CI.T PATIALA vs. M/S PATIALA DISTILLERS & MANUFACTURER

ITR/120/1997HC Punjab & HaryanaPHHC01035361199708 December 2006Author: MR. JUSTICE RAJESH BINDAL,MR. JUSTICE ADARSH KUMAR GOEL2 pages
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What were the facts?

The assessee, M/s. Patiala Distillers & Manufacturers Limited, Patiala, claimed 100% depreciation under Section 32(1)(ii) of the Income Tax Act, 1961, for assessment year 1989-90, on room coolers, intercoms, telephones, and calculators, arguing their individual cost was below Rs. 5000/-. The Assessing Officer disallowed this, classifying them as office appliances rather than plant and machinery. The Commissioner of Income Tax (Appeals) upheld this decision. The Income Tax Appellate Tribunal, however, allowed the assessee's claim, relying on the Bombay High Court's decision in CIT v. Parke Davis (India) Limited, holding that these items constituted plant and machinery eligible for 100% depreciation.

What did the High Court hold?

The High Court held that room-coolers, intercoms, telephones, and calculators constitute part of plant for the purpose of Section 32(1)(ii) proviso 1. The Court reasoned that the expression 'plant' should not be given a restricted meaning and should be interpreted functionally, meaning the article should fulfill the function of a plant in the assessee's trading activity. This functional test was supported by Supreme Court decisions in Scientific Engineering House P.Limited v. CIT and CIT v. Anand Theatres, and High Court decisions in CIT v. Electronics Research Industries Pvt. Limited (regarding internal telephone systems), CIT v. Tarun Commercial Mills Limited (regarding air-conditioners and electric fans), and Mahindra Ugine Steel Co. Limited v. CIT (regarding fans). Therefore, the Tribunal was correct in allowing 100% depreciation on these items if their individual cost was less than Rs. 5000/-. The question of law was answered against the revenue and in favour of the assessee.

What were the issues?

1. Whether, on the facts and in the circumstances of the case, the ITAT was right in law in holding that room-coolers, intercom, telephones and calculators constitute part of plant for the purpose of section 32(1)(ii) proviso 1? Assessee's contention: The assessee argued that room coolers, intercoms, telephones, and calculators, each costing less than Rs. 5000/-, qualified as plant and machinery and were thus eligible for 100% depreciation under Section 32(1)(ii) proviso 1. They relied on the Tribunal's order which followed the Bombay High Court's decision in CIT v. Parke Davis (India) Limited. Revenue's contention: The revenue contended that these items were office appliances and not plant and machinery, hence not eligible for the claimed depreciation. The Assessing Officer and CIT(A) had disallowed the claim on this basis.

Which sections of the Income-tax Act were involved?

Section 32(1)(ii)

AI-generated summary — verify with the full judgment below

Cause title — parties, addresses and appearances
ITR No.120 of 1997 1 IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITR No.120 of 1997 Date of decision:8.12.2006 Commissioner of Income Tax, Patiala ....Petitioner versus M/s. Patiala Distillers & Manufacturers Limited, Patiala. ....Respondent CORAM: HON'BLE MR. JUSTICE ADARSH KUMAR GOEL HON'BLE MR. JUSTICE RAJESH BINDAL Present: Dr. N.L.Sharda, Advocate, for the revenue.

JUDGMENT: Following question of law has been referred for the opinion of this Court by the Income Tax Appellate Tribunal, Chandigarh Bench, Chandigarh (for short, 'the Tribunal'), arising out of its order dated 23.10.1996 in ITA No. 625/Chandi/91, for the assessment year 1989-90:- “Whether, on the facts and in the circumstances of the case, the ITAT was right in law in holding that room- coolers, intercom, telephones and calculators constitute part of plant for the purpose of section 32(1)(ii) proviso 1?”

The assessee claimed deduction under Section 32(1)(ii) of the Income Tax Act, 1961 (for short, 'the Act') on electric installations comprising of 13 room coolers and five pairs of calculators on the ground that cost of each of the items was less than Rs.5000/-.

The order continues below.

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