appeals                         Page 2 of 26
appellant assessee and accordingly allowed the amount of depreciation

as Rs. 3,70,92,664/- calculated on the amount of Written Down Value.

The Commissioner of Income Tax (Appeals) partially upheld the order

insofar as the aforesaid aspect is concerned. On further appeal, the

Tribunal confirmed the order of CIT (Appeals).

4.      ITA No.65/2014

        The appellant on November 27, 2003 filed an income tax return

declaring loss of Rs.25,94,56,570/-. The case was selected for scrutiny

and notice under Section 143(2) was issued to the appellant on October

15, 2004. The Assessing Officer vide assessment order dated July 28,

2005 allowed depreciation on toll road @ 10%, instead of 25% as

claimed by the appellant assessee. The balance 15% was directed to be

added to the income of the appellant assessee. The appellant assessee has

filed an appeal before the CIT (Appeals), who in his order dated October

11, 2006 held that the road cannot be said to be ,,plant but would fall

under the head ,,building for the purpose of allowing depreciation and

accordingly rejected the appeal. On further appeal, the Tribunal upheld

the order of CIT (Appeals), inter-alia, stating that depreciation with

respect to the roads had to be allowed only @ 10%.

5.      ITA No.81/2014

        The appellant on October 27, 2004 filed an income tax return
ITA No.51/2013 & connected appeals                         Page 3 of 26
declaring loss of Rs.20,83,84,640/-. The Assessing Officer vide

assessment order dated November 30, 2005 held that depreciation on toll

road should be allowed @ 10%, and not @ 25% as claimed by the

appellant assessee. The appellant assessee filed an appeal before the CIT

(Appeals), who in his order dated January 08, 2007 held that the road

cannot be said to be ,,plant and was a ,,building for the purpose of

allowing depreciation and accordingly rejected the appeal. On further

appeal, the Tribunal upheld the order of CIT (Appeals), inter-alia,

observing that depreciation with respect to the roads had to be allowed

only @ 10%.




6.      Mr.Ramesh Singh, learned counsel appearing for the appellant

assessee would submit that the Tribunal has erred in not appreciating the

facts in proper perspective. According to him, the appellant assessee had

rightly claimed depreciation on toll road @ 25%. He would state that the

appellant assessee was constituted for the sole object of construction of

highway, a toll road and was authorized to collect toll tax from the

vehicles passing on the toll road, which is not a ,,building, which being

road by itself is not a part of ,,building or within the confines of a

,,building or an approach road to the ,,building. He would state that toll

road is a structure which constitutes an apparatus or tool by means of

which business activities are carried on and it would amount to ,,plant.
ITA No.51/2013 & connected appeals                         Page 4 of 26
He would rely upon the following judgments in support of his

contentions:

        (a) Indore Municipal Corporation vs. CIT [2001] 247 ITR
        803 (SC)
        (b) Scientific Engineering House Pvt. Ltd. vs. CIT [1986]
        157 ITR 86(SC)
        (c) Nowrangroy Metals Pvt. Ltd. vs. JCIT [2003] 262 ITR
        231 (Gau. HC).
        (d) CIT vs. Karnataka Power Corporation [2001] 247 ITR
        268 (SC)
        (e) CIT vs. Kamala Selvaraj [2005] 273 ITR 154 (Mad.
        HC)
        (f) CIT vs. Gwalior Rayon Silk Manufacturing Co. Ltd.
        [1992] 196 ITR 149 (SC)
        (g) Maharashtra State Road Development Corporation
        Ltd. vs. ACIT, Mumbai [2010] 126 ITD 279 (ITAT,
        Mumbai)
        (h) Tamil Nadu Road Development Company Ltd. vs. ACIT
        [2009] 120 ITD 20 (ITAT, Chennai)
        (i) SK Tulsi And Sons vs. CIT [1991] 187 ITR 685 (All.
        HC)
        (j) RC Chemical Industries vs. CIT [1982] 134 ITR 330
        (Del. HC)
        (k) DCIT vs. ASTRA IDL [2001] 247 ITR 654 (Kar. HC)
        (l) ACIT Mumbai vs. M/s West Gujarat Expressway
        Limited, ITA No.6841/Mum/2011 (ITAT, Mumbai)
        (m) CIT vs. Noida Toll Bridge Co. Ltd. [2013] 213
        Taxman 333 (All. HC)
        (n) CIT vs. Anand Theatres [2000] 244 ITR 192 (SC)

