ARIJITPASAYAT ( 1 ) THESE four references are taken up for disposal, as they are closely interlinked. Accepting prayer for reference made by the Revenue following questions have beenreferred for the opinion of this court under Section 256 (1) of the Income-tax Act, 1961 (for short, the Act) by the Income-tax Appellate Tribunal Delhi Bench b (In SHORT the Tribunal ). 1. Whether on the facts and in the circumstances of the case, the Income-taxappellate Tribunal is correct in law in holding that the equipments used in theassessee s business, such as counter, guns, steel equipments, steel furniture,electrical fittings and cooling equipments are to be treated as plant andmachinery u\s 32 (1) (ii) and Section 33 for the purpose of grant of depreciationand development rebate respectively. 2. Whether on the facts and in the case, the Tribunal is correct in law inholding that the assessee bank is an industrial company for the purpose ofrate of tax. 3. Whether on the facts and in the circumstances of the case, the Tribunalis correct in law in holding that the assessee is entitled to deduction u\s 80-J:4. Whether on the facts and in the Circumstances of the case, the Tribunalis correct in law holding that the provision for gratuity amounting to Rupees66. 708. 00 is an admissible deduction in the assessment year 1971-72. ( 2 ) FACTUAL position relevant for adjudication of the dispute essentially is as follows. Assessee is engaged in the business of banking. For the assessment years 1970-71, 1971-72 disallowances were made by the assessing officer in respect of certaindeductions claimed as depreciation and development rebate. Depreciation wasclaimed in respect of lockers, counters, guns, steel equipment, electrical fittings andcooling equipments. Development rebate was also claimed in respect of such items. Assessing officer disallowed the claim of depreciation on the ground that the articlesdo not fall within the definition of either plant or machinery. So far as developmentrebate is concerned, it was observed by the assessing officer that developmentreserve was not created in 1970-71. In respect of the assessment year 1971-72, theassessing officer disallowed the claim of Rs. 66707. 96 credited to profit and lossupon conversion of option to G. P. Fund being non-transaction gratuity liability. Theappellate Assistant Commissioner observed that guns, calculating machines arecovered under the head plant and machinery. Reference was made to the firstproviso the Section 32 (1) (ii) for the purpose. 66707. 96 credited to profit and lossupon conversion of option to G. P. Fund being non-transaction gratuity liability. Theappellate Assistant Commissioner observed that guns, calculating machines arecovered under the head plant and machinery. Reference was made to the firstproviso the Section 32 (1) (ii) for the purpose. Development rebate was directed togranted in respect of guns, and electrical fittings. Referring to the instructions of thecentral Board of Direct Taxes in their letter No. 288/8/72-itr (AII) dated 31. 12. 1975, itwas held that the assessee would be entitled to relief of development rebate even if itcould not create any development rebate reserve because of losses. ( 3 ) FOR the assessment year 1971-72, dealing with the claim relating to gratuitypayment, it was directed the Income Tax Officer has to go through the claim and allow relief if thegratuity is on the basis of actuarial process. So far as S. 80j is concerned, it wasobserved that Income Tax Officer was to reconsider the claim and allow deduction to the extent it isadmissible. ( 4 ) BOTH, the assessee and the Revenue preferred appeals before the Tribunal. After considering the rival submissions, Tribunal held that steel furniture are part ofthe plant. In view of the purported conclusion that bank is an industrial undertaking,there was no infirmity in the order of the first appellate authority in holding that theclaim for deduction in respect of gratuity and relief under Section 80j are admissible. On being move under Section 256 (1) as indicated supra four questions have beenreferred for opinion. ( 5 ) THERE is no appearance on behalf of the assessee in spite of notice. Heardlearned counsel for Revenue. ( 6 ) WE will first deal with the question whether the items referred to above arecovered under the category of plant and machinery. ( 7 ) LIKE any other animate and inanimate object business premises, machinery,plant or furniture employed by an assessee in the course of his business, profession,etc. , has a limited effective life. The vigour, strength, capability etc of every suchobject gradually exhausts by the factors of use and time. Depreciation is a provisionmade for proper recompense of such diminution. As indicated by William Pickles inhis illustrious book "accountancy" it is the inherent decline in the value of an assetwhatsoever. Depreciation is allowable in terms of Section 32 plant and machineryapart from tangible assets like buildings or furniture. Depreciation is a provisionmade for proper recompense of such diminution. As indicated by William Pickles inhis illustrious book "accountancy" it is the inherent decline in the value of an assetwhatsoever. Depreciation is allowable in terms of Section 32 plant and machineryapart from tangible assets like buildings or furniture. The expression "plant" must begiven a wide meaning having regard to the fact that articles like books, scientificapparatus