Section 43(3)

Plant

General tests/principles

General - The contention that ‘plant’ for the purpose of computation of depreciation allowable under the Income-tax Act should be taken to mean the entire organisation or unit as a whole comprising all the apparatus installed therein which are necessary for its function, cannot be accepted - CIT v. Kiran Crimpers [1997] 225 ITR 84/94 Taxman 502 (Guj.).

In the process of application of the statutory provisions of section 43(3), the expression ‘unless the context otherwise requires’ cannot be ignored; it is only when the context does not require otherwise that said definition or meaning under section 43(3) could be resorted so - CIT v. Travancore Mats & Mattings Co. [1997] 92 Taxman 10 (Ker.).

Plant means something which is required for the purpose of carrying on business/enterprise. Plant must be something which is used by the assessee in aid of the object or purpose of the business. It is not only the means of processing the end-product, but it includes the entire operation undertaken for the purpose of obtaining the end-product - CIT v. Birla Jute & Industries Ltd. [2003] 260 ITR 55/133 Taxman 337 (Cal.).

Definition is very wide - The definition of ‘plant’ embraces within its fold subjects and matters so diverse as a ship sailing on the high seas on the one hand, a book used whether by a lawyer or an architect on the other, and a surgeon’s scalpel on the third. It is obvious that there is absolutely no generic affinity between the items chosen for inclusion in the definition provided by the Legislature to the term ‘plant’. The diversity of the subjects chosen and the marked extremities to which the defini­tion has extended itself makes the legislative intent much too clear and audible to need any emphasis, namely, that it has given the term ‘plant’ the widest meaning possible, of course, con­stantly keeping in view the fact that whatever the meaning and howsoever wide its sweep, the term ‘plant’ would not include the stock-in-trade of the businessman nor would it include the place in which the business is carried on - Pathange Poultry Farm v. CIT [1994] 210 ITR 668 (Kar.).

The concept of a plant is a very wide concept and would take within its sweep any equipment or article that is required for a particular purpose. In the context of business, therefore, a plant would mean any equipment or article necessary for the purpose of that business. This result emerges from the plain meaning of the word ‘plant’ and it is not necessary to expand the meaning of that word by reference to things analogous to those included specifically in the definition of ‘plant’ in section 43(3) - CIT v. Saurashtra Bottling (P.) Ltd. [1998] 232 ITR 270 (Guj.).

(Contra)

‘Plant’ can cover a narrow field only - According to the plain dictionary meaning in its widest connotation in the context of trade or business, the expression ‘plant’ may sometimes mean the factory itself as one composite unit including all buildings, machinery and apparatus therein which are required for the pur­poses of the factory. Obviously, the term ‘plant’ has not been used under section 32 of the Act or, for that matter, under the Rules framed thereunder in that wide meaning. The very fact that four different terms have been used, namely, building, machinery, plant and furniture, the term ‘plant’ has been used in a narrow sense to mean that it includes whatever apparatus is used by a person carrying on his business which is not his a stock-in-trade which he buys or makes or sells and which may not fall in the category of the building, machinery or the furniture as such - CIT v. Kiran Crimpers [1997] 225 ITR 84/94 Taxman 502 (Guj.).

Test for determining whether an item is ‘plant’ - The word ‘plant’ in its ordinary meaning is a word of wide import and it must be broadly construed having regard to the fact that articles like books and surgical instruments are expressly included in the definition of plant in section 43(3). It includes any articles or object, fixed or movable, live or dead, used by a businessman for carrying on his business. It is not necessarily confined to an apparatus which is used for mechanical operations or processes or is employed in mechanical or industrial business. It would not, however, cover the stock-in-trade, i.e., goods bought or made for sale by a businessman. It would also not include an article which is merely a part of the premises in which the business is car­ried on. An article to qualify as ‘plant’ must furthermore have some degree of durability and that which is quickly consumed or worn out in the course of a few operations or within a short time cannot properly be called plant. But an article would not be any the less plant because it is small in size or cheap in value or a large quantity thereof is consumed while being employed in carry­ing on the business. In the ultimate analysis the inquiry which must be made is as to what operation the apparatus performs in the assessee’s business. The relevant test to be applied is : Does it fulfil the function of plant in the assessee’s trading activity ? Is it the tool of the taxpayer’s trade ? If it is, then it is ‘plant’, no matter that it is not very long-lasting or does not contain working parts such as a machine does and plays a merely passive role in the accomplishment of the trading purpose - CIT v. Mcgaw Ravindra Laboratories (India) Ltd. [1981] 132 ITR 401 (Guj.)/Panipat Co-operative Sugar Mills Ltd. v. CIT [1981] 129 ITR 73 (Punj. & Har.).

