Value Ingredients of Plant and Machinery, Plant and machinery are produced, acquired or held for use, for earning income or profit. The investment value is usually found when they are considered as cornponents of an integrated whole property. This is identifiable in the valuation of a going concern and when allocating purchase/sale prices. Investment value would also exist in the eyes of plant and machinery manufacturers, dealers and lessors. [ Value Ingredients of Plant and Machinery ]
In most cases, plant and machinery are valued fractionally (independent of the whole). When valued in this manner, they are marketable non-investment property. Their value is not independent of their future, sale and, therefore, they are not held as investment property. Their value ingedients are their market value and owner value.
Plant and machinery would be classified as non-marketable non-investment property when their only value-attribute is owner value. This non-marketable property constitutes items specially designed and build to order which by themselves have no value expect for their present use.
Plant and fixtures
Plant and fixtures are often confused as belonging to the same category. The confusion arises because of the fact that both are extraneous to land through not to a building. Both plant and fixtures are fastened to the earth or to a building by means that make for a reasonably continued use of the asset so conjointly created for the purpose for which the asset was meant. [ Value Ingredients of Plant and Machinery ]
In other words, both plant and fixtures are meant to be added to a land or building for beneficial utilisation of the asset so created. The purpose of the creation of the ultimate asset may be fo better enjoyment of the property so created or for efficient utilisation of the addition it self, or for manufacture and use in the industrial process. Nevertheless, there is a clear difference between a fixture and a plant from the functional point of view.
A series of decisions of the Indian and Australian judiciary have succinctly brought out the essential differences between a ‘fixture’ and ‘plant’. It is educative to have a look into those decisions as narrated below on this specific issue. [ Value Ingredients of Plant and Machinery ]
Furniture and fittings do not fall under the category of plant and machinery.
The word “furniture” has been defined in the Random House Dictionary as “movable articles, as tables, chairs, bedsheets,desks, cabinets, etc, required for use of ornament in a house, office or the like; fittings, apparatus,or necessary accessories for something”. The word “fittings” has been defined as “anything provided as aquipment, part, supply, etc.” According to Webster’s New International English Dictionary, the word “ furniture’ means “articles of convenience or decoration used to furnish a house, apartment, place of business or of accommodation”. The Shorter Oxford English Dictionary defines furniture “as movable articles in a dwelling house, place of business, or public building.” All articles of decoration or convenience used for the purpose of furnishing an office or place of trade or manufacturing would, therefore, be covered by the word “ furniture”.
In CIT cs. Indian Metal & Metalurgical Corpn. {1983} 141 ITR 40, the Madras Hight Court held that the partitions and false cellings provided by the assessee in his cinema theatre should be clsaasfied under ‘fittings’ and not under the head “buildings” so that depreciation can be allowed thereon at 15 per cent.
In Addl. CIT vs Farasol Ltd. {1985} 22 Taxman 418 (Raj.), the assessee, a non-resident company, was involved in shallow drilling in the desert area for the ONGC. It claimed depreciation on the camp’s equipment in the desert which were used for providing lodging facilities to members of the staff. The AAC allowed depreciation at the rate of 15 per cent taking the stand that the camp equipment consisting of temporary wooden frames, tents and wooden furniture were used for the purposes of providing lodging facilities to the members of its staff and the staff of ONGC in accordance with the agreement as there were no permanent houses for stay of the staff in the desert area where drilling operations were being carried on. The court held that the reason why a higher rate of 15 per cent has been prescribed for the furniture and fittings appears to be that the said furniture and fittings is to be used in place where it is likely to be put to greater wear and tear. In the present case, the assessee was required to conduct the drilling operations in the desert area and there were no permanent houses for the stay of staff of the assessee and the ONGC near the drilling site. In order to provide accommodation to members of the staff and the staff of the ONGC, the assessee had to make arrangements for lodging facilities at the site. As the camp equipment and furniture that was provided by the assessee at the site were used for the purpose of providing lodging to the staff in the form of a temporary boarding house, the AAC was justified in holding that the depreciation should be allowed on the camp equipment and furniture at the rate of 15 per cent. [ Value Ingredients of Plant and Machinery ]