surgical instruments are expressly included in the definition of plant. Itsmeaning is not confined only to an apparatus used in industry or business ormanufacturing of finished goods from raw goods. In its ordinary meaning it is a wordof wide import and it must be broadly construed. It includes any article or object fixedor movable, live or deed, used by a businessman for carrying on his business, itwould not cover the stock in trade of a businessman. It would also not include anarticle which is part of the premises in which the business is carried on. An article toqualify as plant must have some degree of durability and that which is quicklyconsumed or worn out in the course of future operation or within a short time cannotproperly be called plant. In the ultimate analysis an enquiry which is to be made is asto what operation the apparatus performs in the assessee s business. The relevanttest to be applied is does it fulfill the function of a plant in the assessee s tradingactivities? Is it a tool of tax-payers trade? If it is, then it is plant. Aforesaid positionwas laid down by the apex Court in C/tvs. Taj Mahal Hotel, [1971] 82 ITR 44 (SC)Reference can be made to expression "plant" as used in Section 43 (3) of the Act. Section 43 defines certain terms relevant to income from profits and gains ofbusiness or profession "plant" is defined in Section 43 (3 ). The same has to beconstrued in the popular sense, namely, in the sense in which public conversant withthe subject matter in which the subject is dealing would attribute to it. In its ordinarysense it indudes whatever apparatus used by a businessman for carrying on businessbut it does not include stock in trade which he buys or sells. It includes all goods fixedor moveable, live or dead which the tradesman keeps for permanent employment inthe business but the building or setting in which the business is carried out cannot beplant. In its ordinarysense it indudes whatever apparatus used by a businessman for carrying on businessbut it does not include stock in trade which he buys or sells. It includes all goods fixedor moveable, live or dead which the tradesman keeps for permanent employment inthe business but the building or setting in which the business is carried out cannot beplant. The thing need not be part of the machine used in the manufacturing processbut could be merely an apparatus used in carrying on the business but having adegree of durability. Merely because the asset has a passive function in the carryingon the business, it cannot be said that it is not plant. It may have a passive or an activerole. The subject must have a function in the trader s operation and if it has. it is primafacie a plant unless there was good reason to exclude it from that category. It must beatool in the trade of the businessman. Gross materiality or tangibility is not necessaryand in fact intangible things like ideas and designs contained in a book could beplant. They fall under the category of intellectual storehouse. In considering whether astructure is plant or premises, one must look at the finished product and not at the bitsand pieces as they arrive from the factory. The fact that a building or part ofthebuilding holds the plant in position does not convert the building into plant. A piecemealapproach is not permissible and the entire matter must be considered as a singleunit unless of course, the component parts can be treated as separate units havingdifferent purposes. The functional test is a decisive test. Furniture in the business canbe said to mean article of convenience or decoration used to furnish a house,apartment, place of business or of an accommodation. Webster s New Internationaldictionary defines it to be so. In Shorter Oxford, English dictionary, the expression isdefined as to fit up with all that is requisite, including moveable furniture, which is nowthe predominant notion. The term furniture can apply to equipments to be employedinseveral places for ornament or to promote comfort or to facilitate business therein, ( 8 ) THE expression plant has been defined in clause (3) of section 43 of the Act toinclude ships, Vehicles, books, scientific apparatus and surgical equipment used forthe purposes of the business or profession. Obviously, it is na inclusive definition. Obviously, it is na inclusive definition. Itsintention is to enlarge the meaning of the expression plant occurring in the Act toinclude not only such items as are commonly know as plant but also those which areenumerated therein. To decide whether a particular item is plant or not, one of thetests applied is the common parlance or trade of commercial parlance test. Anothertest that is often applied for that purpose is the functional test. This test was appliedby the Supreme Court in Scientific engineering House P. Ltd. ,\/s. CIT, [1986] 158itr 86 to determine wherther technical know how acquired by the assessee in theshape of drawings, designs, charts, plants, processing data and other literature, fellwithin the definition of plant. The Supreme Court referred to the material passagefrom the speech of Lindley L. J. in Yarmouth Vs. France [1887] 19 QBD 647 where acart-horse was held to be plant and observed (at page 96): ". . . . . . THAT plant would include any article or object fixed or movable, live ordead. used by a businessman for carrying on his business and it is notnecessarily confined to an apparatus which is used for mechanical