JUDGMENT
Ashok Bhan, J.
Revenue has come up in appeal under section 260A of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) against the order passed by the Tribunal, Bangalore, in ITA No. 2188/Bang/1990 for the assessment year 1983-84 dated 10-11-1998 raising the following questions of law:
“(a) Whether, on the facts and circumstances of the case, the Tribunal is correct in law in holding that the “Pharma Building” should be considered as a “plant” for the purpose of allowance of depreciation under the provisions of the Income Tax Act, 1961.
(b) Whether, on the facts and circumstances of the case, the Tribunal is justified in holding the “Pharma Building” in the respondent-assessee’s case requires to be considered as “plant” on the basis of the view as expressed in the report of the District Valuation Officer”.
2. Shortly stated, the facts are :
Respondent-assessee (hereinafter referred to as ‘the assessee’) is a company incorporated under the Companies Act and is engaged in the business of manufacturing and selling of pharmaceutical, medical, medicinal preparations. The assessee filed its return of income in respect of the assessment year 1983-84 relevant for the previous year ending 30-6-1983 declaring the loss of Rs. 52,40,431 and later a revised return was filed disclosing enhanced loss of Rs. 62,73,913.
3. The assessee had constructed a factory building for manufacture of pharmaceuticals and basic drugs at Yelahanka, Bangalore District. This unit went into production on 1-4-1982. Out of the total value of the buildings shown in the fixed assets vide Schedule.-6, at Rs. 89,37,414 pertaining to Yelahanka unit, the assessee claimed that the parental portion of the building be treated as “plant” and not as “building” and claimed depreciation at the rate of 15 per cent instead of the usual rate of 5 per cent applicable to factory buildings. Besides, the respondent-assessee had also claimed extra shift allowance, additional depreciation and investment allowance on this portion of the factory building treating the same as “plant”.
4. The assessing authority, did not accept the claim put forth by the assessee for allowance of depreciation in respect of the said ‘pharma building’ on the ground that such building could not be treated as a plant. In his view, the ‘Pharma building” was an ordinary building only which constituted a place or situs within which the manufacturing activities were carried on and that it cannot be treated as a “plant”. Aggrieved against the order passed by the assessing authority, the assessee filed an appeal before the Commissioner (Appeals). Appeal was accepted and the appellate authority directed the assessing authority to treat the “Pharma Building” as a plant and to allow the claim of the assessee for higher rate of depreciation.
5. Against the order of the Commissioner (Appeals), revenue filed an appeal before the Tribunal.
Tribunal directed the Departmental Representative to cause an inspection of the building by an engineer of the department and to file a report regarding the specification of the building. Subsequently, a report was filed by the District Valuation Officer.
6. The Tribunal, applying the decision of the High Court in the case of CIT v. Dr. B. Venkata Rao (1996) 202 ITR 303 (Karn) coupled with the report of the District Valuation Officer held that the ‘Pharma Building’ of the respondent-assessee is a plant and therefore, the Commissioner (Appeals) had rightly allowed the depreciation at a higher rate on the said building.
7. According to the revenue , the decision given by the Tribunal was wrong and the two substantial questions of law arose from the order of the Tribunal which have been reproduced in the first paragraph of the judgment. We proceed to answer the questions raised before us. As the questions raised are interlinked with one another, the same are taken up and dealt with jointly.
8. In Dr. B. Venkata Rao’s case (supra) it was held by this court that to find out whether a “building” is to be treated as a mere “building” or should be considered as a “plant”, a functional test has to be applied. A wide meaning is to be attributed to the term “plant” because of the functional test. It was held thus .
“A “nursing home” is not or ordinary building. A building used as a nursing home is not comparable with an ordinary building, having regard to the number of persons using it, the manner of its use and the purpose for which it is used. The building is used not only to house the patients and nurse them, but also to treat them for which various equipments and instruments are installed. In CIT v. Taj Mahal Hotel (1971) 82 ITR 44 (SC), the Supreme Court has quoted the dictionary meaning of the word “plant” as including land, buildings etc. Therefore, whenever a question comes up before the court as to the status of a building, straightaway it cannot be held as not a “plant”. A wide meaning is attributed to the term plant” because of the functional test.”
9. The judgment of this court was affirmed by the Supreme Court in the case of CIT v. Dr. B. Venkata Rao (2000) 15 DTC 220 (SC) : (2000) 243 ITR 81 (SC) and it was held
“The most apposite decision in this context is that delivered by the Allahabad High Court in S.K. Tulsi & Sons v. CIT (1991) 187 ITR 685 (All). Reference was made to an earlier judgment, where also the functional test approved by this court in several decisions was applied. It was held that if it was found that the building or structure constituted an apparatus or a total of the taxpayer by means of which business activities were carried on, it amounted to a “plant”, but where the structure played no part in carrying on of those activities but merely constituted a place wherein they were carried on, the building could not be regarded as a plant.
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It was further held
“We find from the order of the Tribunal as also the assessment order that the assessee’s nursing home is equipped to enable the sterilisation of surgical instruments and bandages to be carried on. It is reasonable to assume in the circumstances, particularly having regarding to the Tribunal’s order which states that the sterilization room covers about 250 sq. ft. that the nursing home is also equipped with an operation theatre. In the circumstances, we think that the finding of the High Court should be accepted.”
10. In the present case, the assessee has constructed a building for manufacture of medicines. The Tribunal had sought for a report from an engineer and it was found from the report that the pharma building was completely used for manufacture of medicines. There was a separate section for each process like tablets and capsules, injectable and liquid orals manufacturing in the building. Further the building is being used for packing, storing and supplying. The entire pharma building is air-conditioned. The air conditioned plants are placed on the roof of ground floor which are covered with AC sheet supported by M.S. angle iron trusses. Ducts are placed on the top ground floor roof. Opening of the RCC roof slab permit passage for cool air in the entire building. Building is also having six halls for the utility of staff welfare like canteen, kitchen, dining hall, etc., It was certified that the utility of the pharma building was only for manufacturing and supplying medicine and no other business is being run by the assessee.
11. We are satisfied that the building put up by the assessee was being used for manufacture of medicines and was nothing but a plant. It constituted an apparatus and a tool for the assessee by means of which business activities were being carried out.
12. For the reasons stated above, we dismiss the appeal and answer the questions in the affirmative, i.e., against the revenue and in favour of the assessee.