Tool of trade v. Setting in which trade is carried on - The Act has defined ‘plant’ in an inclusive manner and the Courts have held that, conceptually speaking, anything that is a tool of the trade is ‘plant’. For example, in the case of a lawyer, law books are the tools of his trade and it is for this purpose that books are included in the inclusive definition of the term ‘plant’. But one thing is clear, that the term ‘tool of trade’ signifies close and direct connection between the tool and the assessee’s trade, i.e., a plant must be employed directly in the manufacture or production of goods, etc. The Courts have also made a signifi­cant a distinction between tools of trade and the setting in which the trade is conducted. If a particular item can properly be called a tool of trade, then it is a ‘plant’. On the contrary, a particular item, even though called ‘plant’ in common parlance, will not be ‘plant’ if it is just a part of the setting in which the trade is conducted. For example, an air-conditioner installed in the office premises of an assessee cannot be called a ‘plant’, but an air-conditioner which is indispensable for the manufacturing process (like manufacture of machines), becomes the tool of the assessee’s trade and can properly be regarded as a ‘plant’ - CIT v. Technico Enterprise (P.) Ltd. [1994] 206 ITR 36 (Cal.).

Functional test v. Premises test - An item would not qualify to be ‘plant’ even if it satisfies the ‘functional test’, if on application of ‘premises test’ it is found to be used as or part of the premises or place upon which the business was conducted - Siemens India Ltd. v. CIT [1995] 81 Taxman 122 (Bom.).

Judicial principles - The following principles emerge from the various decisions and the provi­sions of the Income-tax Act :

1. The definition of ‘plant’ in section 43(3) should be given a wide meaning as it is an inclusive definition.

2. 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’.

3. 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 the 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.

4. 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.

5. The particular apparatus or item must be used for carrying on the assessee’s business and must not be his stock-in-trade - R.C. Chemical Industries v. CIT [1982] 134 ITR 330 (Delhi). See also CIT v. Lake Palace Hotels & Motels Pvt. Ltd. [1996] 130 CTR (Raj.) 585.

Roads

Situs will decide whether roads are ‘plant’ - No hard and fast rule can be laid down that every road is a ‘plant’ or all roads constitute ‘building’. It depends upon the particular situation of the roads, the use to which they are put and in particular, whether they are an inte­gral part of the factory by which the business is carried on - CIT v. Coromandel Fertilisers Ltd. [1985] 156 ITR 283 (AP).

Buildings

Functional test must be applied - If the building or structure or part thereof is such by which the business activities are carried on then it would amount to plant but where the structure plays no part in carrying on the business activities and is used as a space for carrying on the business, it will fall within the category of a building and then it cannot be called plant. The functional test to be applied is whether a structure is used for carrying on the business and hence a tool of the trade or whether it is only the place of business in which the business is carried on - CIT v. R.G. Ispat Ltd. [1995] 82 Taxman 488/[1994] 210 ITR 1018 (Raj.).

Where a manufacturer of medicines and drugs constructed a building, and it was factually found that the building was completely used for the manufacture of medicines and not for any other activity, the building must be treated as a ‘plant’ - Dy. CIT v. Astra-IDL Ltd. [2001] 247 ITR 564 (Kar.).

Building specifically designed and constructed for assessee’s flour mill is to be treated as ‘plant’ - When the assessee with a definite purpose, considering the nature of business carried on by the assessee, constructs a building with specific required design keeping in view the specified technical requirement, without which the assessee’s business cannot be carried on, the building in question would qualify to be treated as plant.

Thus, where the report of the architect specifically mentioned that the mill building was designed in such a manner that it held the entire plant and machinery and beams and columns were erected to hold the entire load of plant and machinery on each floor, the building in question was an integral part of the plant being necessary for the purpose of manufacture of atta and maida, a business carried on by the assessee. Thus, the building in question was ‘plant’ - Nowrangroy Metals (P.) Ltd. v. Jt. CIT [2003] 262 ITR 231/[2004] 134 Taxman 460 (Gauhati).

