Municipal Corporation Of Delhi vs M/S Pradeep Oil Mills P. Ltd.
2009 Latest Caselaw 89 Del

*                   HIGH COURT OF DELHI AT NEW DELHI

+                             LPA Nos.52-58/1987

%                                    Reserved on: 6th January, 2009
                                     Decided on:   15th January, 2009
          Municipal Corporation of Delhi         ..... Appellant
                         Through Ms.Madhu Tewatia, Advocate

                           versus

          M/s Pradeep Oil Mills P. Ltd.         . ..... Respondent
                          Through Mr.B.B. Jain, Advocate

          CORAM:
          HON'BLE THE CHIEF JUSTICE
          HON'BLE MR. JUSTICE SANJIV KHANNA
          HON'BLE DR. JUSTICE S. MURALIDHAR

    1. Whether reporters of the local papers be allowed to see the
       judgment ? n
    2. To be referred to the Reporter or not ? n
    3. Whether the judgment should be reported in the Digest ? n

AJIT PRAKASH SHAH, CHIEF JUSTICE:


            This matter has been remitted by the Supreme Court for

recording finding on the following two questions:

    (i)    Whether the erection of storage tanks on the lands in
           question amounts to erection of a building which is
           taxable under the Delhi Municipal Corporation Act?

    (ii) If the answer to question (i) above is in the
         affirmative, whether those storage tanks and other
         structures raised on the lands in question are
         exempted as plant and machinery under Section 116
         of the Delhi Municipal Corporation Act?

LPA Nos.52-58/1987                                         page 1 of 27
 2.     Before adverting to the questions involved, we may notice

the basic facts of the matter.

        The respondent had been granted separate and distinct

licenses by the President of India acting through Superintendent

of Northern Railway Delhi for the purpose of maintaining depot

for storage of petroleum products at a yearly license fee of

Rs.20640/- and Rs.31000/- per annum respectively.

3.     The properties in question were assessed at a rateable

value which was sought to be increased. Objections were filed by

the respondent. A contention was raised that the storage tanks

would not come within the purview of the definition of 'building'

as provided in Section 2(3) of the Delhi Municipal Corporation Act

(for short "the Act") and thus no tax would be leviable as

provided under Section 114 of the Act.           The proposal of

enhancement of rateable value was confirmed with effect from

1.4.1978.

4.     Being aggrieved the respondent filed House Tax Appeal

nos.590 to 596/1984 before the Additional District Judge, Delhi.

In the appeals, the following questions were raised.

            (a) Whether such steel structure are buildings
                within the meaning of Delhi Municipal
                Corporation Act or not?

LPA Nos.52-58/1987                                     page 2 of 27
           (b) Whether such structures can be termed as a
              land within the meaning of Delhi Municipal
              Corporation Act or not?

5.     Relying on a judgment of the Bombay High Court titled

Indian Oil Corporation v. Municipal Corporation of Greater

Bombay reported in 77 (1974) Bombay Law Reporter 314, it was

held that such structures are not building within the meaning of

Delhi Municipal Corporation Act. The learned Additional District

Judge also came to the conclusion that the respondent is not a

person primarily responsible for payment of property tax within

the meaning of Section 120 of the Delhi Municipal Corporation Act

and thus the orders of assessment impugned before him were

held to be not sustainable.     The appeals preferred by the

respondent were, therefore, allowed by the learned Additional

District Judge.

6.     Questioning the order of the learned Additional District

Judge, Civil Writ Nos.86/1986, 179/1986, 180/1986, 181/1986,

182/1986, 183/1986, 274/1986 were filed by the appellant which

were disposed of by Mahinder Narain, J (as the learned Judge then

was). The learned Judge held that oil storage tanks would not be

a building within the meaning of "building" under the Act. The


LPA Nos.52-58/1987                                   page 3 of 27
 learned Judge further held that as the instrument had been

executed on behalf of the President of India, which is termed to

be a licence, Section 120(1)(c) of the Delhi Municipal Corporation

Act would not be attracted in relation thereto.

7.     The appellant - Corporation challenged the decision of the

single Judge by preferring LPA Nos.52-58/1987. A Division Bench

of this Court noticing the difference in opinion in two Division

Bench judgments of this Court referred the matter to the Full

Bench in terms of order dated 12.2.2000 which reads as under

       "These are nine Letters Patent Appeals directed
       against the judgment of learned Single Judges of this
       Court. LPAs 52 to 58/87 (MCD v. Pradeep Oil Mills)
       are directed against the judgment of Mahinder
       Narain, J. dated 5.8.1996 while LPAs 227 to 228/96
       (Bharat Petroleum Corporation Ltd. v. MCD) are
       directed against the judgment of Mohd. Shamim, J.

dated 11.9.1996. It has been brought to our notice that the judgment in Pradeep Oil Mills' case has been affirmed by a Division Bench of this Court in Gas Authority of India Ltd. v. MCD, 1999(2) AD 371. The other judgment of this Court in the case of Bharat Petroleum Corporation Limited has been affirmed by another Division Bench of this Court in MCD v. Batra Brothers, 1997 (4) AD 317. One of the issues involved in all these cases is as to whether the document whereby interest in land is purported to have been created is a lease or license. The appellants are challenging the findings of the learned Single Judges in the respective cases. In our view the appellants are entitled to challenge the findings contained in judgments under appeal and cannot be denied this right for the reason that Division Benches of the Court

LPA Nos.52-58/1987 page 4 of 27 in some matters between other parties have affirmed the findings of the learned Single Judges.