7.      On the other hand, Mr.Balbir Singh, learned counsel for the

respondent-revenue would support the order of the authorities inasmuch

as the ,,toll road cannot be construed as a ,,plant as sought to be

contended by the learned counsel for the appellant. He would refer to

,,Note under the table to Appendix 1 to the Rules, which relates to rate at
ITA No.51/2013 & connected appeals                          Page 5 of 26
which depreciation is admissible, wherein ,,buildings have been

defined/referred to include roads, bridges, culverts, wells and tube-wells,

to contend that the road being a ,,building for the purpose of rate of

depreciation, cannot be held a ,,plant. He has also drawn our attention to

clause 3 to Section 43 under which certain terms have been defined

relevant to income from profits and gains of business or profession,

wherein the term ,,plant has been defined in the following manner:-

        "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] [or buildings or furniture and fittings]."
        (The underlined portion was inserted w.e.f. 01.04.2004)

        According to him, a reading of the definition of ,,plant and

,,building as given in clause 3 to Section 43 and in note in Appendix 1 to

the Income Tax Rules, it is clear that a road is not a ,,plant.

8.      Having heard the learned counsel for the parties, the only question

which arises for consideration is whether the toll road can be said to be a

,,plant so as to entitle the assessee a higher rate of depreciation.

9.      Before we deal with the respective submissions of the counsel for

the parties, we refer to some of the relevant provisions of the Income Tax

Act, 1961 (,,Act in short) and the Income Tax Rules, 1962 (,,Rules in

short). Chapter IV of the Act deals with computation of total income.

Sections 28 to Section 44DB deal with profits and gains of business or
ITA No.51/2013 & connected appeals                             Page 6 of 26
profession. Section 32 deals with depreciation. Section 32(1)(i) refers to

depreciation with regard to buildings, plant etc. and such depreciation

shall be allowed, if the asset is used for the purpose of business. The

Rules framed in exercise of power conferred by Section 295 of the Act,

Rule 15 of Part A, Rule 11 of Part B, Rule 9 of Part C of the Fourth

Schedule, stipulates through Rule 5(1) that depreciation of any block of

assets shall be calculated at the percentage specified in second column to

the table in Appendix I to the Rules. Amendment was effected to

Appendix I from the assessment year 2006-07. We note that the pre-

amended Appendix I was applicable for the assessment years 2003-04 to

2005-06. By way of amendment to Appendix I made effective from the

year 2006-07, the depreciation allowance was reduced to 15% with

regard to ,,plant and ,,machinery as against 25% for the assessment

years 2003-04 to 2005-06. Insofar as ,,buildings other than those used

mainly for residential purposes and not covered by sub items 1 and 3 of

the Part A dealing with tangible assets remained as 10%. One more

provision which is of relevance is Section 43 of the Act, wherein the

term ,,plant has been defined. The same has been reproduced above.

10.     Part A of Appendix I which relates to tangible assets refers to

,,buildings also. The types of buildings contemplated are as under:-

        (1) Buildings which are used mainly for residential purposes
ITA No.51/2013 & connected appeals                         Page 7 of 26
             except hotels and boarding houses.

        (2) Buildings other than those used mainly for residential

             purposes and not covered by sub-items (1) above and (3)

             below.

        (3) Buildings acquired on or after the 1st day of September, 2002

             for installing machinery and plant forming part of water supply

             project or water treatment system and which is put to use for

             the purpose of business of providing infrastructure facilities

             under clause (i) of sub-section (4) of section 80-IA.

        (4) Purely temporary erections such as wooden structures.

        Note 1 below the table stipulates ,,buildings include roads,

bridges, culverts, wells, and tubewells. (emphasis supplied)

        It is a settled law that depreciation generally speaking is an

allowance for diminution in the value due to wear and tear of capital

asset employed by the assessee in his business. Section 32 of the Act

provides for depreciation of capital assets in respect of machinery, plant

or furniture etc. It does not include roads per se.

11.     The issue whether roads would be included within the meaning of

,,buildings had come up for interpretation before the Supreme Court in

Gwalior Rayon Silk Manufacturing Co. Ltd. (supra). The Supreme Court

in that case was considering facts wherein roads laid within the factory
ITA No.51/2013 & connected appeals                              Page 8 of 26
premises were links or provided approach to the ,,buildings as necessary

adjuncts to the factory building to carry on the business activity of the

assessee, held that the ,,roads would be ,,buildings within the meaning

of Section 32 of the Act.