Poultry shed is a ‘building’ and not ‘plant’ - A poultry shed cannot be considered as an apparatus or tool for running the poultry business. It is merely a shelter or home or setting in which the business is carried on. It cannot be termed as ‘plant’ but would fall under the term ‘buildings’ - CIT v. Shivalik Poultries [2005] 274 ITR 529/146 Taxman 449 (Punj. & Har.).

Power generating station is a ‘plant’ - Where it is found as a fact that a building has been so planned and constructed as to serve special technical requirements, it will quali­fy to be treated as ‘plant’. Where there was a finding by the Tribunal that the assessee’s generating station building was so constructed as to be an integral part of its generating system, the building must be held to be a ‘plant’. [Observations in Anand Theatre’s case held as applicable to hotels and cinema theatres] - CIT v. Karnataka Power Corporation [2001] 247 ITR 268 (SC).

Hotel/Cinema Theatres

Building in which hotel or cinema business is carried on is not a plant - For a building used as a hotel, there is a specific provision for granting depreciation allowance at specified rates depending upon fulfilment of the conditions mentioned therein. Hence there is no question of referring to the dictionary meaning of the word ‘plant’ which may or may not include building for arriving at a conclusion that building which is specifically designed and constructed as a hotel building would be a ‘plant’. Even though the word ‘plant’ may include building or structure in certain set of circumstances, to say that building used for running the business of hotel or cinema would be ‘plant’ under the Act appears, on the face of it, to be inconsistent with the legislative scheme under section 32. Such wider meaning cannot be given, and plant would not include building in which hotel busi­ness is run or a theatre building in which cinema business is carried on. For running almost all industries or for carrying on any trade or business, building is required. On occasions a building may be designed and constructed to suit the requirement of a particular industry, trade or business. But that would not make such building a plant. It only shelters running of such business. If the contention that a building could be treated as ‘plant’ in certain situations, virtually all such buildings would be considered to be a plant and the distinction which the Legislature has made between ‘building’ and ‘machinery’ or ‘plant’ would be obliterated - CIT v. Anand Theatres [2000] 110 Taxman 338/244 ITR 192 (SC)/CIT v. Abad Hotels India (P.) Ltd. [2001] 119 Taxman 429 (SC)/CIT v. Raiban & Sons [2001] 119 Taxman 1029 (SC).

Other items

Storage items in factory are plant - Bins, racks and shelves admittedly kept in the workshop of the factory and used for storage of tools, are ‘plant’ - Hindustan Aeronautics Ltd. v. CIT [1994] 119 CTR (Kar.) 391.

Wall clock is not an ‘office appliance’ - A wall clock being of general utility, cannot be described as an office appliance. Wall clocks installed in the factory premises must be treated as ‘plant’, being tools of the assessee’s manufacturing trade - CIT v. SLM Maneklal Industries Ltd. [1994] 205 ITR 547 (Guj.).

Technical know-how is ‘plant’ - Technical know-how in the form of drawings, designs, charts, plans etc. is plant - Scientific Engineering House (P.) Ltd. v. CIT [1986] 157 ITR 86 (SC)/CIT v. Ahmad Hussain Dildar Hussain [1997] 142 CTR (All.) 375.

Nursing Home - Where the findings of the Tribunal and the High Court disclosed that the nursing home run by the assessee was specially equipped for surgical purposes, the ultimate finding of the High Court that the building was eligible to be treated as ‘plant’ for purposes of allowing depreciation had to be accepted - CIT v. Dr. B. Venkata Rao [2000] 111 Taxman 635/243 ITR 81 (SC).

Other items held to be ‘plant’ – Drawings and patterns to be used in the manufacture of goods - CIT v. Elecon Engg. Co. Ltd. [1987] 166 ITR 66 (SC)/CIT v. W.S. Insulators of India Ltd. [2000] 243 ITR 348 (Mad.)

u Manuals containing information about technical data for the production of the product, given by the foreign collaborator - Catalysts & Chemicals India (West Asia) (P.) Ltd. v. CIT [1992] 197 ITR 486 (Ker.).

u Instructions, blue prints, process charts, periodical reports and manuals relating to the process know-how, contained in the form of a file - CIT v. Synthetic & Chemical Ltd. [1992] 106 CTR (Bom.) 372.