Fixtures
Prima facie, once a thing is fixed to the land, in the eyes of the law, it becomes a part of that land. The rules governing what constitutes a fixtures are succinctly set out by Jordan, C.J. in Australian Provincial Assurance Co.Ltd. vs Coroneo (1938) 38 S.R. (N.S.W.) Australian 700 at 712-713 in the following terms :
“A fixture is a thing once a chattel which has become in law land through having been fixed to land. The question whether a chattel has become a fixture depends upon whether it has been fixed to land, and if so for what purpose. If a chattel is actually fixed to land to any extent, by any means other than its own weight, then prima facie it is a fixture; and the burden of proof is upon anyone who asserts that it is not; if it is not otherwise fixed but is kept in position by its own weight, then prima facie it is not a fixture; and the burden of proof is on anyone who asserts that it is: Holland vs. Hodgson (1872) L.R. 7 C.P. 328 AT 335. The test of whether a chattel which has been to some extent fixed to land is a fixture is whether it has been fixed with the intention that it shall remain in position permanently or for an indefinite or substantial period: Holland v. Hodgson (supra), or whether it has been fixed with the intent that it shall remain in position only for some temporary purpose: Vaudeville Electric Cinema Ltd. Vs. Muriset (1923) 2 Ch.74 at 87. In the former case , it is fixture whether it has been fixed for the better employment of the land or building, or fixed merely to steady the thing it self, for the better use or enjoyment of the thing fixed: Holland vs. Hodgson (supra); Reynolds vs. Ashby & Son (1904) A.C. 466; Colledge vs. H.C. Curlett Construction Co.Ltd. (1932) N.Z.L.R.1060; Benger vs. Quartermain (1934) N.Z.L.R.13. If it is proved to have been fixed merely for a temporary purpose it is not a fixture: Holland vs. Hodgson (supra) at 337; Vaudeville Electric Cinema Ltd. Vs. Muriset (supra). [ Value Ingredients of Plant and Machinery ]
The intention of the person fixing it must be gathered from the purpose for which and the time during which user in the fixed position is contemplated: Hobson vs. Gorringe (1897) 1 Ch. 1982; Pukuweka Sawmills Ltd. Vs. Winger (1917) N.Z.L.R. 81. If a thing has been securely fixed, and in particular i it has been so fixed that it cannot be detached without substantial injury to the thing it self or to that to which it is attached, this supplies strong but not necessarily conclusive evidence that a permanent fixing was intented; Holland vs. Hodgson (supra); Spyer vs. Philipson (1931) 2 Ch. 183 at 209-10. On the other hand, the fact that the fixing is very slight helps to support an inference that it was not intended to be permanent. But each case depends on its own facts. In Pukuweka Sawmills Ltd. Vs. Winger (supra), a bush tramway introduced on the land for the temporary purpose of removing logs in the course of timber getting and clearing, and capable of being moved from place to place, was held not to be a fixture; not with standing taht a relatively secure degree of fixation was necessary whilst the tramway was in use in any particuler place. On the other hand a wooden building, resting on land by its own weight but brought there for the purpose of being permanently used as a dwelling house, was held in Reid vs. Smith (1905) 3 C.L.R. 656 to be a fixture”. In Holland vs. Hodgson (1872) L.R.7 C.P.328 (Ex.Ch.) it was held that machines fastened to the floor of a factory by the owner was part of the land and will pass under a mortgage of the factory. Regarding trade fixtures it was held in Bain vs. Brand (1876) 1 A pp. Cas. 762 (H.L) that fixed machinery installed in a colliery, by the lessee was part of the land until removed by the lessee. It was also held that the right to remove trade fixtures is not an expection to the rule that things annexed to land become part of the land, but to the rule that an owner for years or for life who serves something which is fixed to land is liable for waste. [ Value Ingredients of Plant and Machinery ]