12.     It was the submission of learned counsel for the appellant that the

judgment of the Supreme Court in Gwalior Rayon Silk Manufacturing

Co. Ltd. (supra) was peculiar to the facts of that case wherein the

Supreme Court was concerned with roads built in the factory premises.

According to him, the case of independent roads outside such premises

has not been looked in detail.

13.     It is true that the Supreme Court in Gwalior Rayon Silk

Manufacturing Co. Ltd. (supra) was concerned with the roads within the

factory premises and not the roads in general like the one with which we

are concerned in this case. However, it is noticeable that ,,roads were

treated and regarded as ,,buildings, in the given fact situation.

14.     We may note here that the Supreme Court in Indore Municipal

Corporation          (supra)         by   distinguishing   Gwalior    Rayon         Silk

Manufacturing Co. Ltd. (supra) has held that roads by themselves would

not constitute ,,buildings. The Allahabad High Court also in Noida Toll

Bridge (supra) wherein the issue primarily was whether the road in

isolation can be considered as ,,building for the purpose of granting
ITA No.51/2013 & connected appeals                                   Page 9 of 26
depreciation. The High Court after referring extensively the judgment of

the Supreme Court in Gwalior Rayon Silk Manufacturing Co. Ltd.

(supra) and also Appendix I under Rule 5 of the Rules held that the

assessee company is entitled to the depreciation which was disallowed

by the Assessing Officer. The depreciation was allowed on road per se

i.e. toll road but at the rate prescribed and applicable to the head

,,building.

15.     On a careful consideration of the aforesaid position of law, it is

noted that a perusal of the note in Appendix I as existed during the

relevant assessment year so also clause 3 to Section 43, it is clear that

roads referred to are roads per se without any qualification attached

therewith. Had it been road adjunct to building/factory, the rule making

authority would have said so or suggested so in Note (1) itself. Thus all

roads whether adjunct and within a factory, or a toll road, would get

covered under the said heading. There is no dispute, for a toll road

operator, road is an asset used for business purposes and can claim

depreciation as a ,,building. Even otherwise, the respondent revenue

does not dispute that the appellant assessee is entitled to depreciation on

the toll road as a ,,building. Rightly so, as ,,buildings include ,,roads.

On the other hand in terms of Section 43(3), ,,plant does not include

,,buildings. What follows is ,,plant does not include ,,road. It must be
ITA No.51/2013 & connected appeals                          Page 10 of 26
held so as the legislative intent was to include ,,roads as ,,buildings and

not as a ,,plant. That being the intent of the legislature, it must be held

that ,,road is a ,,building and cannot be construed or held as a ,,plant in

any circumstance, even if the tests laid down to decide what is a ,,plant

in various judgments are fulfilled. Otherwise an anomalous situation

would arise when even though ,,road is a ,,building which is not a

,,plant, still the appellant is calling upon this Court to hold a ,,road is a

,,plant. In other words, ,,building is not a ,,plant and to hold to the

contrary is being against the legislative intent. A special provision, will

override and have pre-eminence, over a more general provision. ,,Road,

by specific stipulation would necessary allowed depreciation at rates

applicable to ,,building and cannot be treated as a ,,plant. This is plain

meaning which must be given effect. Further, inconsistency and

repugnancy is to be avoided. It would be incongruous to hold that

,,roads are ,,buildings but under the general definition, it would satisfy

the test of being a ,,plant, then would be entitled to depreciation as a

,,plant, in spite of being covered under the heading ,,building.

