Brief of the case
Assesse claimed depreciation on centering and shuttering material at rate of 100% treating said items as ‘plant’. A.O. allowed assesse’s claim in respect of items having value of less than Rs. 5000. In respect of remaining items the A.O. allowed depreciation at rate of 331/3%. Commissioner (Appeals) as well as Tribunal allowed assesse’s claim.
High Court confirmed the Tribunal’s order and held that individual units of centering /shuttering material when used collectively , they constitute ‘plant ’even if said items cannot be used on stand alone basis .the High Court thus concluded that centering /shuttering materials would be entitled to 100% depreciation in terms of first proviso to section 32 (1).
- The assessee , engaged in the activity of building construction, was using the shuttering material as the individual plates, for providing support to the reinforced concrete and cement or the poles and bars that are used at the time of formation.
- The assesse claimed deduction of Rs.17,93,556/- being depreciation on machinery, centering and shuttering equipments at the rate of 100%. The assets included machinery below Rs.5,000/- each of the value of Rs.3,88,562/- and centering and shuttering equipments of the value of Rs.13,19,434/-.
- The Assessing Officer allowed depreciation to the extent of 33 1/3 % on the centering and shuttering materials.
- The Commissioner (Appeals) allowed the appeal and directed the Assessing Officer to allow 100% depreciation as provided for in the proviso to Section 32(1)(ii) of Income Tax Act, 1960.
Contention of Assesse
That without shuttering no building can be erected and, therefore, the shuttering material is an essential part for carrying on the construction work by the assesse every individual material/component of shuttering or centering, such as a steel plate or wooden plank, could be treated as plant and deserve 100% depreciation.
Contention of Revenue
- If a thing itself is durable (in the sense which can be used and re-used as non-interdependent, interconnected a non consumable thing) and has functional utility in the trade or business of the assessee to advance his business interest, such thing would be a plant. If it is durable, but cannot effectively stand alone without functional integration with other similar or dissimilar components or units, it would not qualify as a plant. As is understood in the engineering construction industry, a single unit of centering or shuttering material by itself though durable may not have functional value. Similar units form one integrated part which can be used as shuttering material. Therefore, it is not possible to accept the plea of the assessee that each similar or dissimilar component or unit, forming part of the whole integrated shuttering material, is entitled for 100 per cent depreciation as a plant.
HELD BY ITAT
The appellate Tribunal upheld the order of the Commissioner (Appeals) that the assessee was entitled to claim 100% depreciation on the centering/shuttering material.
HELD BY HIGH COURT
- A component/article being used as a shuttering/centering material could be treated as plant, but it cannot be treated as a plant if it is part of shuttering, which is a plant in itself. In other words, a component/article being used for shuttering, which is a plant in itself, would not qualify for depreciation under proviso to Section 32 (1) (ii) of the Act as a part or extension of the bigger plant of which it becomes a part and it would not be entitled to be termed as a plant in itself to qualify for the allowance in its own right.
- From a perusal of this provision, it appears that that the plant contemplated by the main section would include a plant worth more than Rs.5,000/- or less. The first proviso, however, has carved out an exception from the main section, which precedes the proviso. If the actual cost of any plant is less than Rs.5,000/-, as provided for in the first proviso, it is clearly admissible for 100% depreciation. The question is if the cost of any plant is more than Rs.5,000/-, whether 100% depreciation could be allowed by splitting up of the cost of such plant on the basis of cost of every individual component/material used for the plant such as shuttering and centering. In other words, it is to be considered, whether it was intended to bring every individual component or material forming a plant under the main section and allow one rate of depreciation, and if it is divisible and less than Rs.5,000/, allow 100% depreciation by bringing it under the proviso.
- In this backdrop, it would be relevant to know what does the words centering and shuttering exactly mean, or how they are understood in common parlance or in civil engineering, and what exactly centering or shuttering materials mean. This is necessary, since in the present case what falls for our consideration is whether materials or components collectively or individually, used for centering or shuttering could also be treated as plant. At the out set, it could be viewed shuttering-which is a supporting structure, used to shape and support the concrete until it attains strength, is a plant within the meaning of section 43 of the Act. The question, however, is whether every unit/component (thing) used for forming shuttering or centering could be treated as plant. The words centering or shuttering are not defined in any enactment or elsewhere, and therefore, it would be necessary to find out how they are understood in civil engineering.
