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Income Tax Appellate Tribunal, KOLKATA BENCH “A” KOLKATA
Before: Shri N.V.Vasudevan & Shri Waseem Ahmed
आदेश /O R D E R
PER Waseem Ahmed, Accountant Member:-
This appeal by the assessee is directed against the order of Commissioner of Income Tax (Appeals)-XXXVI, Kolkata dated 17.03.2014. Assessment was framed by ACIT, Circle-1, Hooghly u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) vide his order dated 30.12.2011 for assessment year 2009-10. Shri Somnath Ghosh, Ld. Advocate appeared on behalf of assessee and Shri Anand Kr. Singh, Ld. Departmental Representative represented on behalf of Revenue.
A.Y. 2009-10 BbaKaluroy Heemghar Pvt. Ltd. Vs. ACIT, Cir-1 Hgy. Page 2 2. The grounds raised by the assessee per its appeal are as under:-
1. For That the Ld. Commissioner of Income Tax (appeals) XXXVI, Kolkata acted unlawfully in upholding the disallowance in the sum of Rs.17,052/- out of depreciation u/s. 32(1) of the Income Tax Act, 1961 claimed @ 15% on the storage building by the appellant vis-a-vis 10% allowed by the Ld. Assistant Commissioner of Income Tax, Circle 1, Hooghly and the purported finding on that behalf is absolutely arbitrary, unwarranted and perverse.
For that the specious action of the Ld. Commissioner of Income Tax (Appeals0 XXXVI, Kolkata of upholding the addition in the sum of Rs.17,052/- made by the Ld. Assistant Commissioner of Income Tax, Circle 1, Hooghly allegedly on the misinterpretation of the expression “plant” contained in the provisions of s. 43(3) of the Act as well as by misreading thee statutory prescription contained in s 32(1) of the Act read with New Appendix under the Income Tax Rules, 1962 is completely unfounded, unjustified and untenable in law.
For that the Ld. Commissioner of Income Tax (Appeals) XXXVI, Kolkata was remiss in upholding the purported addition in the amount of Rs.17,052/- made by the Ld. Assistant Commissioner of Income Tax, Circle 1, Hooghly on extraneous considerations not germane to the issue and the impugned finding on that account without considering the judgment in the case of CIT Vs Shree Gopikishan Industries (P) Ltd. (2003) 262 ITR 568 (Cal) is wholly illegal, illegitimate and infirm in law.”
3. The only inter-connected and common issue raised by assessee in this appeal is that Ld. CIT(A) erred in upholding the order of Assessing Officer by treating the cold storage building as normal building though the same is in the nature of plant and machinery.
The facts in brief are that assessee is a Private Limited Company and running a cold storage. The assessee has claimed depreciation on its cold storage building @ 15% by treating the same as plant and machinery. However, the AO disregarded with the claim of assessee and held that the building cannot be treated as plant and machinery and therefore he allowed the depreciation on such building @ 10%. Thus, the excess depreciation claimed by assessee for ₹ 17,052/- being @ 5% excess depreciation was disallowed and added to the total income of assessee. A.Y. 2009-10 BbaKaluroy Heemghar Pvt. Ltd. Vs. ACIT, Cir-1 Hgy. Page 3 5. Aggrieved, assessee preferred an appeal before Ld. CIT(A). The assessee before Ld. CIT(A) submitted that the purpose of cold storage is to preserve the products from getting decay, rotten, spoil etc. For that purpose, the building is maintained at a particular temperature constantly and therefore same cannot be categorized as any other building but it will certainly belong to the category of plant and machinery. However, the Ld. CIT(A) disregarded the claim of assessee by observing as under:- “5.0 Appellant’s submission is carefully considered As per Section 43(3), plant has been defined as under:- (3) plant includes shops, vehicles, books, scientific apparatus and surgical equipment used for the purposes of the business or profession [but does not include tea bushes or livestock] [for buildings or furniture and fittings].
In view of the clarificatory amendment done in the Assessment Yea 2004-05, there is no further dispute, that no building under any pretext can be defined as plant for claiming depreciation. In view of the above, the AO has correctly disallowed the claim of higher depreciation on building.”
Being aggrieved by the order of Ld. CIT(A) assessee came in second appeal before us.
Ld. AR for the assessee before us filed paper book which is running pages from 1 to 71 and he reiterated same submissions as made before Ld. CIT(A). On the other hand, Ld. DR for the Revenue vehemently relied on the order of Authorities Below.