16.     The Supreme Court in Commissioner of Income Tax-III vs.

Calcutta Knitwears, Ludhiana [2014] 6 SCC 444 has while considering

an issue regarding Section 158BD which relates to ,,undisclosed income

has reiterated that when the words of the statue are clear, plain and
ITA No.51/2013 & connected appeals                            Page 11 of 26
unambiguous, the legislative intent must be given effect to, without any

hypothetical construction, so as to re-write the provision. The relevant

para is reproduced hereunder:-

        "23. Section 158BD of the Act provides for "undisclosed
        income" of any other person. Before we proceed to explain
        the said provision, we intend to remind ourselves of the
        first or the basic principles of interpretation of a fiscal
        legislation. It is time and again reiterated that the courts,
        while interpreting the provisions of a fiscal legislation
        should neither add nor subtract a word from the provisions
        of instant meaning of the sections. It may be mentioned
        that the foremost principle of interpretation of fiscal
        statutes in every system of interpretation is the rule of
        strict interpretation which provides that where the words
        of the statute are absolutely clear and unambiguous,
        recourse cannot be had to the principles of interpretation
        other than the literal rule."
We are conscious of the fact that, the definition of the term ,,plant

excluding ,,building inserted with effect from 01.4.2004. One of the

appeals in the batch pertains to the assessment year 2003-2004. It can be

said that the said amendment in the definition of ,,plant would not be

applicable to the assessment year 2003-2004. We are of the view that

the same would not make any difference as in terms of "Note" under the

Table in Appendix I of the Rules, ,,Road has been included to be a

ITA No.51/2013 & connected appeals                            Page 12 of 26
,,building for the purpose of depreciation and the said position was in

vogue much before the assessment years with which we are concerned.

The amendment of 2004 was a reiteration/clarification of the position,

existing in Section 32(1)(i) of the Act wherein ,,buildings and ,,plant

have been separately referred to, so also in explanation 3(a) of the said

Section. In other words, it was the intent of the legislature to construe

,,buildings and ,,plant separately or not to construe a ,,buildings as a

,,plant and vice-versa. Further the object of prescribing a lower rate of

depreciation in case of ,,buildings as compared to ,,plant as they have

higher durability. On this ground also, a ,,road cannot be construed as a

,,plant.

        Even assuming that it is for the first time clarified/prescribed that

the ,,plant does not include ,,buildings with effect from 01.4.2004 in

cases earlier to it, a ,,building (road in the case) can still be construed as

a ,,plant, if it satisfies the functional test as propounded in various

judgments and which is the submission of Mr.Singh that the road is a

Tool/Apparatus in the business of the assessee and must be construed as

a ,,plant. We note that the word ,,plant as defined by Section 43(3) as

including ships, vehicles, books, scientific apparatus and surgical

equipments. The Supreme Court in Scientific Engineering House (supra)

has held that ,,plant would include any article or object fixed or moving,
ITA No.51/2013 & connected appeals                             Page 13 of 26
live or dead used by a businessman for carrying on his business and it is

not necessarily confined to an apparatus which is used for mechanical

operations or processes or is employed in mechanical or industrial

business. According to the Court, in order to qualify as ,,plant, the

article must have some degree of durability, as for instance in Hinton vs.

Maden & Ireland Ltd. [1960] 39 ITR 357 (HL), knives and lasts having

an average life of three years used in manufacturing shoes were held to

be ,,plant. The Court also referred to CIT vs. Taj Mahal Hotel [1971] 82

ITR 44 (SC). The respondent therein ran a hotel, and had installed

sanitary and pipeline fittings in respect whereof it claimed development

rebate and the question was whether the sanitary and pipeline fittings

installed fell within the definition of ,,plant given in section 10(5) of the

1922 Act which was similar to the definition given in section 43(3) of

the 1961 Act. The Supreme Court approved and applied the definition of

,,plant given by Lindley L.J. in Yarmouth vs. France [1887] 19 QBD

647, as expounded in Jarrold vs. John Good and Sons Ltd. [1962] 40 TC

681 (CA), to hold that sanitary and pipeline fittings fell within the

definition of ,,plant. The Supreme Court observed that the House of

Lords had held a dry dock fulfilled the function of a ,,plant, posed itself

a question, does the article fulfil the function of a ,,plant in the assesses

trading activity? Is it a tool of his trade with which he carries on his
ITA No.51/2013 & connected appeals                            Page 14 of 26
business. If the answer is in the affirmative, it will be a ,,plant. Applying

the aforesaid test to the drawings, designs, charts, plans, processing data

and other literature comprised in the "documentation service" as

specified in clause 3 of the agreement, the Supreme Court held that it

will be difficult to resist the conclusion that these documents as

constituting a book would fall within the definition of ,,plant. It cannot

be disputed that these documents regarded collectively would have to be

treated as a "book", for, the dictionary meaning of that word is nothing

but "a number of sheets of paper, parchment, etc., with writing or

printing on them, fastened together along one edge, usually between

protective       covers;       literary   or   scientific   work,   anthology,        etc.

