ACIT vs. Victory Aqua Farm Ltd. (2015) 379 ITR 335 (SC)
The
question of law that fell for consideration before the Supreme Court
was as to whether ‘natural pond’ which as per the assessee was specially
designed for rearing prawns would be treated as ‘plant’ within section
32 of the Act for the purposes of allowing depreciation thereon. The
Supreme Court, at the outset, noted that one Division Bench of the High
Court of Kerala in the case of the same assessee (271 ITR 528) had on
earlier occasion decided the aforesaid question in the negative holding
that it is not a ‘plant’. However, another Division Bench by the
impugned judgment dated 14.10.2014, (271 ITR 530) even after noticing
the earlier judgment, had not agreed with the earlier opinion and has
rendered contrary decision.
The Supreme Court, therefore, was
constrained to remark that the Division Bench which has given the
impugned judgment dated 14.10.2004 should have referred the matter to a
larger Bench as otherwise it was bound by the earlier judgment of the
coordinate Bench.
However, since appeals were filed against both
the judgments and the validity of the judgment rendered in the first
case was also questioned by the assessee, the Supreme Court was of the
view that it was necessary to decide these appeals on merits, rather
than remanding the case back to the High Court to be considered by a
larger Bench.
The Supreme Court noted that the assessee was a
company doing business of ‘Aqua Culture’. It grew prawns in specially
designed ponds. In the income tax returns filed by the assessee, the
assessee had claimed 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 constituted ‘plant’ within the meaning of section
32 of the Act. The Assessing Officer disallowed the claim of the
assessee. The two Benches of the High Court took contrary views. The
Supreme Court observed that it was not in dispute that if these ponds
were ‘plants’, then they were eligible for depreciation at the rates
applicable to plant and machinery and case would be covered by the
provisions of section 32 of the Act.
According to the Supreme
Court, it was not even necessary to deal with this aspect in detail with
reference to the various judgments, inasmuch as the Supreme Court in
Commissioner of Income Tax, Karnataka vs. Karnataka Power Corporation
[247 ITR 268] had held that the building which could not be separated
from the machinery and the machinery could not work, without such
special construction had to be treated as plant.
The Supreme
Court recorded that an attempt was made by the learned counsel for the
Revenue to the effect that the pond in question was natural and not
constructed/ specially designed by the assessee. According to the
Supreme Court, it was not so. In the judgment dated 14.10.2004 of the
High Court, which had decided in favour of the assessee, the High Court
had specifically mentioned that the prawns were grown in specially
designed ponds. Further, this very contention that these were natural
ponds had been specifically rejected as not correct. Moreover, from the
order passed by the Assessing Officer, the Supreme Court found that this
was not the reason given by the Assessing Officer to reject the claim.
Therefore, finding of fact on this aspect could not be gone into at this
stage. According to the Supreme Court, the judgment dated 14.10.2004
rightly rested this case on ‘functional test’ and since the ponds were
specially designed for rearing/breeding of the prawns, they had to be
treated as tools of the business of the assessee and the depreciation
was admissible on these ponds. The Supreme Court, therefore, decided the
question in favour of the assessee and as a consequence, appeals of the
Revenue were dismissed and that of the assessee are allowed.