u Sanitary fittings in bath rooms in hotel business - CIT v. Taj Mahal Hotel [1971] 82 ITR 44 (SC).

u Books relating to law and allied subjects in the case of a lawyer, and books relating to medicine and allied subjects in the case of a medical practitioner - Catalysts & Chemicals India (West Asia) Ltd. v. CIT [1982] 137 ITR 110 (Ker.)/CIT v. Toshniwal Electrodes Mfg. Co. 1989 Tax LR 689 (Bom.).

u Oil well belonging to an assessee engaged in drilling for crude oil - CIT v. Oil India Ltd. [1992] 105 CTR (Cal.) 356.

u Fencing around refinery processing units - CIT v. Caltex Oil Refining (India) Ltd. [1979] 116 ITR 404 (Bom.).

u Special RCC foundation for installing rotary kiln in the assessee’s factory - Addl. CIT v. Madras Cements Ltd. [1977] 110 ITR 281 (Mad.).

u Safe deposit vault installed in banks - CIT v. Union Bank of India Ltd. [1976] 102 ITR 270 (Bom.).

u Lockers are the primary safety article of a bank used for the purpose of carrying on the trade and fall within the expres­sion ‘plant’ - CIT v. Sakthi Finance Ltd. [2007] 291 ITR 83 (Mad.).

u Internal telephone system installed in factories - CIT v. Mohan Meakin Breweries Ltd. [1980] 122 ITR 203 (HP).

u Light fittings, ceiling and pedestal fans and water pipe fit­tings in a hotel - CIT v. Jagadeeschandran & Co. [1970] 75 ITR 697 (Mad.).

u Poles, cables, conductors and switch boards for distribution of electricity - CIT v. Indian Turpentine & Rosin Co. Ltd. [1970] 75 ITR 533 (All.).

u Thermocole insulation in a cold storage plant - CIT v. Yamuna Cold Storage [1981] 129 ITR 728 (Punj. & Har.).

u Cold storage - CIT v. Sibbal Cold Storage [1996] 136 CTR (MP) 244/CIT v. Shree Gopi Kishan Industries (P.) Ltd. [2003] 131 Taxman 729 (Cal.).

u Cold storage room platform for machine, and observation and cooling tower installed by an ice-cream manufacturer - CIT v. Pure Ice Cream Co. [1981] 129 ITR 394 (Delhi).

u Building used as freezing chamber in a cold storage plant - CIT v. Kanodia Cold Storage [1975] 100 ITR 155 (All.).

u Gas cylinders used in the business of manufacture and supply of oxygen - CIT v. National Air Products Ltd. [1980] 126 ITR 196 (Delhi).

u Well dug by an assessee engaged in manufacture of pharmaceuticals - CIT v. Warner Hindustan Ltd. [1979] 117 ITR 68 (AP).

u Railway sidings for transporting goods manufactured in the assessee’s factory - Kalinga Tubes Ltd. v. CIT [1974] 96 ITR 20 (Ori.).

u Tube well set up for carrying on business - CIT v. Hindusthan Motors Ltd. [1988] 170 ITR 431 (Cal.)/CIT v. Bhandari Capacitors (P.) Ltd. [1996] 218 ITR 162 (MP).

u Tube well and weighing machine used in the production of paper - Tribeni Tissues Ltd. v. CIT [1991] 190 ITR 487 (Cal.)/CIT v. Bhandari Capacitors (P.) Ltd. [1996] 218 ITR 162 (MP).

u Studio for production of cinematograph film - CIT v. Navodaya [2004] 135 Taxman 258 (Ker.).

u Bottles and shells used by a manufacturer of soft drinks - CIT v. Sri Krishna Bottlers (P.) Ltd. [1988] 40 Taxman 15 (AP)/CIT v. Jai Drinks (P.) Ltd. [1988] 173 ITR 100 (Raj.)/CIT v. Prem Nath Monga Bottlers (P.) Ltd. [1997] 226 ITR 864 (Delhi)/Jt. CIT v. Anatronics General Co. (P.) Ltd. [2000] 113 Taxman 511 (Delhi).