distinguished by length and form from a magazine, tract, etc." (vide

Websters New World Dictionary). The Supreme Court further held that

from its physical form, the question was whether these documents satisfy

the functional test indicated above. Obviously, the purpose of rendering

such documentation service by supplying these documents to the

assessee was to enable it to undertake its trading activity of

manufacturing theodolites and microscopes and there could be no doubt

that these documents had a vital function to perform in the manufacture

of these instruments; in fact it was with the aid of these complete and up-

to-date sets of documents that the assessee was able to commence its
ITA No.51/2013 & connected appeals                                    Page 15 of 26
manufacturing activity and these documents really formed the basis of

the business of manufacturing the instruments in question. True, by

themselves, these documents did not perform any mechanical operations

or processes but that cannot militate against their being a ,,plant since

they were in a sense that the basic tools of the assessees trade having a

fairly enduring utility, though owning to technological advances, they

might or would in course of time become obsolete. The Supreme Court,

therefore, clearly of the view that the capital asset acquired by the

assessee, namely, the technical know-how in the shape of drawings,

designs, charts, plans, processing data and other literature falls within the

definition of ,,plant and is, therefore, a depreciable asset.

17.     The Supreme Court in Anand Theatre (supra) considered the

question whether ,,building which was used as a hotel or a cinema

theatre could be considered to be an apparatus or a tool for running the

business so that it could be termed as a ,,plant and depreciation could be

allowed accordingly or whether it remains a ,,building wherein either

hotel business or business for cinema could be conducted? The Supreme

Court after considering various judgments held that ,,building used for

running hotel or carrying on cinema theatre cannot be held to be a ,,plant

inter-alia for the following reasons:-

        (a) The scheme of Section 32 as discussed above clearly
ITA No.51/2013 & connected appeals                              Page 16 of 26
             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 rate of depreciation specifically provide
             grant of depreciation on buildings, furniture and fittings
             machinery and plant and ships. Machinery and plant
             include cinematograph films and other items and the
             building is further given a meaning to include roads,
             bridges, culverts, wells and tubewells.
        (b) In the case of Taj Mahal Hotel [1971] 82 ITR 44, this
             Court has observed that the business of a hotelier is
             carried on by adapting building or premises in suitable
             way, meaning thereby building for a hotel is not
             apparatus or adjunct for running of a hotel. The Court
             did not proceed to hold that a building in which the hotel
             was run was itself a plant, otherwise the Court would not
             have gone into the question whether the sanitary fittings
             used in bathroom was plant.
        (c) To differentiate a building for grant of additional
             depreciation by holding it to be a "plant" in one case
             where the building 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.
18.     In CIT vs. Dr. B.Venkata Rao [2000] 243 ITR 81, the Supreme

ITA No.51/2013 & connected appeals                                 Page 17 of 26
Court held that if it was found that the ,,building or structure constituted

an apparatus or a tool of the taxpayer by means of which business

activities were carried on, amounted to a ,,plant but where the structure

played no part in the carrying on these activities but merely constituted a

place where they were carried on, ,,building could not be regarded as a

,,plant.




19.     In Karnataka Power case, the Supreme Court while considering

the appeal filed by the revenue whereby the authorities below has held

the generating station to be a ,,plant was of the view that its judgment in

Anand Theatre (supra) cannot be read so broadly and held as under:-

        "It is difficult to read the judgment in the case of Anand
        Theatres [2000] 244 ITR 192 (SC) so broadly. The question
        before the Court was whether a building that was used as a
        hotel or a cinema theatre could be given deprecation on the
        basis that it was a ,,plant and it was in relation to that
        question that the court considered a host of authorities of
        this country and England and came to the conclusion that a
        building which was used as a hotel or a cinema theatre
        could not be given depreciation on the basis that it was a
        plant. We must add that the court said: "To differentiate a
        building for grant of additional depreciation by holding it to
        be a ,,plant in one case where a building is specially
        designed and constructed with some special features to
        attract the customers and the building not so constructed

