Income tax - Whether especially-designed ponds for rearing prawns are to be construed as 'Plant' within Sec 32 - YES: Supreme Court

NEW DELHI: THE issue before the Bench is - Whether especially-designed ponds for rearing prawns could be treated as 'plant' within Section 32 for the purpose of allowing depreciation thereon. YES is the answer.

Facts of the case

The assessee is engaged in the business of 'Aqua Culture' and grows prawns in specially designed
ponds. It had filed the return claiming depreciation in respect of these ponds by raising a plea that these prawn ponds were tools to the business of the assessee and, therefore, they constitute 'plant' within the meaning of Section 32. The AO however disallowed the said claim. On appeal, the different benches of the High Court had taken contrary view.

Having heard the parties, the Supreme Court held that,

++ it is not in dispute that if these ponds are 'plants', then they are eligible for depreciation at the rates applicable to plant and machinery and case would be covered by the provisions of Section 32. It is not necessary to deal with this aspect in detail with reference to the various judgments, inasmuch as judgment of this Court in Commissioner of Income Tax, Karnataka vs. Karnataka Power Corporation, clinches the issue, wherein it was held that:

["….The question before the court was whether a building that was used as a hotel or a cinema theatre could be given depreciation on the basis that it was a "plant" and it was in relation to that question that the court considered a host of authorities of this country and England and came to the conclusion that a building which was used as a hotel or cinema theatre could not be given depreciation on the basis that it was a plant. We must add that the Court said, "To differentiate a building for grant of additional depreciation by holding it to be a plant in one case where a building is specially designed and constructed with some special features to attract the customers and the building not so constructed but used for the same purpose, namely, as a hotel or theatre would be unreasonable." This observation is, in our view, limited to buildings that are used for the purposes of hotels or cinema theatres and will not always apply otherwise. The question, 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….In the instant case, there is a finding by the fact finding authority that the assessee's generating station building is so constructed as to be an integral part of its generating system. It must, therefore, be held that it is a "plant" and entitled to investment allowance accordingly…."]

++ an attempt was made by the counsel for Revenue to the effect that the pond in question was natural and not constructed/specially designed by the assessee. We do not find it be so. In the judgment of the High Court, which is decided in favour of the assessee, the High Court has specifically mentioned that the prawns are grown in specially designed ponds. Further this very contention that these are natural ponds has been specifically rejected as not correct. Moreover, from the order passed by the AO it is found that this was not the reason given by the AO to reject the claim. Therefore, finding of fact on this aspect cannot be gone into at this stage. Since the ponds were specially designed for rearing/breeding of the prawns, they have to be treated as tools of the business of the assessee and the depreciation was admissible on these ponds.