As stated in the foregoing quotation from Australian Provincial Assurance Co. Ltd. Vs. Coroneo (1938) 38 S.R.(N.S.W.) 700 the test as whether a chattel becomes a fixture depends upon intention. Applying this test, the House of Lords in Leigh vs. Taylor (1902) A.C. (H.L) held that articles attached to a building for ornamentation and their better display, in circumstances which show not intention to permanently fix them to the building, remain chattels. In that case the tenant for life of a house hung valuable tapestries on the walls. For this purpose strips of wood were nailed to the walls and canvas fixed thereto. The tapestries were stretched over the canvas and fastened to it by tacks and to the strips of wood. The House of Lords affirmed the decision of the Court of Appeal that the tenant for life was entitled to remove the tapestries. The question of intention was further considered by the High Court of Australia in Commissioner of Stamps (W.A) vs. L. Whiteman Ltd. (1940) 64 C.L.R. 407. In that case the owner of a brick making business transferred his assets to a company. These assets consisted of land, the machinery and plant thereon together with the goodwill of the business. The appellant sought to charge advalorem duty on the value of the machinery as well as the land, whereas the respondent contended taht even though the machinery was bolted to concrete bases, was under the cover of a roof and was used for the making of bricks from clay it was intended at some future time, when the clay was exhausted, to shift it to another site. It was also contended by the respondent that the intention of the parties to the transaction was that the machinery should be sold as chattels and not fixtures or part of the land. In holding that the machinery was fixed to and became part of the land, which required the Commissioner to assess it as land, Rich A.C.J. said at 411:
“ But ‘ the circumstances to show intention is the degree and object of the annexation which is in itself apparent and thus manifested the intention’
Hobson Vs. Gorringe (1897) 1 Ch. 182 at 193”. [ Value Ingredients of Plant and Machinery ]
His Honour continued by saying :
“In this case the parties have manifested their intention as to the degree and object of the annexation by bolting the machinery to the concrete bases and enclosing the machinery in sheds which must be ruined if the machinery is removed, the object being to use the machinery for transforming clay found on the land into bricks. As Lord Lindley said, ‘ the purpose for which the machines were obtained and fixed seems to me unmistakable; it was to complete and use the buildings as a factory. It is true that the machines could be removed if necessary, but the concrete beds and bolts prepared for them negate any idea of treating the machines when fixed as movable chattles’ (Reynolds vs. Ashby & Son (1904) A.C. 466 AT 472).”
Concerning the degree to which a chattel must be annexed to land for it to become a fixture, Roper J. (as he then was) in Australia Gas Light Co. Vs Valuer-General (1938) 14 L.G.R. ( N.S.W.) 48 in considering whether a chattel may be removed from the premises “ without structural damage thereto “, said at 51-2:
“ In my opinion in order to ascertain whether anything can be removed from the premises without structural damage to the premises, it is necessary first to consider the premises (that is the land as a whole) as they actually exist, then to consider that the thing in question has been removed, and then to ascertain whether the premises as they are left are structurally damaged compared to the state in which they were prior to the notional removal. Triflling damage caused, for example, by the removal of nails or bolts affixing machinery to a building or to the soil would not be structural damage within the meaning of the section. The complete or partial destruction of a structure would in my opinion effect structural damage to the premises not with standing that no damaged structure remained as part of the premises after the removal or destruction”. [ Value Ingredients of Plant and Machinery ]
That case concerned a dispute as to whether the value of certain improvements effected for the purpose of manufacturing and disposing of gas and other products obtained from the process of coal distillation should be taken into account in assessing the improved and assessed annual value of the land.
