ORDER
T.V.K. Natarajachandran, Accountant Member
1 to 5. [These paras are not reproduced here as they involve minor issues].
6. As regards the next issue relating to grant of investment allowance on air-conditioner, the learned departmental representative referred to the judgment of the Calcutta High Court in the case of CIT v. Machinery Mfg. Corporation Ltd. [1992] 198 ITR 559 for the proposition that for the purpose of grant of investment allowance, the machinery or plant must have close nexus with the business of construction, manufacture or production of any article or thing not being an article or thing specified in Schedule XI. In that case, the question of granting investment allowance on fire extinguishers and time-office equipment came up for consideration and the High Court held that they were not inextricably connected with the production of any article or thing and therefore, they were not plant and machinery installed for the purpose of business of construction, manufacture or production of any article or thing. Consequently, investment allowance was held to be not entitled to these equipments. In that case the question of grant of investment allowance on electrification machinery was remanded to the Tribunal for decision whether having regard to the nature and function of machinery installed, such machinery could be termed as plant. On the same analogy, it was urged that the air-conditioner, though installed in the factory premises, was not eligible for investment allowance.
7. The learned counsel for the assessee, on the other hand, relied on the decision of the Calcutta High Court in the case of Chitpore Golabari Co. (P.) Ltd. v. CIT [1971] 82 ITR 753 for the proposition that the word “plant” is a word of wide import and the word “machinery”, prima facie, means some mechanical contrivances which by themselves or in combination with one or more other mechanical contrivances by the combined movement and inter-dependent operation of their respective parts generate power or evoke, modify, apply or direct natural forces with the object in each case of effecting a definite and specific result. It was also held therein that air-conditioning plants, tube-wells and refrigerators would be plant or machinery within the meaning of the terms in Section 12 of the Income-tax Act, 1922. Reference was also made to the decision of the Bombay High Court in the case of CIT v. Central Bank of India Ltd. [1976] 103 ITR 196 for the proposition that the air-conditioning equipment installed in a safe deposit vault of a bank is “plant” and is entitled to development rebate under Section 10(2)(vib) of the Income-tax Act, 1922. The ratio of the Supreme Court in the case of CIT v. Taj Mahal Hotel [1971] 82 ITR 44 was relied upon for coming to this conclusion. Reliance was also placed on the judgment of the Gujarat High Court in the case of CIT v. Tarun Commercial Mills Ltd. [1985] 151 ITR 75 wherein the word “plant” was held to include apparatus or instruments used by a businessman in carrying on his business. Applying the functional test, it was held that air-conditioners or electric fans are instruments which would advance the performance of business of the assessee and therefore, they were entitled to be included within the term “plant”. The Gujarat High Court held that though office premises are no doubt part of the premises where business is carried on, but the fixtures like air-conditioners or fans cannot be considered to be “office appliances”. The Gujarat High Court has laid down several tests to be applied to decide the issue whether it is an office appliance or not and as a result whereof it agreed that electric fans and air-conditioners would not be office appliances. It has been observed that merely because these appliances are fixed in office premises they do not become, by that fact, office appliances. They are capable of being adopted for the purpose for which they are meant, namely, for maintaining a particular bearable climatic temperature in laboratories, workshops, surgical and nursing homes and even in private residential buildings. Therefore, the Gujarat High Court came to the conclusion that air-conditioners and electric fans installed in the office premises of the assessee are plant entitled to depreciation and development rebate.
8. After due consideration, we are of the opinion that the decision of the CIT (Appeals) is correct and justified and does not call for any interference.
The assessee is carrying on the business of manufacture of hearing aids for which air-conditioning of the premises was absolutely essential in order to prevent dust particles from entering into manufacturing product. Therefore, the air-conditioning system is inextricably linked with the production of hearing aids and it is meant to maintain a particular bearable climatic temperature in laboratories, workshops, surgical and nursing homes and even private buildings, as viewed by their Lordships of the Gujarat High Court in the case of Tarun Commercial Mills Ltd. [supra). In fact, their Lordships went one step further and observed that air-conditioners and electric fans installed in the office premises are plant entitled to depreciation and development rebate and they did not become office appliances just because they were fixed in office premises, so to say. For coming to this conclusion, their Lordships have applied three types of functional tests normally visualised in this regard, namely, (0 common or popular parlance test, (ii) the principal and primary use for which they are capable of being used and (iii) commercial test, viz., how the articles or goods are known in the world of “trade and commerce”. The Bombay High Court in the case of Central Bank of India Ltd. (supra) has held that air-conditioning equipment installed in a safe deposit vault of a bank is plant and is entitled to development rebate and this conclusion was drawn after applying the ratio of the Supreme Court in the case of Taj Mahal Hotel (supra). The Calcutta High Court in the case of Chiipore Golabari Co. (P.) Ltd. (supra) held that air-conditioning plants, tube-wells and refrigerators will be plant or machinery within the meaning of terms in Section 12 of the Income-tax Act, 1922. Even the judgment of the Calcutta High Court in the case of Machinery Mfg. Corpn. Ltd. (supra), relied upon by the learned departmental representative, went by the theory of nexus or close connection or inextricable connection with the business of construction, manufacture or production of any article or thing. It may be recalled that with reference to electrification machinery, their Lordships of Calcutta High Court have not answered the question referred, but the matter was remanded to the Tribunal for decision whether having regard to the nature and function of the machinery installed, such machinery could be termed as plant. In other words, the nature and function for every plant and machinery was required to be considered before deciding the issue whether investment allowance was admissible or not. In our opinion, the Bombay, Calcutta and Gujarat High Court decisions Would support the case of the assessee and therefore, we uphold the order of the CIT (Appeals) on this issue and reject the ground taken by the revenue.
9. In the result, the appeal is dismissed.