ITA No.51/2013 & connected appeals                            Page 18 of 26
        but used for the same purpose, namely, as a hotel or theatre
        would be unreasonable." This observation is, in our view,
        limited to buildings that are used for the purposes of hotels
        or cinema theatres and will not always apply otherwise. The
        question, basically, is a question of fact, and where it is
        found as a fact that a building has been so planned and
        constructed as to serve an assessees special technical
        requirements, it will qualify to be treated as a plant for the
        purposes of investment allowance. In the instant case, there
        is a finding by the fact-finding authority that the assessees
        generating station building is so constructed as to be an
        integral part of its generating system. It must, therefore, be
        held that it is a "plant" and entitled to investment
        allowance accordingly. The third question is answered in
        the affirmative and in favour of the assessee. The civil
        appeal is dismissed. No order as to costs."
                                                      (emphasis supplied)

20.     Thus a structure constructed for special technical needs and

requirement was ,,plant or ,,machinery like a generator station building,

could be treated as a ,,plant. We note that in some of the judgments

relied upon by the appellant assessee, various High Courts have

considered this aspect. In Nowrangroy Metals Pvt. Ltd. case (supra), the

Gauhati High Court has held as under:-

        "In the present case, applying the tests we have to ascertain
        whether the building in question is a plant or not for the

ITA No.51/2013 & connected appeals                            Page 19 of 26
        assessee to claim the higher rate of depreciation. The report
        of the architect engineer specifically mentions that the mill
        building is designed in such a manner that it holds the
        entire plant and machinery and beams and columns are
        erected to hold the entire load of plant and machinery on
        each floor. The report also states that all the floors are
        constructed with specifically reinforced RCC materials as
        per technical requirements and the structure is made with
        heavy reinforced steel and concrete to hold the weight of
        heavy machines installed in each floor with a load bearing
        capacity of one ton per square meter and that all the four
        walls of the structure and ceiling are fitted with flow pipes
        and other electrical fittings and that the plant cannot be
        held and run without the said specially designed structure.
        It can be said that the structure holds the entire plant and
        machinery and therefore is a integral part of the plant.
        From this report, it is clear that the building has been
        constructed specifically for carrying out the manufacturing
        of atta and flour. The manufacture activities cannot be
        carried out in any other building except in a building
        specifically designed for that purpose."

21.     Similarly in Kamla Selvaraj (supra) the Madras High Court

considering the case of a doctor who claimed extra shift allowance of

depreciation treating the business of her nursing home as a ,,plant for the

assessment year 1983-84, the Assessing Officer disallowed the claim on


ITA No.51/2013 & connected appeals                           Page 20 of 26
the ground that it is not a ,,plant, which order was upheld by CIT

(Appeals) but the Tribunal concluded that the assessee is entitled to extra

shift allowance by holding nursing home as a ,,plant. The High Court by

holding that the Tribunal had not considered based on evidence what was

the area available in the assessees nursing home which should be

construed as a ,,plant and what was the remaining area which would

come within the meaning of the word ,,building not attracting the

definition of word plant, remanded the matter to the Tribunal for fresh

consideration.

22.     This Court in R.C. Chemicals (supra) has evolved the following

principles:-

        "(a) The definition of ,,plant in section 43(3) should be
        given a wide meaning as it is an inclusive definition.
        (b) All buildings are not ,,plant despite the dictionary
             meaning which includes buildings; but a building or
             structure is not per se to be excluded from the ambit of
             the expression ,,plant.
        (c) If the concrete construction or building is used as the
             premises or setting in which the business is carried on in
             contradistinction to the fulfilling of the function of a
             plant, the building or construction or part thereof is not
             considered a plant. The true test is whether it is the
             means of ,,carrying on the business or the location for
             so doing.
ITA No.51/2013 & connected appeals                               Page 21 of 26
        (d) In order, for a building or concrete structure, to qualify
             for inclusion in the term ,,plant, it must be established
             that it is impossible for the equipment to function without
             the particular type of structure.
        (e) The particular apparatus or item must be used for
             carrying on the assessees business and must not be his
             stock-in-trade. The matter has to be considered in the
             context of the particular business of the assessee, e.g.,
             books are a lawyers plant but a booksellers stock -in-
             trade."
23.     We may only state here that the judgment of this Court in R.C

Chemicals case (supra) must be read in the light of the judgment of the

Supreme Court in Anand Theatre (supra) and Karnataka Power (supra).