operationsor processes or is employed in mechanical or industrial business. "the Supreme Court formulated the following test (at page 96): "does the article fulfill the function of a plant in the assessee s tradingactivity? Is it a tool of his trade with which he carries on his business? If theanswer is in the affirmative, it will be a plant. "applying the above test, it was held that technical know-how in the shape of drawings,designs, charts, plants, processing data and other literature fell within the definition ofplant, applying the same test, in Taj Mahal Hotel s case (supra), it was held thatsanitary and pipeline fittings, installed by the assessee who ran a hotel, constituted"plant". In the above decision, the Supreme Court also approved the decision of theallahabad High court in Commissioner of Income Tax Vs. Indian Turpentine and rosin Co. Ltd. [1970] 75itr 533 where in the case of an assessee engaged in manufacturing and selling ofrosin and turpentine, poles, cables, conductors and switch boards for distribution ofelectricity where treated as plant. The functional test also came to be considered bythe Bombay High Court in Commissioner of Income Tax Vs. Indian Turpentine and rosin Co. Ltd. [1970] 75itr 533 where in the case of an assessee engaged in manufacturing and selling ofrosin and turpentine, poles, cables, conductors and switch boards for distribution ofelectricity where treated as plant. The functional test also came to be considered bythe Bombay High Court in Commissioner of Income Tax Vs. Mazagaon Dock Ltd. [1994] 206 ITR 260 were itwas urged on behalf of the assessee that judging from the functional test, the"approach channel" constructed by dredging the sea can be treated as "plant". Theabove contention was rejected by the Bombay High Court. While doing so, said courtalso cautioned against indiscriminate application of this test in the following words (at page 267)". "in our opinion, the functional test has to be rationally. Too liberal andapplication of this test may bring in everything including the roads within thefactory which have already been held by the Supreme Court to be building within the expression "plant". On such liberal interpretation, even the factorybuilding itself may have to be held to be a plant because without it the plantcannot be operated in the open. But that is not so, Structures which fall withinthe expression building or pathways like roads, etc, required for providingapproach to the factory have been held to be buildings or roads and notplant. . . . . " ( 9 ) REFERENCE may also be made at this stage to the decisions of the House oflords in Cole Bros. Ltd. Vs. Phillips, [1982] 55 TC 188, ITC Vs. Scottish andnew Castle Breweries Ltd. , [1982] 55 TC 252 and the decision of the Court ofappeal in Wimply International Ltd. Vs. Warland [1988] 61 TC 51. In Co/e Brosltd. , Vs. Phillips, [1982] 55 TC 188 (HL), the controversy was whether lighting andother apparatus installed in shop premises qualified as plant within the meaning ofsection 40 and 41 of the Finance Act. 1971. the Revenue held it not to be plant. Onthe above decision being affirmed by the chancery Division, the company appealedto the Court of Appeal. , Vs. Phillips, [1982] 55 TC 188 (HL), the controversy was whether lighting andother apparatus installed in shop premises qualified as plant within the meaning ofsection 40 and 41 of the Finance Act. 1971. the Revenue held it not to be plant. Onthe above decision being affirmed by the chancery Division, the company appealedto the Court of Appeal. Said Court held that in deciding whether expenditure on aparticular item is allowable as expenditure on plant, the question which the court mustask itself is: "whether the particular subject matter under consideration either itselfperforms or is a necessary or integral part of that which performs simply and solelythe function of housing the business or whether as its sole function or as its additionalfunction, it performs some other distinct business purpose. " A distinction was drawnbetween plant and setting. It was held that the lighting and other apparatus installed inthe shop premises did not qualify as plant but formed part of the setting. On Appealagainst the above decision, the House of Lords reaffirmed the distinction betweenplant and setting and dismissed the Appeal. It was held (headnote): "the criteria by which the courts define the frontier between those conceptsplant and setting is to look at the disputed object in order to see what it is andthen to consider what in the context of the business actually being carried onis its function. . "it was observed that (headnote): "the two concepts are not mutually exclusive and in certain cases notably thatof a hotelier and restaurant proprietor the very thing the trader is sellingincludes and ambience or setting. . . " ( 10 ) IN IRC Vs. Scottish and Newcastle Breweries Ltd. , [1982] 55tc 252 (HL),expenditure on "decor" in a hotel and licensed premises was held to be expenditureon the provision of plant. This conclusion, however, was arrived at because of a clearand emphatic findings of the commissioners that the decor went to create theatmosphere or ambience which it was an important function of the company sparticular trade to provide for its customers to resort to and enjoy a somewhat similardispute came up before the Court of Appeal in Wimpy International Ltd. Vs. Warland, [1988] 61 TC 51. In that case Wimpy