JUDGMENT
S. Sankarasubban, J.
1. This appeal is filed by the Commissioner of Income-tax, Trivandrum. The assessee is a Company doing business in aqua culture. Prawns are grown in specially designed ponds. According to the assessee, prawn ponds are tools to the business of the assessee and hence the same constitute ‘Plant’ eligible for depreciation at the rates applicable to Plant and Machinery. The Assessing Officer disallowed the claim of the assessee. The assessee went in appeal before the Commissioner of Income Tax (Appeals). The Commissioner in view of the Full Bench decision of this Court in the case of C.I.T. v. Hotel Luciya, 1998 (1) KLT 549 = 231 ITR 492, held that prawn pond should be treated as ‘plant’ and depreciation applicable to plant should be allowed. Against that order, the Revenue went in appeal before the Income Tax Appellate Tribunal. The Tribunal applying the functional test laid down by the Kerala High Court in Hotel Luciya’s case, 1998 (1) KLT 549 = 231 ITR 492, decided the issue in favour of the assessee and dismissed the appeal of the Revenue. The Tribunal held that depreciation on prawn ponds has to be allowed at the rate applicable to Plant & Machinery. According to the Revenue, the decision of the Tribunal is not correct. It is stated that the Supreme Court has in the case of C.I.T. v. Anand Theatres reversed the judgment of the Kerala High Court in 1998 (1) KLT 549 = 231 ITR 492 and has held that Theatre building is not a plant. Applying the ratio of this decision prawn ponds cannot be treated as a plant eligible for depreciation at the rate applicable to Plant and Machinery. It is against the above order that this appeal is filed.
2. The Tribunal held that the prawn pond is a plant. The Tribunal held that the decision cannot be applied in this case. According to Tribunal, as held by the Bombay High Court, the item would not quality to be ‘plant’ even if it satisfies the “functional test”, if 6n application of “premises test” it is found to be used as or part of the premises or place upon which the business was conducted. In that case, a large number of items numbering 74, which include even stools, cycles, storage racks, wooden top, workman tables etc. were classified by the assessee itself “furniture and fixtures”. The assessee later reclassified the above items as “Plant” and development rebate was claimed in respect thereof. The reclassification was not accepted either by the taxing authority or by the Tribunal on the ground that the above items did not constitute ‘Plant’. The High Court upheld the view of the department and the Tribunal. The Tribunal took the view that the decision of the Bombay High Court does not apply to the case of the assessee as it is distinguishable. It dismissed the appeal filed by the Revenue.
3. The question that arises is whether the pond is a Plant. In Commissioner of Income Tax v. Anand Treatres, 244 ITR 192, the Supreme Court held as follows:–
“Section 32 provides different rates of depreciation for building, machinery, plant or furniture, ships, buildings used for hotels, aeroplanes and other items mentioned therein. The word ‘plant’ is given an inclusive meaning under Section 43(3) which nowhere includes buildings. The Rules prescribing the rates of depreciation specifically provides for grant of depreciation on buildings, furniture and fittings, machinery and plant and ships. Machinery and plant include cinematograph films and other films and other items and “building” is further given a meaning to include roads, bridges, culverts, wells and tube wells. For a building used as a hotel, there is a specific provision in Section 32(1)(v) for granting additional depreciation allowance at specified rates depending upon fulfilment of the conditions mentioned therein. In the context of the legislative scheme under Section 32, even though the word “plant” may include building or structure in certain set of circumstances as per the dictionary meaning, to say that a building used for running the business of hotel or a cinema would be “plant” under the Act would be inconsistent with the provisions of Section 32 and the legislative intent”.
The Supreme Court further held as follows:
“There is well-established distinction, in general terms, between the premises in which the business is carried on and the plant with which the business is carried on. The premises are not plant. It is proper to consider the function of the item in dispute. If it functions as part of the premises it is not plant. The fact that the building in which a business is carried on is by it construction particularly well-suited to the business, or indeed was specially built for that business, does not make it plant. Its suitability is amply the reason why the business is carried on there. But it remains the place in which the business is carried on and is not something with which the business is carried on except in some rare cases where it plays an essential part in the operations which take place. Hotels premises are not considered to be an apparatus or tool for running the hotel business but are merely a shelter or home or setting in which business is carried on. The same would be the position with regard to a theatre in which cinema business is carried on. Therefore even the functional test is not satisfied”.
In another decision reported in Commissioner of Income Tax v. Karnataka Power Corporation, 247 ITR 268, the Supreme Court held as follows:
“The question whether a building can be treated as plant, basically, is a question of fact and where it is found as a fact that a building has been so planned and constructed as to serve an assessee’s special technical requirements, it will qualify to be treated as a plant for the purposes of investment allowance. Accordingly, it was held that there was a finding by the fact-finding authority that the assessee’s generating station building was so constructed as to be an integral part of its generating system. It was “plant” entitled to investment allowance”.
In Commissioner of Income Tax v. Victory Aqua Farm Ltd., a Division Bench of this Court held that Pond cannot be treated as plant and is not eligible for depreciation at the rate applicable to plant and machinery. This was stated following the decision in Commissioner of Income Tax v. Anand Theatres, (2000) 244 ITR 192 (SC).
4. In order to keep the water at the required level for the purpose of breeding shrimps or prawns the pond is a must. The breeding of fish cannot be carried on within the ponds. As referred to by the Tribunal, water plays the role of a machine just like a timber merchant. If the timber merchant requires a sawing machine to cut and shape the log such sawing machine constitutes a plant for him. Water in the case of the assessee plays same role. Water has to be stored within the ponds. Therefore, the ponds also constitute part of the machinery in the business of the assessee. Learned counsel for the Revenue submitted that it was only a natural pond. It is not correct. According to us, the decision in Commissioner of Income Tax v. Victory Aqua Farm Ltd., was presumed to be covered as per the decision of the Supreme Court in Commissioner of Income Tax v. Anand Theatres, 244 ITR 192. According to us, in the facts and circumstances of the case, the Tribunal was right in holding that the pond is a plant and hence, entitled to statutory depreciation.