In other valuation case, Australia Oil Refineries Pty. Ltd. Vs. Metropolitan Water Sewerage and Drainage Board (1958) 3 L.G.R.A.200, Sugerman J. Considered the question as to whether in determining the improved value and the assessed value of an oil refinery certain strorage tanks and a concrete effluent pipeline should be taken into account. Sections 5(2) and 7(2) of the Valuation of Land Act 1916 (N.S.W.) under which the valuation were assessed, provided that in determining the values “of any land being premises occupied for trade, business, or manufacturing purposes, such value (s) shall not include the value of any plant, machine, tools, or other appliances which are not fixed to the premises or which are only so fixed that they may be removed from the premises without structural damage thereto”. His Honour found that the tanks were ‘ not fixed to the premises’ within the meaning of the sections and that they rested on the land by their own weight and may be moved. He also found that the pipeline was plant and not part of the premises as its removal would cause no damage to any structure :
Roper J., (as he hen was ) in Smart vs. Corall (1939) 6 The Valuer 50 considered the question as to whether glasshouses were fixtures or remained chattels and said at 51-2 :
“The purpose for which they were erected was to protect crops growing in the soil within the houses. During his occupancy of the land as tenant the defendant on a number of occasions moved glasshouses, that is dismantled them and re-erected them in another place on the demised land. This was done as an incident in the use of the houses themselves. The soil over which they were erected became infected with diseases of the tomato plant, and for the next crop the houses were moved to fresh ground. After the contract to purchase was made several houses were thus moved from land which had been under lease to the additional land purchased, and the moving of the houses from time to time to fresh ground as actually effected by the defendant is not unusual in the tomato growing business generally. The ground previously covered is spelled and then used for outside crops. The houses, though large, were flimsy structure having only a slight degree of annexation to the soil, and in my opinion were so annexed for a temporary purpose of growing tomatoes for a limited time. In my opinion it was not intended that they should form part of the freehold and they did not become part of the freehold.” [ Value Ingredients of Plant and Machinery ]
Machinery and Plant
Machinery and Plant definitions and interpretations by the Privy Council and Indian Judiciary :
The word “machinery” has not been defined anywhere in the income- tax Act. However, the Privy Council In Corporation of Calcutta vs. Chairman Cossipur & Chitpore Municipality AIR. 1922 PC 27 has defined “machinery “ as “some mechanical contrivances which, by themselves or in combination with one or more other mechanical contrivances, by the combined movement and interdependent operation of their respective parts generate power, or evoke, modify, apply or direct natural forces with the object in each case of effecting so definite or specific a result.” [ Value Ingredients of Plant and Machinery ]
Machinery, therefore, need not be a self-contained unit capable unit capable of being put to use by it self and may be part of a bigger unit.
The Random House Dictionary defines “ machinery” as an assemblage of machines or mechanical apparatus consisting of interrelated parts with separate functions, used in the performance of some kind of work; a mechanical apparatus or contrivance; a mechanism etc.’
In Mrs. George Mathew vs. CIT [1961] 43 ITR 535, the Kerala High Court has held that the term “machinery” is not restricted in its application only to a self-contained unit capable of being put to use in the business.
The Supreme Court in CIT vs. Mr. Mohammad Ali [1964] 53 ITR 165 has held that a diesel engine is machinery eligible for depreciation. [ Value Ingredients of Plant and Machinery ]
In CIT vs. Calcutta Tramways Co. Ltd. [1968] 69 ITR 799, the Calcutta High Court has held that new tram bodies installed on old chassis in an electric tramway are machinery and plant by themselves.