International Ltd. Owned and operatedfast food restaurants (Wimpy Bars ). serving a standard range of food items to beselected by the customers at the counter with no table service. Warland, [1988] 61 TC 51. In that case Wimpy International Ltd. Owned and operatedfast food restaurants (Wimpy Bars ). serving a standard range of food items to beselected by the customers at the counter with no table service. Similarly, anotherassessee, Associated restaurants Ltd owned and operated Pizzaland restaurantsserving quick inexpensive meals with pizza main course, starter courses and sweets. They were licensed to sell liquor and offered table services. These companiesexpended money on improving and modernizing their restaurants e. g. shop fronts. floor and wall tiles, suspended ceilings, raised floors, light fittings, wall finishes, firedoors and fire proofing and other decorative items, In their assessments to corporationtax they claimed that this expenditure qualified for capital allowance under Section 41of the Finance Act, 1971, as plant used in the carrying on of their respective trades. The Special Commissioners disallowed the claims in respect of shop fronts, floorsand wall tiles, wall finishes and the other non-decorative items, which they held, werepart of the setting or premises in which the treads were carried on but allowed thosein respect of certain decorative items such as murals, decorative brickwork and wallpanels, as being embellishments not part of the premises. On Appeal by the company,the Chancery division held (headnote): 1. Although one test to be applied in determining whether an item was plant iswhether the item, not being stock-in-trade, was used for carrying on thebusiness (the functional or business use test) antitem still might not qualify if itwas used as or was part of, the premises or place upon hich the business wasconducted (the premises test ). 2. The light fittings passed both the premises and the "business use" testsand were, therefore plant. The Court of Appeal while doing so, laid down the following test (headnote): "in relation to any item in dispute, the question to be asked is what does theitem function as? Is it more appropriate to describe the item as part of thepremises rather than having retained a separate identify? If the item formspart of the premises it is not plant. . . " ( 11 ) IT is clear from the above discussion that an item would not qualify to be planteven if it satisfies the functional test, if on an application of premises test, it is found tobe used as or part of the premises or place upon which the business was conducted. In Jarrold Vs. . . " ( 11 ) IT is clear from the above discussion that an item would not qualify to be planteven if it satisfies the functional test, if on an application of premises test, it is found tobe used as or part of the premises or place upon which the business was conducted. In Jarrold Vs. John Goods and sons Ltd (1962) 40 TC 681 (CA) movable officepartitions were held to be plant. In Sunderan Motors Pvt. Ltd. , Vs. Commissionerof Income-tax (1969) 71 ITR 587 (Mad) electrical fans and other office applianceswere held to be plant. ( 12 ) SO far as the lockers are concerned, it is undisputably an article which is usedfor the purpose of carrying on the trade. It is the primary safety article of a bank. Thetribunal was therefore justified in its conclusion that encompassed by the headingplant. Similar view has been taken by several High Courts (See Commissioner of Income Tax Vs. Union Bankof India, (1976) 102 ITR 270 (Bom ). CIT. , Vs. Bank of India Ltd. , (1979) 118 ITR809 (Bom ). , Syndicate bank Vs. CIT, (1984) 160 ITR 198 (Karn) Syndicate Bankvs. CIT, (1988)172 ITR 561. ( 13 ) IN relation to electrical fittings are concerned there can be no generalization. Itwould depend upon the facts of a particular case. It may be that the assessee sbanking business is of such type that it could not be carried out without variouselectric fittings which have been installed. A locker cannot be made functional indarkness at various banking premises which would grossly be effected if there wouldbe no intercommunication facility. Unfortunately, there appears to be no factualdetermination of the question whether the installations were of a special natureabsolutely necessary for the purpose of carrying out banking business of the assessee. It would be unsafe to proceed on any hypothetical basis. It is to be noted that insection 32 for the propose of depreciation, the expressions used are " building,machinery, plant or furniture being tangile assets. "therefore if any article falls withinthe category of plant or furniture, depreciation will be admissible So far as"development rebate" is concerned, it is dealt with in Section 33. Sections 32 and 33are independent provisions. It is to be noted that insection 32 for the propose of depreciation, the expressions used are " building,machinery, plant or furniture being tangile assets. "therefore if any article falls withinthe category of plant or furniture, depreciation will be admissible So far as"development rebate" is concerned, it is dealt with in Section 33. Sections 32 and 33are independent provisions. The latter is allowable by way of an incentive for industrialgrowth and expansion which former is normally an annual feature, latter is allowableonly once that too in the year is installation or fixed use of a new ship, or newmachinery or plant (other than office