* 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
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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,
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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
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