The Delhi High Court has held in CIT vs. Pure Ice Cream Co. [1981] 129 ITR 394 that expenditure by a manufacturer of ice-cream on construction of a cold storage room, platform for machines and observation and cooling tower will be eligible for depreciation at the rate application to plant and machinery. [ Value Ingredients of Plant and Machinery ]
Plant
In India – The word ‘plant’ has been defined in section 43 (3 ) of the income Tax Act to include ‘ships, vehicles, book, scientific apparatus and surgical equipment used for the purposes of the business or profession.’ This is only an illustrative definition as the term is of such wide import that it would be almost impossible to define it exhaustively. [ Value Ingredients of Plant and Machinery ]
In CIT vs Elecon Engineering Co. Ltd. [1974] 96 ITR 672, the Gujarat High Court held that the word “plant” , though an ordinary English word, is not altogether an easy word to construe. It may have a more or less extensive meaning according to its context. It has come up for interpretation before various courts on numerous occasions in the context of different statutes and the catena of judicial decisions shows that it is a word of wide and varied import susceptible of diverse meaning depending upon its setting in the scheme of the statute. [ Value Ingredients of Plant and Machinery ]
The Court further held that 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). It includes any articles or object fixed or movable, live or died, used by a businessman for carrying on his business. It is not necessaryly confined to an apparatus which is used for mechanical operations or processes or is employed in mechanical or industrial business. It would not, however, cover the stock-in-trade, that is, goods bought or made for sale by a businessman. It would also not include an article which is merely a part of the premises in which the business is carried on. An article to qualify as “plant” must furthermore 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. But an article would not be any the less plant because it is small in size or cheap in value or a large quantity there of is consumed while being employed incarrying on business. In the ultimate analysis the inquiry which must be made is as to what operation the apparatus performs in the assessee’s business. The relevant test to be applied is : does it fulfil the function of plant in the assessee’s trading actifity? Is it the tool of the taxpayer’s 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 purpose. [ Value Ingredients of Plant and Machinery ]
In Jayasingrao Piraji Rao Ghatge vs. CIT [1962] 46 ITR 1160, the Bombay High Court has held that the primary meaning of the word “plant” is machinery, apparatus, fixtures, etc, employed in carrying on a business or trade or mechanical or other industrial business. The primary meaning of the word, therefore, has connection with mechanical or industrial business or manufacture of finished goods from raw products. Even in the extended meaning of the word it would only cover an asset representing capital investment in a manufacturing trade or business; because, according to the said extended meaning, it must be something which represents capital invested in the manufactured product. [ Value Ingredients of Plant and Machinery ]
In R.C. Chemical Industries vs. CIT [1982] 134 ITR 330, the Delhi High Court held that the following principles emerge from the decisions and the provisions of the income Tax Act :
* The definition of ‘plant’ in section 43(3) should be given a wide meaning as it is an illustrative definition.
* All buildings are not plant despite the dictionary meaning which include buildings; but a building or structure is not per se to be excluded from the ambit of the expression ‘plant’. [Value Ingredients of Plant and Machinery]
* If the concrete construction or building is used as the premises or setting in which the business is carried on in contradistinction to the fulfilling of the fuction of the plant, the building or construction or part there of is not to be considered plant. The true test is whether it is the “ means of carrying on the business” or the location’ for so doing.
* In order for a building or concrete structure to quality for inclusion in the term ‘plant’, it must be established that it is imposible for the equipment to function without the particular type of structure.
* The particular apparatus or item must be used for carrying on the assessee’s business and must not be his stock-in-trade.
In CIT vs. National Air Products Ltd. [1980] 126 ITR 196, the Delhi High Court has held that for deciding whether a particular item is a ‘plant’, it has to be seen whether (i) it fulfils the functionof plant in assessee’s trading actifity, and (ii) it is the tool of the assessee’s trade. If so, it is a 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 purpose
The Madras High Court in Sundaram Motors (P) Ltd. vs. CIT [1969] 71 ITR 587 has held that the word “plant” should be given the same popular meaning as “machinery”. If the plant in combination with other appliances in the business effectuates and perpetuates the trade or commerce in question, then it should be deemed that the “plant” is used in the business. [ Value Ingredients of Plant and Machinery ]
In Addl. CIT vs. Madras Cement Ltd. [1977] 110 ITR 281, the Madras High Court has held that special reinforced concrete foundation for locating or installing a rotary kiln in the assessee’s factory, is a plant.
In CIT vs. Caltex Oil Refining (I) Ltd. [1976] 102 ITR 260 (Bom) it has been held that pencing put up around the processing unit of an oil refinery constitutes “plant”. In the case of CIT vs. Warner Hindustan Ltd. [1979] 117 ITR 15 (AP) , the Court held that the definition of “plant” in section 43 (3) is of wide amplitude so as to be taken in, even a well, provided that the well was dug for the purpose of carrying on the business of the assessee.
