SCOPE OF PLANT AND MACHINERY |
Business income ID - (JBC-017) |
Scope of the word Plant from Income tax point of view.
Relevant Provision of the Law
Section 43 (3) Defines the word "plant" that 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 building or furniture and fittings.
"Plant" was not necessarily confined to an apparatus which was used for mechanical operations or process or was employed in mechanical or industrial business. But in order to qualify as "plant ", the particular article had to have some degree of durability. The test to be applied was: Did the article fulfil the function of a plant in the assessee's trading activity ? Was it a tool of his trade with which he carried on his business ? If the answer was in the affirmative, it would be a " plant ". [1986] 157 ITR 0086 Scientific Engineering House (Pvt.) Ltd. vs. CIT (Supreme Court of India)
The concept of plant cannot be limited to actual installation of machinery which produces goods by itself. Anything which is used for the purpose of business including any installation which facilitates the production or increases the efficiency of the business will be plant [CIT v. Electronic Research Industries Pvt. Ltd. (1991) ITR 20 (Kar.)]. Poles, cables, conductors and switch boards for distribution of electricity were held to be plants [CIT v. Indian Turpentine and Resin Co. Ltd. (1970) 75 ITR 533 (All.)]. In a hotel, light fittings, ceiling and pedestal fans, water pipe fittings, sanitary and pipeline fittings were held to be plants [CIT v. Taj Mahal Hotel (1971) 82 ITR 44 (SC)]. Safe deposit vault; air-conditioning equipment installed in a safe deposit vault by a bank [CIT v. Central Bank of India (1976) 103 ITR 196 (Bom.)]. Cylinders used for storing oxygen gas by an oxygen manufacturing company [CIT v. National Air Products (1980) 126 ITR 196 (Del.)] internal telephone system [CIT v. Mohan Meakin Breweries Ltd. (1980) 122 ITR 203 (H.P.)] have been held as "plant". Data processing machinery was held to be plant [CIT v. I.B.M. World Trade Corporation (1981) 130 ITR 739 (Bom.)].
A theatre building or hotel building cannot be treated as "plant" [CIT v. Anand Theatre (2000) 244 ITR 192 (SC). The word "plant" is given an inclusive meaning under Sec. 43(3) which nowhere includes buildings. The Rules prescribe different rates of depreciation for different assets and it is against the legislative intent to treat building as a plant.
Test and Following points is to be kept in mind in relation to the definition of Plant.
The word "plant' is to be given a "very wide" meaning. In its ordinary sense, it includes whatever "apparatus" is used by a businessman for carrying on his business but it does not include his stock-in-trade which the tradesman keeps for permanent employment in his business.
But the building or the "setting" in which the business is carried on cannot be plant.
The thing need not be part of the machine used in the manufacturing process but could be merely an "apparatus" used in carrying on the business but having a "degree of durability".
Merely because the asset has a passive function in the carrying on the business, it cannot be said that it is not plant. It may have a passive or an active role.
The subject must have a function in the trader's operation and if it has, it is prima facie a plant unless there was good reason to exclude it from that category. It must be a "tool in the trade" of the businessman.
Gross materiality or tangibility is not necessary and, in fact, intangible things like ideas and designs contained in a book could be "plant". They fall under the category of "intellectual storehouse".
The functional test is a decisive test.