- In construction activity, the vertical formwork is usually called shuttering, whereas horizontal formwork is called centering. The components or units (things) put to use for shuttering and centering are similar or common. Generally, there are two main types of shuttering, namely steel and wooden plank/plywood shuttering. Apart from steel and wood, plastics and biboglass are also used in formwork. Thus, the shuttering could be classified as a structure, erected temporarily, designed to cast fresh fluid concrete of the required shape and dimensions, and support it until it becomes self supporting. After the cement concrete is set or gets hardened, the formwork is removed and it is known as stripping. Stripped formwork can be reused. A good formwork should satisfy the following requirements: i) it should be strong enough to withstand all types of dead and live loads; ii) it should be rigidly constructed and efficiently propped and braced both horizontally and vertically, so as to retain its shape; and iii) it should permit removal of various parts in desired sequences without damage to the concrete. Steel sheets and/or timber/wood planks can also be used as shuttering material. They can be fabricated in large number in any desired modular shapes and sizes. Steel forms are used in large number of projects and in situation where large numbers of reuse of the shuttering is possible. Steel forms are stronger, durable and have longer life than the timber formwork. They can be installed and dismantled with greater ease and speed. Steel plates/wooden planks used as shuttering material need support of wooden poles or steel rods or bamboo sticks, with braces or batten to keep it in its place till they are stripped after setting off or hardening off cement concrete. Without support with the poles/rods or braces or batten, they cannot be used independently. Even for joining more than one shuttering sheet/wooden planks, they required to be efficiently braced both horizontally and vertically so as to retain its shape. In short, the shuttering sheets can be used with the support of one or more other units/components such as poles, braces, yokes, ledgers, bevel strip boalts, ribbons, etc.. The shuttering materials would not mean a single unit or component, which can be put to use and make it functional. No single unit or component of the shuttering/centering materials can be used and make function and that it has to be used only with the support of other components (things). It is true that individual plates or planks used for providing support for slab or for providing support to the beam or pillars, can be treated as individual units or components of shuttering material, but it can be put to use and make it functional only with the support of other units/components such as poles/rods, braces, battens, etc.
- Having so understood the meaning of the word shuttering or centering, which is also known as formwork, we would now like to have a glance at the definition of the word plant, as defined under Section 43 of the Act. The word plant is described with an inclusive definition. It includes ships, vehicles, books, scientific apparatus and surgical equipment used for the purposes of business or profession but does not include tea bushes or live stock. 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) of the Act. It includes any article or object, fixed or movable, live or dead, used by a businessman for carrying on his business. An article to qualify as plant must 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. The size or value or quantity of an article, used in carrying on business, would not have any effect on calling it a plant.
- The relevant test to be applied is whether it fulfils the function of plant in the assessees business/trading activity? Is it a tool of the assessee’s business/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 purposes. In other words, the test would be does the article fulfill the function of a plant in the assessee’s trading activity? Is it a tool of his trade with which he carries on his business? If the answer to these questions is in the affirmative, it would be a plant. It could not be doubted that centering and shuttering fulfill the function of a plant, which the assessee use it as a tool for carrying on his business and hence it is a plant.
- In this backdrop, it is necessary to consider whether each article/unit/component used in shuttering or centering could also be treated/termed as a plant. The best possible way is to understand the nature of the business and the purpose of such article/unit/component in such a business. It is also necessary to find out whether any single article/unit/component can be put to use as shuttering material and if the answer is in the negative, thus, a single article/unit/component cannot be treated as a plant or it would not fall within the meaning of the word plant as defined under Section 43(3) of the Act.
- The test is if one single article/unit/component itself is sufficient to fulfill the functioning of shuttering, it could be called or treated as a plant but if not it is certainly not a plant. We do not wish even indirectly to suggest that shuttering materials when put to use for laying cement concrete, is not a plant. When shuttering materials or units/components/articles are put to use together which are dependent on each other, it is considered as a plant. Thus, in our opinion, the functional test is the test, apart from the other tests, if applied, no individual article/unit/component could be considered as a plant. Merely because these articles are durable, they cannot effectively stand alone without functional integration with other similar or dissimilar article/unit/component so as to qualify as plant. Functional utility of each article/unit/component of the shuttering material to a Builder or Contractor in construction activity is the relevant test so as to consider it a plant and as observed earlier none of the article/unit/component of the shuttering material could be put to use without support of other similar or dissimilar article/unit/component. To test, what is held is correct, it is added that a car is a plant but not its spare parts, a book is a plant but not its pages, a ship is a plant but not its parts.