The Kerala High Court in the cases of Catalysts and Chemicals India (West Asia) Ltd. vs. CIT and CIT vs. Catalysts & Chemicals India (West Asia) Ltd. [1982] 137 ITR 110 has held that books would fall within the definition of ‘plant’ provided they satisfy the qualification that they were “tools” of the business or profession. In the larger sense, sheets of paper written, or unwritten. Brought together in a form, would be a book but in the definition of “plant” books are referred to in a more restricted sense, restrictedby the indication of the functional use of the books. In the sense in which it is used in the Act, it must be one “used for the purpose of the business”. In the case of a lawyer, books relating to law and allied subjects would fall within the definition. In the case of a medical practitioner, books relating to medicines and allied subjects would similarly fall within the definition. Therefore, the definition must satisfy a dual test, viz, that it should be a book in form as well as functionally. Accordingly, manuals containing information of the necessary technical details in the production of the product, handed over by the foreign collaborators to be assessee under an agreement, are books and, therefore, “plant”. [ Value Ingredients of Plant and Machinery ]
In R.C. Chemical Industries vs. CIT [1982] 134 ITR 330 (Delhi), the assessee, an individual, carrying on the business of manufacture of saccharine and other allied chemicals,erected a factory comprising many buildings. In the one building he installed machinery and plant for the manufacture of saccharine for which certain atmospheric controls, e.g., moisture, temperature and provision for filtered air, were required. The building was constructed with particular specifications and standards to install the machinery and plant and portions of the building had to be built with fire bricks and lined with asbestos sheets and also made air-tight to conserve the temperature and preserve filtered air so that saccharine could be manufactured property. The Court held that in view of the aforesaid tests the building could not qualify as a “plant”. It was a mere setting, albeit a convenience, where the business of manufacturing saccharine was carried on. There was no material to show that the manufacture of saccharine was not possible without the particular features said to have been incorporated in the building; nor was there a finding to that effect. [ Value Ingredients of Plant and Machinery ]
In CIT vs. Festo Elgi (P) Ltd. [1981] 129 ITR 499 (Mad.) ; CIT vs. Emco Electro (P) Ltd. [1979] 118 ITR 864 (Bom) ; CIT vs. Belpahar Refractories Ltd. [1977] 109 ITR 667 (Ori) and CIT vs. Vac Met Corpn. (P) Ltd. [1978] 115 ITR 550 (Guj), the Courts have held that technical know-how acquired by a company in the form of blue prints, instuctions, technical manuals, etc, for valuable consideration, would constitute plant. [ Value Ingredients of Plant and Machinery ]
Similarly, where the assessee acquired drawings and patterns from its foreign collaborator for manufacture of its products, and it was found that they formed the very basis for the manufacture, it was held that, though the drawings and patterns did not perform any mechanical operations, they were the basic tools of the assessee’s trade, having a fairly enduring quality and, hence, should be treated as “plant” – CIT vs. Elecon Engineering Co. Ltd. [1974] 96 ITR 672 (Guj) and Nippon Electronics (P) Ltd. vs CIT [1979] 116 ITR 231 (Kar).
In CIT vs Mcgaw Ravindra Laboratories (India) Ltd. [1981] 132 ITR 401 (Guj), the Court held that the portion of fees, paid by the assessee for use of technical know-how, which is allocated to building account, would qualify for depreciation [see also section 35 AB of the oncome Tax Act, which now provides that where the aseessee has paid in any previous year any lump sum consideration for acquiring know-how for use for the purposes of his business, one –sixth of the amount so paid shall be deducted in computing the profits and gains of the business for that previous year, and the balance amount shall be deducted in equal instalments for each of the five immediately succeeeding previous years. [ Value Ingredients of Plant and Machinery ]
In CIT vs. Tarun Commercial Mills [1984] 16 Taxman 18 (Guj), the Court held that air-conditioner and alectric fans are “plant” or “machinery” irrespective of the fact that they are installed in office premises for the reasons, namely, (i) in view of the functional test, i.e., whether the apparatus is a tool in the assessee’s trade, it would be clear that the air-conditioner and electric fans are not part of the premises, but advance the performance of the assessee’s business, and (ii) office premises are no doubt part of the premises where the business was carried on, but all the fixtures and fittings in the office premises could not be said to be part of the premises in which business was carried on; what was to be excluded from the purview of the term “plant and machinery” must be a part of the premises in which business was carried on; what was to be excluded from the purview of the term “plant and machinery” must be a part of the structure it self and not appliances fixed there to and capable of being detached. [ Value Ingredients of Plant and Machinery ]
Other items which have been held by the courts to be “plant” are :
A building with insulated walls used as a freezing chamber as a part of the air-conditioning plant of a cold storage [1975] 100 ITR 155 (All.)