appliances or road transport vehicles ). Therefore,we think it proper to direct Tribunal to re-examine factual aspects to determinewhether development rebate is allowable, though depreciation is allowable in view ofuser of the expression plant or furniture". ( 14 ) COMING to guns, they are used by security personnel. Though there is noelaborate discussion in that regard, it is not disputed that they are used by guards forsecurity and protection purposes. Guns cannot be said to be without any link withassessee s business. On the other hand, they are intrinsically linked with it. a bankwithout security measures in inconceivable. Therefore, the Tribunal was justified inholding that it was encompassed by the expression "plant". ( 15 ) IN respect of counters, the learned counsel for the Revenue submitted that theyare in the nature of furniture and not plant. Even iffactually there is no discussion evenfrom the common man s view also it is abundantly clear that abank without counter isinconceivable. Counters are integral part of the business activity. In fact, it is oftensaid that across the counter banking transactions are held. We, therefore find nothingillegal in the conclusion of the Tribunal that counter is covered by the expression"plant". ( 16 ) SO far as steel equipments are concerned, we find that at some place theauthorities have referred to it as steel furniture and equipments. It is not brought onrecord as to what were the accounts relatable to the steel furniture and steelequipments. Similar is the case of cooling equipment. In the absence of actualdetails and materials to substantiate the conclusion. We direct similar course to beadopted as in the case of "electrical fittings". Our directions and observations relatingto "electrical fittings" shall apply to steel equipments and furniture. First question isaccordingly answered. Similar is the case of cooling equipment. In the absence of actualdetails and materials to substantiate the conclusion. We direct similar course to beadopted as in the case of "electrical fittings". Our directions and observations relatingto "electrical fittings" shall apply to steel equipments and furniture. First question isaccordingly answered. ( 17 ) COMING to questions No. 2 to 4 the Tribunal held as under: ". . . SO far as the question of allowability of the claim in respect of provision ofgratuity and relief under Section 80-J is concerned since we have alreadystated that the bank is an industrial undertaking do not think there is anyinfirmity in the order of the Appellate Asstt Commissioner. . . . "( 18 ) THERE is no discussion by the Tribunal as to how the assessee was an "industrialundertaking" for the purpose of levy of tax. Regarding the dispute relating to provisionfor gratuity, the Assistant Commissioner has only directed the claim to be reexamined and if the claim was on the basis of actual valuation by acturial, it was to beallowed. Same is correct position in law and since no final decision has beenrendered by the Tribunal, question is of academic interest. Similar is the position inrespect of deduction under Section 80-J. ( 19 ) IN the absence of any material to hold that the assessee is an industrialundertaking, the Tribunal s conclusion are indefensible. The expression "industrialcompany is usually referred to in rate schedules in the finance Act. It was definedundersection 109 (i) (a) between 1. 4. 76 and 31. 3. 78. It was referred to in S. 109 (iii) (1)upto 31. 3. 1988. According to Section 2 (T) (C) of the Finance Act, 1981, an industrialcompany means a company which is mainly engaged in the business of generationof electricity or any other form of power or in the construction or manufacture ofgoods. Test for fulfillment of the condition of mainly is laid down in the explanation tothat Section that income attributable to any one or more of the aforesaid activitiesincluded in its total income before it has not considered deduction under Chapter VI-A, Section 80a to 80u. A Banking company cannot prima facie be held to be anindustrial company. Test for fulfillment of the condition of mainly is laid down in the explanation tothat Section that income attributable to any one or more of the aforesaid activitiesincluded in its total income before it has not considered deduction under Chapter VI-A, Section 80a to 80u. A Banking company cannot prima facie be held to be anindustrial company. It is to be noted that the Tribunal did not use the expression"industrial company", but used the expression "industrial undertaking", it was observedas follows: "so far as the question of allowability of the claim in respect of provision forgratuity and relief under Section 90-J is concerned since we have alreadystated that the bank is an industrial undertaking, do not think there is anyconformity in the order or the Appellate Assistant Commissioner in holding thatboth the claims are admissible and thereby directing the income-tax officer toconsider the same and allow relief according to law. " ( 20 ) EXPRESSION "industrial undertaking" is used in Section 10 (15) (iv) and Section80-1. Definition is in the Explanation to provision. Though Tribunal held in the quotedportion referred to above that it has already held the assessee to be an industrialundertaking, no such conclusion is found in any earlier part of the order. That being sowe direct the tribunal to re-adjudicate that aspect also, so far question No. 2 referredis concerned.