Brief Facts- The assessee is a company doing business of ‘Aqua Culture’. It grows prawns in specially designed ponds.
Question of Law- Whether ‘natural pond’ which as per the assessee is specially designed for rearing prawns would be treated as ‘Plant’ within Section 32 of the Income-tax Act, 1961.
Contention of the Assessee
The assessee has claimed depreciation in respect of these ponds by contending that these prawn ponds are tools to its business and therefore constitute ‘plant’ within the meaning of Section 32 of the Income-tax Act, 1961.
Contention of the Revenue
The Assessing Officer disallowed the claim of the assessee. Before the Apex Court, the Revenue attempted to effect that the pond in question was natural and not constructed/ specially designed by the assessee.
Held by the Apex Court
The Apex Court at the outset mentioned that one Division Bench of the High Court of Kerala in the case of the same assessee had on earlier occasion decided the question of law in the negative by holding that it is not ‘plant’. The Apex Court also mentioned that another Division Bench by the impugned judgement dated 14.10.2014, even after noticing the earlier judgement, has not agreed with the earlier opinion and has rendered contrary decision. The Apex Court decided to decide these appeals on merits (after the filing of appeals with the Apex Court against both the High Court judgements), rather than remanding the case back to the High Court for consideration by a larger bench.
Decision of the Apex Court
a. The Apex Court at the outset put forth that if these ponds are ‘plants’, then they are eligible for depreciation at the rates applicable to plant and machinery and the case would be covered by provisions Section 32 of Income-tax Act, 1961. The Apex Court also chose not to deal with this aspect in detail with reference to various judgements including its own judgement in the case of CIT , Karnataka vs Karnataka Power Corporation [ 2002 (9) SCC 571]. The Apex Court in the course of rendering this judgement made reference to certain portions of its own judgement in the case of Karnataka Power Corporation, the crux of the same is as under
b. The High Court vide its judgement dated 14.10.2014 while deciding the case in favour of the assessee, specifically mentioned that prawns are grown in specially designed ponds.
c. Finally , the Apex Court held that the High Court judgement dated 14.10.2014 rightly rested the case on ‘functional test’ and since the ponds were specially designed for rearing/ breeding of the prawns, they have to be treated as tools of the business and depreciation was admissible on these ponds. The question of law was decided in favour of the assessee.