Thermocole insulation in a cold storage – CIT vs. Yamuna Cold Storage [1981] 129 ITR 728 (Punj. &. Har.)
Air-conditioning equipment installed in a safe deposit vault of a bank – CIT VS. Central Bank of India Ltd. [1976] 103 ITR 196 [Bom.]
Cooling coils installed by a sugar mill to facilitate more rapid formation of sugar crystals – Panipat Co-operative Sugar Mills Ltd. vs. CIT [1981] 129 ITR 73 (Punj. & Har.)
Poles, cables, conductors and switchboards for distribution of electricity- CIT vs. Indian Turpentine & Rosin Co. Ltd. [1970] 75 ITR 533 (All.) [ Value Ingredients of Plant and Machinery ]
Coal tubs, cast iron pipes, winding and guiding ropes, etc. – CIT vs. Swadeshi Mining & Mfg. Co. Ltd. [1979] 116 ITR 259 (Cal.)
Safe deposit vault in a bank – CIT vs. Union Bank of India Ltd. [1976] 102 ITR 270 (Bom.)
Sanitary and pipeline fittings of a hotel – CIT vs. Taj Mahal Hotel [1971] 82 ITR 44 (SC)
Loose tools which are directly or intimately connected with the running of the assessee’s factory
Know-how in the form of printed literature giving technical information under an agreement – CIT vs. Sudarshan Chemical Industries (P) Ltd. [1984] 18 Taxman 148 (Bom.)
Technical know-how in the form of manufacturing designs, specimen drawings, charts, plants, processing data and other literature which forms the basis for business of manufacturing etc. – Scientific Engg. House (P) Ltd. vs. CIT [1985] 23 Taxman 66 (SC). [ Value Ingredients of Plant and Machinery ]
The following items are held by the courts as not being “plant” :
Warehouses constructed by the assessee and hired out for storage purposes – CIT vs. Kanodia Wrehousing Corpn. [1980] 121 ITR 996 (All.)
Electrical installations in the case of a banking company – CIT vs. Bank of India Ltd. [1979] 118 ITR 809 (Bom.) [ Value Ingredients of Plant and Machinery ]
Water storage tank constructed by a person in connection with his business of supplying water to farmers – Jayasingrao Piraji Rao Ghatge vs. CIT [1962] 46 ITR 1160 (Bom.)
Part of a vehicle such as the body of a vehicle – Ambala Bus Syndicate Ltd. vs. CIT [1963] 49 ITR 480 (Punj.)
Roads constructed within factory premises – CIT vs. Sandvik Asia Ltd. [1983] 144 ITR 585/12 Taxman 286 (Bom.) [ Value Ingredients of Plant and Machinery ]
Plant is normally one of those items excluded fromstatutory valuations; therefore, it is important to have an understanding of the definition and nature of the term.