u Horse - Yarmouth v. France [1889] 19 QBD 647 (QB); 2. Knives and lasts used in manufacture of shoes - Hinton v. Maden & Ire­land Ltd. [1960] 39 ITR 357 (HL); 3. Aircraft engine which was being dismantled - Watts v. Enfield Rolling Mills (Aluminium) Ltd. [1952] 1 All ER 1013 (CA); 4. Movable office partitions - Jarrold v. John Good & Sons Ltd. [1962] 40 TC 681 (CA); 5. Con­crete dry dock - Inland Revenue Commissioners v. Barclay, Curle & Co. Ltd. [1970] 76 ITR 62 (HL); 6. Electrical fans and other office applicances - Sundaram Motors (P.) Ltd. v. CIT [1969] 71 ITR 587 (Mad.); 7. Poles, cables, conductors and switch boards for distribution of electricity - CIT v. Indian Turpentine & Rosin Co. Ltd. [1970] 75 ITR 533 (All.);

8. Light-fittings, ceiling and pedestal fans and waterpipe fittings in a hotel - CIT v. Jagadeeschandran & Co. [1970] 75 ITR 697 (Mad.); and 9. Sani­tary and pipeline fittings in a hotel - CIT v. Taj Mahal Hotel [1971] 82 ITR 44 (SC).

u Shuttering material used by a building contractor - Harijan Evam Nirbal Varg Avas Nigam Ltd. v. CIT [1996] 85 Taxman 456 (All.).

u Chairs installed in cinema theatres - CIT v. Dreamland Theatres Valsad 1995 Tax LR 1200 (Guj.).

u Shuttering materials used in construction works - Harijan Evam Nirbal Varg Avas Nigam v. CIT [1996] 85 Taxman 456 (All.).

u Project report - CIT v. Harsha Tractor Ltd. [2001] 117 Taxman 201 (Delhi).

u Underground Cables - CIT v. Mahanagar Telephone Ltd. [2001] 171 CTR (Delhi) 212.

Items not treated as ‘plant’ - New bodies built on motor vehicles - Ambala Bus Syndicate Ltd. v. CIT [1963] 49 ITR 480 (Punj.).

u Water storage tank constructed by a person in connection with his business of supplying water to farmers - Jayasingrao Piraji Rao Ghatge v. CIT [1962] 46 ITR 1160 (Bom.).

u Electrical installations in the case of a banking company - CIT v. Bank of India Ltd. [1979] 118 ITR 809 (Bom.).

u Warehouses constructed by the assessee and hired out for stor­age purposes - CIT v. Kanodia Warehousing Corporation [1980] 121 ITR 996 (All.).

u Horse - London & Eastern Countries Loan & Discount Co. v. Creasey [1897] 1 QB 442 (QB); 2. Stallion (used to serve mares) - Earl of Derby v. Aylmer [1915] 6 TC 665 (KB); 3. Bed of a river - Dumbarton Harbour Board v. Cox [1918] 7 TC 147; 4. Solicitor’s law books - Daphne v. Shaw [1926] 11 TC 256 (KB); 5. Water tower - Margrett v. Lowestoft. Water & Gas Co. [1935] 19 TC 481 (KB); 6. Electric lamps and fittings in a tea shop - J. Lyons & Co. Ltd. v. Attorney-General [1944] Ch. 281 (Ch. D.); 7. Human body - Norman v. Golder (Inspector of Taxes) [1945] 13 ITR (Supp.) 21 (CA); 8. Wallpaper pattern books - Rose & Co. (Wallpaper & Paints) Ltd. v. Campbell 44 TC 500 (Ch. D.); 9. Designs for wallpaper and furnishing fabrics - Mcveigh (Inspector of Taxes) v. Arthur Sanderson & Sons Ltd. [1970] 77 ITR 557 (Ch. D.); and 10. Water storage tank used for storing water by the supplier thereof for irrigation purposes - Jayasingrao Piraji Rao Ghatge v. CIT [1962] 46 ITR 1160 (Bom.).

u Counters of a bank - Gun used by security guard of a bank and bank lockers - CIT v. Punjab & Sindh Bank Ltd. [2000] 111 Taxman 496/244 ITR 393 (Delhi).

Tea Bushes - The amendment to section 43(3) made by the Finance Act, 1995 with retrospective effect from 1-4-1962, so as to exclude tea bushes from the definition of ‘plant’ cannot be said to be in any way unreasonable or arbitrary. After this amendment, tea bushes cannot be treated as plant - Adar Tea Produce Co. Ltd. v. Asstt. CIT [2000] 244 ITR 608 (Mad.).