Roads Highway was a building & not a plant for the purpose of claiming depreciation

Whether  Bypass Toll Road Highway was a building and not a plant for the purpose of claiming depreciation?

Toll road was treated as building for the purpose of claiming depreciation @ 10% and not as a plant irrespective of the facts that assessee has sole object of construction of roads and highways.

In the case of Moradabad Toll Road Co. Ltd. Versus ACIT – DELHI HIGH COURT 

The appellant is a 100% subsidiary of National Highways Authority of India (NHAI) and was formed with the sole object of constructing the highway and bypass.

The Assessing Officer held that the assessee could claim depreciation @ 10% on roads and not @ 25%, as claimed by the appellant assessee and held that the road cannot be said to be “plant‟ but would fall under the head „building‟ for the purpose of allowing depreciation.

Appellant assessee submitted that the appellant assessee was constituted for the sole object of construction of highway, a toll road and was authorized to collect toll tax from the vehicles passing on the toll road, which is not a “building”, which being road by itself is not a part of “building” or within the confines of a “building‟ or an approach road to the “building”. He would state that toll road is a structure which constitutes an apparatus or tool by means of which business activities are carried on and it would amount to “plant”.

On the other hand, Mr.Balbir Singh, learned counsel for the respondent-revenue would support the order of the authorities in as much as the “toll road” cannot be construed as a “plant” as sought to be contended by the learned counsel for the appellant. He would refer to “Note” under the table to Appendix 1 to the Rules, which relates to rate at which depreciation is admissible, wherein “buildings” have been defined/referred to include roads, bridges, culverts, wells and tube-wells, to contend that the road being a „building‟ for the purpose of rate of depreciation, cannot be held a “plant”. He has also drawn our attention to clause 3 to Section 43 under which certain terms have been defined relevant to income from profits and gains of business or profession, wherein the term “plant” has been defined in the following manner:

“Plant includes ships, vehicles, books, scientific apparatus and surgical equipment used for the purposes of the business or profession [but does not include tea bushes or livestock] [or buildings or furniture and fittings].”

According to him, a reading of the definition of “plant” and “building” as given in clause 3 to Section 43 and in note in Appendix 1 to the Income Tax Rules, it is clear that a road is not a “plant”.

The issue whether roads would be included within the meaning of “buildings” had come up for interpretation before the Supreme Court in Gwalior Rayon Silk Manufacturing Co. Ltd. (supra). The Supreme Court in that case was considering facts wherein roads laid within the factory premises were links or provided approach to the “buildings” as necessary adjuncts to the factory building to carry on the business activity of the assessee, held that the „roads‟ would be “buildings” within the meaning of Section 32 of the Act.

The Supreme Court in Gwalior Rayon Silk Manufacturing Co. Ltd. (supra) was concerned with the roads within the factory premises and not the roads in general like the one with which we are concerned in this case. However, it is noticeable that “roads” were treated and regarded as “buildings”, in the given fact situation.

On a careful consideration of the aforesaid position of law, it is noted that a perusal of the note in Appendix I as existed during the relevant assessment year so also clause 3 to Section 43, it is clear that roads referred to are roads per se without any qualification attached therewith. Had it been road adjunct to building/factory, the rule making authority would have said so or suggested so in Note (1) itself. Thus all roads whether adjunct and within a factory, or a toll road, would get covered under the said heading.

On the other hand in terms of Section 43(3), “plant” does not include “buildings”. What follows is “plant” does not include “road”. It must be held so as the legislative intent was to include “roads” as “buildings” and not as a “plant”. That being the intent of the legislature, it must be held that “road” is a “building” and cannot be construed or held as a “plant” in any circumstance, even if the tests laid down to decide what is a “plant” in various judgments are fulfilled.

The amendment of 2004 was a reiteration/clarification of the position, existing in Section 32(1)(i) of the Act wherein “buildings” and “plant” have been separately referred to, so also in explanation 3(a) of the said Section. In other words, it was the intent of the legislature to construe “buildings” and “plant” separately or not to construe a “buildings” as a “plant” and vice-versa. Further the object of prescribing a lower rate of depreciation in case of “buildings” as compared to “plant” as they have higher durability. On this ground also, a “road” cannot be construed as a “plant”.

To sum up it is clarified that “plant” as defined and understood for tax purposes means tool or equipment used for purposes of business or profession. Toll road would not be a plant in that sense, for, it is a capital asset which when used by any person, who makes payment for the said
use, generates and results in accrual of income. It is a capital asset which is the very business of the assessee and not a implement or a tool used by the assessee for his business. In the facts of the case,Honorable  High Court are of the view that the toll road would not qualify as a “plant” so as to entitle the assessee a higher rate of depreciation.

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