- From bare reading of the definition of plant under Section 43(3) of the Act, it is clear that each of the items/articles mentioned therein is an independent article/item, which fits-in the functional test for the use. None of the articles/items mentioned in the definition or even for that matter a bottle is dependent on any other article or they need not be put to use with other similar or dissimilar items/articles so as to make it functional.
- The shuttering materials though is a plant every individual article/unit/component of the shuttering materials cannot be treated as plant. The benefit arising out of every individual article/unit/component of the shuttering material is not confined to any particular part of the construction activity. Temporary structure, used for moulding cement concrete may be for a very small portion of construction activity, is also not confined to the use of any particular article/unit/component of shuttering material. In other words, in any case unless two or more articles/units/components, similar or dissimilar, are put to use together, it cannot be made functional and no cement concrete can be laid in the process of construction activity.
WHY SINGLE CENTERING/SHUTTERING MATERIALS SHOULD BE TREATED AS PLANT
- It is opined that, individual components of shuttering/centering material do not lose their individuality merely because they are used in combination with other similar or dissimilar units in the construction activity of the assessee. They can be and are normally dis-assembled after their use in combination and revert back to their individual status. Since they are durable and have a function in the assessees business, merely because they are not capable of being used individually on a stand alone basis and have to be used in combination with other units thereof, they do not cease to be a plant. Therefore, I hold that it is possible for the assessee to claim depreciation on individual items thereof under the proviso to Section 32 (1) (ii) of the Act and that it is not necessary for him to prove that each such individual item is capable of being used on a stand alone basis.
- It is only necessary for the assessee to establish that the unit of shuttering/centering material performs an operation in his business and trading activities and that it is a tool in his trade. He has to show that it is such that without it, he cannot carry on business.
- The definition of plant contained in Sub- section (5) of Section 10 is very wide. The term “plant” includes such articles as books and scientific apparatus. There should, therefore, be no difficulty in treating poles, cables, conductors and switch-boards for distribution of electricity as plant within the meaning of Clause (vib) of Section 10(2) of the Act.
- It is significant that the Income Tax Officer allowed normal depreciation on these very articles under Clause (vi) of Section 10(2) of the Act. He must have allowed depreciation on the footing that these articles constitute machinery or plant within the meaning of Clause (vi) of Section 10(2) of the Act. If the poles, cables, conductors and switch-boards constituted “machinery or plant” within the meaning of Clause (vi), there is no reason why they should not constitute “machinery or plant” within the meaning of Clause (vib) of Section 10(2) of the Act. Even if there is some difficulty in looking upon poles, cables, conductors and switch- boards as machinery, there is no difficulty in accepting the assessee’s case that these articles constitute a plant within the meaning of Clause (vib) of Section 10(2) of the Act. The Tribunal was, therefore, right in holding that the assessee is entitled to development rebate under Clause (vib) of Section 10(2) of the Act.
- The court answered the question that ” On the facts and in the circumstances of the case, the electrical installations installed by the assessee- company as a result of a change over from D.C. to A.C. system constitute plant. Consequently, development rebate was admissible in respect of expenditure incurred in connection therewith.”
- Thus electric poles used in an industry for change of power from D.C to A.C would constitute a plant. It cannot be disputed that poles support the shuttering/centring material used by the assessee. On the same parity of reasoning, poles used in shuttering/ centring work would also be plant no matter that they cannot be used on a stand alone basis.
- Therefore, the answer is in the favour of the assessee that the Appellate Tribunal was justified in law in holding that the assessee is entitled to claim 100% depreciation on the centering/shuttering materials. It was also held that the decision of the Division Bench of this Court in Sri Raghavendra Constructions is not correctly decided in so far as it held that individual units of centring/shuttering material would not be plant are not entitled to 100% depreciation under the first proviso to Sec.32 (1) since they cannot be used on a stand alone basis .