The Court applied the aforesaid principles to the facts, wherein the

assessee was involved in the business of manufacturing saccharine in a

,,building which according to the assessee would come within the

expression ,,plant. Rejecting the stand, this Court was of the view that

mere setting, albeit a convenient one where the business of

manufacturing is carried on, it has not been established that the

manufacture of saccharine was not possible without the particular

features said to have been incorporated in the ,,building nor is there any

finding to this effect. A ,,building free from atmospheric vagaries might

have certain advantages as compared with a normal construction but in

ITA No.51/2013 & connected appeals                              Page 22 of 26
the facts of the present case remained the space or shelter where the

business of manufacturing saccharine was carried on as opposed to the

means. It is noted that the counsel for the assessee conceded that there

are other companies and concerns which were carrying on the business

of manufacturing saccharine in normal buildings. The Court held that the

correct query in the present context appears to be whether the particular

features incorporated in the ,,building in question were essential to the

manufacturing process and the functioning of the equipment making it

an integral part of the ,,plant. According to this Court, the answer being

in the negative it is apparent that the ,,building in question remained the

location and was not converted into the means for carrying on the

business.

24.     In Astra IDL Ltd. (supra), wherein the Karnataka High Court on a

finding of the Tribunal that the ,,building was used only for

manufacturing and supplying medicine and no other business has held

the ,,building to be a ,,plant. According to the High Court, it constituted

an apparatus and a tool for the assessee by means of which business

activities were being carried out.

25.     The Allahabad High Court in Tulsi (SK) & Sons case (supra) has

held a cinema ,,building to be a ,,plant by holding that in order to find

out whether a ,,building or structure or part thereof constitutes a ,,plant,
ITA No.51/2013 & connected appeals                           Page 23 of 26
the functional test must be applied. If it is found that ,,building or

structure constitute an apparatus or a tool of the taxpayer by means of

which the business activities are carried on, it would amount to ,,plant

but where the structure plays no part in the carrying on those activities

but merely constitute a place within which they are carried on the

,,building cannot be regarded as a ,,plant.

26.     From the above, it is clear that the real test to construe a structure

as a ,,plant, it is to be seen that the structure is used as a tool or

apparatus in the business of the assessee. In other words, the structure is

so constructed so as to serve the assessees special technical

requirements which in normal parlance is called the functional test. As

has been noted above, the toll road has been executed by the assessee on

built, operate and transfer basis (BOT). BOT is a form of project

financing wherein a private entity receives a concession from the public

sector or for that matter private sector to finance, design, construct and

operate a facility stated in the concession contract. This enables the

project proponent to recover its investment, operating and maintenance

expenses in the project. The facility shall be transferred to the public

sector at the end of the concession period. The word ,,build signifies

construction of a road, whereby the tax payer brings into existence a

structure/surface and nothing more. The word ,,operate signifies the
ITA No.51/2013 & connected appeals                             Page 24 of 26
understanding between the assessee and the public authority to collect

charges for the usage of the road. The road is a surface on which the

vehicles ply. No special features have been pointed out which serves as

tool or apparatus while operating the road. No doubt in some roads toll

plazas are erected for collecting the usage charges. These are small

booths which are manned at some places and unmanned at some, where

the user deposits the money in a machine which opens the gate. To cut

costs and minimize the time delay, the usage charges are collected by

some form of automatic or electronic toll collection equipment. In any

case,      the     manned            toll   booths/toll   plazas   are    primarily      a

facility/convenience for collecting the usage charges of the road and

nothing more. That would not change the characteristic of ,,road.

27.     To sum up it is clarified that ,,plant as defined and understood for

tax purposes means tool or equipment used for purposes of business or

profession. Toll road would not be a plant in that sense, for, it is a capital

asset which when used by any person, who makes payment for the said

use, generates and results in accrual of income. It is a capital asset which

is the very business of the assessee and not a implement or a tool used by

the assessee for his business. In the facts of the case, we are of the view

that the toll road would not qualify as a ,,plant so as to entitle the

assessee a higher rate of depreciation. We answer the question in favour
ITA No.51/2013 & connected appeals                                       Page 25 of 26
of the revenue and against the appellant. The appeals are dismissed.

28.     No costs.



                                                (V.KAMESWAR RAO)
                                                     JUDGE


                                                   (SANJIV KHANNA)
                                                      JUDGE

NOVEMBER 05, 2014
km




ITA No.51/2013 & connected appeals                         Page 26 of 26

 
 
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