Commissioner of Income Tax vs Shivalik Poultries

Ajay Kumar Mittal J.—This is a reference u/s 256 of the Income Tax Act, 1961 (for short "the Act"), at the instance of the Revenue, relating to the assessment year 1988-89 wherein the Income Tax Appellate Tribunal, Chandigarh Bench, Chandigarh (for short "the Tribunal"), has referred the following questions of law for the opinion of this court :

"1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in admitting the claim of the assessee for deductions under sections 80HH and 80I and 32AB of the Income Tax Act, in respect of business of poultry farming ?

Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in admitting the claim of the assessee that the poultry sheds are ''plant'' within the meaning of Section 43 of the Act ?"

The assessee, a registered firm has installed a poultry farm in village Mauli, District Ambala. The assessee filed a return of income for the assessment year 1988-89 declaring nil income. The assessee claimed deductions under sections 80HH, 80I and 32AB of the Act which were disallowed by the Assessing Officer by holding that poultry farming was not an industrial undertaking. The assessee carried an appeal before the Commissioner of Income Tax (Appeals), which was allowed. The Revenue brought the matter before the Income Tax Appellate Tribunal (for short "the Tribunal"). While the Revenue placed reliance on Commissioner of Income Tax Vs. Deejay Hatcheries, , the assessee relied on Commissioner of Income Tax Vs. Sri Venkateswara Hatcheries (P) Ltd., . The Tribunal applied the ratio of Commissioner of Income Tax Vs. Sri Venkateswara Hatcheries (P) Ltd., and decided the issue in favour of the assessee. In Commissioner of Income Tax, Bangalore Vs. Venkateswara Hatcheries (P) Ltd. etc. etc., , the Supreme Court has overruled the judgment of the Andhra Pradesh High Court in Commissioner of Income Tax Vs. Sri Venkateswara Hatcheries (P) Ltd., and approved the view taken in Commissioner of Income Tax Vs. Deejay Hatcheries, and held as under (page 181) :

". . . . Sections 32A, 80J and 80JJ are read together along with the legislative history, it is evident that the provision giving benefit to those who were engaged in running poultry farms was separate and distinct from the provisions which provided incentive to industrial undertakings engaged in the business of manufacturing or producing articles. Thus, if the expression industrial undertaking for the purpose of business of manufacture or production of an Article or thing is read in the context of the provisions of the Act and with regard to the legislative history of the provisions of the Act, it is abundantly clear that those who are engaged in the business of hatcheries are neither industrial undertakings nor engaged in the business of producing articles or things."

In view of the above, we hold that the Tribunal erred in law in admitting the claim of the assessee for deductions under sections 80HH, 80I and 32AB of the Act in respect of the benefits of poultry farming. Accordingly, this question is answered in favour of the Revenue and against the assessee.

Now, adverting to the second question, it may be mentioned that the assessee had claimed that the poultry sheds are plant and not buildings and therefore, it was entitled to depreciation at 33.3 per cent, as is admissible on machinery and plant. The Assessing Officer disallowed the said claim of the assessee on the ground that the poultry sheds cannot be treated as plant. On appeal, the Commissioner of Income Tax (Appeals) allowed the claim of the assessee. The Tribunal dismissed the appeal of the Revenue.

Learned counsel appearing for the Revenue submitted that the poultry sheds do not fall within the definition of plant as defined u/s 43(3) of the Act. In support of this contention, he relied on the decision of the Supreme Court in Commissioner of Income Tax, Trivandrum Vs. M/s. Anand Theatres, .

We have considered the arguments of learned counsel for the Revenue. Section 43(3) of the Act which defines "plant" reads as under :

"43. (3) ''plant'' includes ships, vehicles, books, scientific apparatus and surgical equipment used for the purposes of the business or profession."

The word "plant" is given an inclusive meaning in Section 43(3) of the Act which nowhere includes buildings. There is a well-established distinction between the premises in which the business is carried on and the apparatus with which the business is carried on. The latter category would fall within the ambit of the phrase "plant". The premises cannot be termed as "plant". The building in which the business is carried on might be well suited to the business or have been built for the business but it would not be a plant. The suitability is the reason why the business is carried on there but it does not make it a thing with which the business is carried on. If a building is merely a setting or place to accommodate some apparatus, then that cannot be termed as plant but if that plays an important role in carrying on the business then it will fall within the definition of the term "plant". It would be a plant if it is a tool of the trade with which one carries on his business. The poultry shed cannot be considered as an apparatus or tool for running the poultry business but is merely a shelter or home or setting in which the business is carried on. Thus, the poultry shed cannot be termed as plant but would fall under the term "building".

The question before the Supreme Court in Commissioner of Income Tax, Trivandrum Vs. M/s. Anand Theatres, was whether a building being used for running a hotel or carrying on cinema business would fall within the term "plant". After considering Section 43(3) of the Act, the Supreme Court held that the building used for running of a hotel or carrying on cinema business cannot be held to be plant because (page 224) :

"(1) The scheme of Section 32 as discussed above clearly envisages separate depreciation for a building, machinery and plant, furniture and fittings, etc. The word ''plant'' is given inclusive meaning u/s 43(3) which nowhere includes buildings. The rules prescribing the rates 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 tube-wells.

(2) In the case of Commissioner of Income Tax, Andhra Pradesh Vs. Taj Mahal Hotel, Secunderabad, , 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 bath room was plant.

(3) For a building used for a hotel, specific provision is made granting additional depreciation u/s 32(1)(v) of the Act.

(4) Barclay, Curie and Co. ''s case [1970] 76 ITR 62, decided by the House of Lords pertains to a dry dock yard which itself was functioning as a plant that is to say, structure for the plant was constructed so that dry dock can operate. It operated as an essential part in the operations which took place in getting a ship into the dock, holding it securely and then returning it to the river. The dock as a complete unit contained a large amount of equipment without which the dry dock could not perform its function.

(5) Even in England, courts have repeatedly held that the meaning of the word ''plant'' given in various decisions is artificial and imprecise in application, that is to use the words of Lord Buckley, ''it is now beyond doubt that the word "plant" is used in the relevant Section in an artificial and largely judge-made sense/ Lord Wilberforce commented by stating that ''no ordinary man, literate or semi-literate, would think that a horse, a swimming pool, movable partitions, or even a dry-dock was plant.''

(6) For the hotel building and hospital in the case of Carr v. Sayer 65 TC 15 (Ch D), it has been observed that a hotel building remains a building even when constructed to a luxury specification and similarly a hospital building for infectious diseases which might require a special layout and other features also remains a premises and is not plant.

It is to be added that all these decisions are based upon the interpretation of the phrase ''machinery or plant'' u/s 41 of the Finance Act, 1971, which was applicable and there appears no such distinction for grant of allowance on different heads as provided u/s 32 of the Income Tax Act.

(7) 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."

In view of the above, the second question is also answered in favour of the Revenue and against the assessee.

This reference is disposed of in the manner indicated above.