In Waratah Gypsum Pty. Ltd. vs. Commissioner of Taxation [1965] 112 C.L.R. 152 McTiernan J. At 161 defined “plant” as “ fixtures implements and machinery used in an industrial process”. The items regarded as “plant” in that case were “the conveyor belt, and railway tracks and sleepers, the workshops, the fuel store and the office” which were used in conjunction with an open cut mining operation. [ Value Ingredients of Plant and Machinery ]
The meaning of the word “plant” was considered by the Supreme Court of N.S.W. (Full Court) in Australian Gas Light Co. Vs. Valuer-General (1940) 14 L.G.R. (N.S.W.) 149 for the purposes of ss.5 (2) and 7 (2) of the Valuation of Land Act 1916 (N.S.W) where Jordan C. J. Found, at 156, that :
‘Plant’ is very general expression which in certain contexts may be capable of including permanently fixed things such as buildings, but is evidently used in a more restricted sense in its present context. These considerations point to the conclusion that what is meant by plant, etc. Which ‘may be removed from the premises withoout structural damage thereto’ is things of the kind mentioned which can be removed without causing any damage to the structures on or in the land of a permanent character and in the nature, for example, buildings, roads or reservoirs, as contrasted with structures such as machines or removable fittings. It was contended that a permanent building should be excluded if it is so constructed as to admit of its being readily removed without injury to the surface of the earth or to any fixed foundations embedded in the earth; but the condition of exclusion is that the thing shall be capable of being removed without structural damage to the premises. This means without structural damage to the actual premises. It is obvious that part of a permanent building cannot be removed without causing structural damage. A fortiori the whole cannot. Such a removal would obviously cause damage to the premises regarded as structure-bearing land”. [ Value Ingredients of Plant and Machinery ]
This question was again considered by Hardie J., sitting in the Land and Valuation Court of N.S.W., in Australian Gas Light Co. Vs. Valuar-General and Anr. [1969] 17 L.G.R.A 125. In that case the item in dispute was a large spherical gas holder. It was held at p. 127 that in deciding as to whether the gas holder was an item of plant, “ it is relevant to consider not only its design, size, method of construction and mode of attachment at the soil, but also and most importantly, its use and function”. The Court also held that it was so fixed that it could be removed without damage to the premises and thus fell within the definitionof “ plant and machinery “.
It has also been dicided in N.S.W. Associated Blue Metal Quarries Ltd. vs. Valuer-General [1935] 12 L.G.R. (N.S.W.) 114 that “plant includeshousing for machinery and tram lines used in connection with a quarry but does not include the factory building.” [ Value Ingredients of Plant and Machinery ]
Valuer will appreciate that the decision as to whether particular items are fixtures or otherwise, depends on the facts an circumstances of each case. [ Value Ingredients of Plant and Machinery ]
The question whether plant and machienery in an industry as a going concern should be construed as movable or immmovable property came up for judicial decision in the Indian court of law. This is discussed at leght in the case of Duncan Industries Ltd. vs. State of UP & Other AIR 2000 SC 355 in which the Supreme Court decided the issue while considering the functioning of fertilizer business as a going concern and the company transferring its assets on “as is where is basis”. The focus of the decision was on the aspect as to how the plant and machinery were embedded and what were the intentions of the parties. The court up held the valuation made by authorities by treating such plant and machinery as immovable property and considering them liable for payment of stamp duty on transfer. [ Value Ingredients of Plant and Machinery ]
It is appropriate to conclude the chapter with the views expressed by Honorable David Laro of United States Tax Court, Washington, D.C. on valuation :
“Anyone approaching the subject of valuation should be aware of certain truisms as a frame of reference. They are :
* Each valuation case is unique. Although guidance can be obtained from earlier cases, each case is unique. One case is rarely on point with another, and a significant differentiation of the facts can usually be made.
* In valuation there are no absolutes. There are only general guidelines to which individual judgements must be applied.
* There is no irrefutable “right” answer
* Courts strive to arrive at the “right” answer and generally do. However, courts are fallible and have no monopoly on wisdom. Justice Jackson once said “we are final not because we are infallible, but we are infallible only because we are final.” Brown vs. Allen, 344 U.S. 443,540 (Jackson J. Concurring in result).”
* Experts will and do differ.
* There are available methods which are generally recognized and accepted by the appraisal profession and the courts.” [ Value Ingredients of Plant and Machinery ]
“A client can sometimes make a simple valuation difficult, or a difficult one, simple. We, as plant and machinery valuers, must simplify to our client the various methods of valuation and guide them in the right way as we best see it. We never stop learning and we are always going to make mistakes at some given point in time. We live in a world of trial and error, and thats the life. Let’s do the best we can and continue to learn from those mistakes and the knowledge of others.”
-George W. Lynch-