We have heard the rival submissions of both the parties and perused the materials available on record. The issue in the instant case relates to the depreciation whether the cold storage building is a normal building or it comes under the category of “plant & machinery”. The Authorities Below has treated the cold storage building as “normal building” and accordingly allowed the depreciation. Admittedly the impugned building is used for the purpose of cold storage warehouse. There is no dispute with regard to the use of the impugned A.Y. 2009-10 BbaKaluroy Heemghar Pvt. Ltd. Vs. ACIT, Cir-1 Hgy. Page 4 building. Cold storage preserves products by way of refrigerating them in order to save from eliminating sprouting, rotting and insect damage. Cold Storages provide warehousing of the products at a required a storage temperature. Now the question arises at what rate the depreciation on such cold storage of building should be provided under the Income Tax Act. Under the Act there are different rates of depreciation for different assets. Under the Act the assets has been classified under different categories such as technical know-how, plant & machinery, building and furniture etc. The assessee in the instant case is treating the cold storage building as plant & machinery and accordingly claiming the appreciation at the rate of 15% on its value. However the lower authorities are treating the same as building and allowing the appreciation at the rate of 10% as provided under the Act. For this purpose it is appropriate to refer the definition of plant which has been provided u/s43(3) of the Act by the Finance Act 2003 w.e.f. 1.4.2004 which reads as under : Definitions of certain terms relevant to income from profits and gains of business or profession.
In sections 28 to 41 and in this section, unless the context otherwise requires— (1) … … (2) … … (3) Plant includes ships, vehicle, books scientific apparatus and surgical equipment used for the purpose of the business or profession [but does not include tea bush or livestock] [or building or furniture and fittings] From the above definition of plant it is clear that the building is not a part of the plant. However the Hon’ble jurisdictional High Court of Calcutta in the case of CIT versus Shri Gopikishan Industries Private Limited reported in 262 ITR 568 (Cal) vided order dated 11.06.2003 has observed that the roofs and walls of the building are constructed and maintained in a particular manner with the purpose to store the store the goods for long time. Therefore the cold storage buildings are insulated. The insulation without the building cannot produce the result and the building without the insulation also equally disastrous for the purpose. Thus the cold storage building with the insulation cannot be used for other activities. Therefore, the cold storage buildings are definitely plant as defined u/s 43(3) of the Act. The relevant extract of the order is reproduced below :
“Building of a cold storage which houses the chambers is constructed and insulated in a particular manner according to specification and it is the means or apparatus or the tools through which the business is carried on and, therefore, the chambers of the cold storage are plant as defined in s. 43(3), while the rest of the building would not be a plant.”
It is important to note that the above the judgment was delivered prior to the amendment in section 43(3) of the Act. Now the provisions of sections are very clear which states that the building cannot be treated as plant as discussed above. However the Hon’ble Allahabad High Court after considering the amended provisions of the Act has allowed the issue in favour of assessee in the case of M/s Shyam Enterprises Vs. CIT in Income Tax Appeal No. 209 of 2008 dated 04.08.2011 by holding as under:- “The amendment in S. 43(3) w.e.f. 1.4.2004 is only clarificatory in nature and which excluded the live stock or buildings or furniture and fittings from the plant. What was excluded in the context was building or furniture and fittings and not building of special nature, which does not have existence independent from the plant. In case of cold storage as it was found by Calcutta High Court, the building s required to be constructed for cooling chambers in a specific process and manner and without such specific process and manner a chamber cannot be commissioned, for which a licence is also required to be obtained. The whole building, which houses the chambers has to be constructed according to specifications in a particular manner. Without a thermocole a chamber cannot function independently and at the same time without the building the thermocole cannot have a separate existence. Both these part are integral parts of each other.
The cold storage as special facilities for refrigeration. Just as a refrigerator cannot be divided into two parts namely the cooling system behind or under the refrigerator, and the cabinet in front, or on top thereof, the plant of cold storage also cannot be separated in a manner that the special chambers may have separate existence and be treated as building, sans cooling plant for providing a different rate of depreciation. In Delhi Cold Storage P. Ltd. Vs. Commissioner of Income Tax, 1991 (19) ITR 656, the Supreme Court was concerned with the word ‘processing’ to be understood as an action which brings some change or alteration of the goods A.Y. 2009-10 BbaKaluroy Heemghar Pvt. Ltd. Vs. ACIT, Cir-1 Hgy. Page 6 or material subjected to the act of processing. The court was concerned with the definition of ‘industrial company’ as defined under s. 2(7) (c) of the Finance Act, 1973 for the purposes of 1st Schedule of the Act. This judgment in our opinion, does not apply to the present case as there is no material or any plea that any manufacturing or processing of goods is carried out in the cold storage. The income tax appeal is allowed. Both the questions are decided in favour of the assessee and against the department.”