In the event of this Court agreeing with the appellants, the observations of the two Division Benches of this Court by which both the judgments under appeal have already been approved may lead to an anomalous situation. Therefore, we deem it appropriate that these appeals be heard and decided by a larger Bench."

8. The Full Bench heard the matter and was pleased to hold

that the document in question constitutes a lease in favour of the

respondent. As to the question whether such an oil storage tank

would be a building or not, it was held that the issue is no longer

res integra in view of the judgment of the Supreme Court in

Municipal Corporation of Greater Bombay v. Indian Oil

Corporation, AIR 1991 SC 686. LPAs were accordingly allowed by

the Full Bench (reported as 100 (2002) DLT 442).

9. Against the decision of the Full Bench, the respondent

approached the Supreme Court in Civil Appeal Nos.6546-

6552/2003 titled Pradeep Oil Corporation v. Municipal

Corporation of Delhi. The Supreme Court vide order dated

15.9.2005 was pleased to partly remit the matter to this Court for

recording its finding on the two questions mentioned above.

10. We have heard Ms.Madhu Tewatia, learned counsel

LPA Nos.52-58/1987 page 5 of 27 appearing for the appellant - Corporation and Mr.B.B. Jain,

learned counsel for the respondent.

11. Before adverting to the submissions made at the Bar, we

may notice the relevant provisions of the Delhi Municipal

Corporation Act. Section 2(3) and Section 2(24) of the Act, which

define the terms "building" and "land" respectively read as

follows:

"Section 2(3) "building" means a house, out-house, stable, latrine, urinal, shed, hut, wall (other than a boundary wall) or any other structure, whether of masonry, bricks, wood, mud, metal or other material but does not include any portable shelter;

Section 2(24) "land" includes benefits to arise out of land, things attached to the earth or permanently fastened to anything attached to the earth and rights created by law over any street;"

12. Chapter VIII of the Act deals with taxation. Section 114 of

the Act in no uncertain terms empowers the Corporation to levy

tax both on "land" and "building". Section 115 provides that

property tax shall be levied in respect of all lands and buildings

subject to the exceptions made therein. Section 116 provides for

determination of rateable value of land and building assessable to

property tax and reads as follows:

LPA Nos.52-58/1987 page 6 of 27

116. Determination of rateable value of lands and buildings assessable to property taxes :- (1) The rateable value of any land or building assessable to property taxes shall be the annual rent at which such land or building might reasonably be expected to let from year to year less -

(a) a sum equal to ten per cent of the said annual rent which shall be in lieu of all allowances for costs of repairs and insurance, and other expenses, if any, necessary to maintain the land or building in a state to command that rent, and

(b) the water tax or the scavenging tax or both, if the rent is inclusive of either or both of the said taxes:

        .....   .....   ....    ....   ....   ....   ....   ...


        .....   .....   ....    ....   ....   ....   ....   ...


        (2)     .....   .....   ....   ....   ....   ....   ....

(3) All plant and machinery contained or situate in or upon any land or building and belonging to any of the classes specified from time to time by public notice by the Commissioner with the approval of the Standing Committee, shall be deemed to form part of such land or building for he purpose of determining the rateable value thereof under sub-section(1) but save as aforesaid no account shall be taken of the value of any plant or machinery contained or situated in or upon any such land or building."

13. Section 119 of the Act exempts the lands and buildings,

which are the properties of the Union of India, from the property

LPA Nos.52-58/1987 page 7 of 27 tax as specified in Section 114.

Re. Question (i)

14. The definition of the expression "building" in Section 2(3)

of the Act shows that it is of very wide import and encompasses

"any other structure" excluding only portable structure. The

question is whether the petroleum storage tanks in question are

'structure' within the meaning of Section 2(3) of the Act.

15. The facts are not in dispute. The respondent had been

granted the exclusive right to use railway land by the Union of

India for constructing and maintaining thereon depot for storage

of petroleum products. The respondent had been granted right to

erect / construct "Petroleum Installation Building" consisting of

petroleum tanks, buildings and other conveniences for receiving

and storing therein petroleum in bulk. The respondent submitted

layout plans for the construction of the Oil Depot and the

Standing Committee of the Municipal Corporation of Delhi vide

resolution number 248 dated 24.8.1978 approved the layout plan

for the construction of 10 oil storage tanks of petroleum products.

Consequently the respondent had raised constructions

comprising of an administration block along with huge petroleum

storage tanks for storing petroleum products. The petroleum / oil

LPA Nos.52-58/1987 page 8 of 27 storage tanks erected by the respondent rest on a foundation of

sand having a height of more than 2 ft. and there is a four inch

thick asphalt layer (bituminous pitch) to retain the sand. The

steel plates are spread on the asphalt layer and the tanks are put

on the steel plates that act as the bottom of the tanks and the

tanks remain in the same position by virtue of their weight. In

order to serve as storage for the oil, each tank has a staircase

along the side and the tanks are connected with the pump house

with the pipes for receiving the oil in the tanks.

16. Ms.Madhu Tewatia, learned counsel appearing for the

appellant, submitted that erection of storage tanks amounts to

erection of building as defined under Section 331 of the Act and,

therefore, the requisite sanctions are required to be taken under

Sections 332, 333 and 336 of the Act. Accordingly the

respondent had applied for requisite sanction and the Standing

Committee of the MCD approved the layout plan for the

construction of the depot/10 oil storage tanks of petroleum

products. Learned counsel further submitted that by scientific

process the tanks stand on their own weight on the earth at the

place of erection as a permanent structure and are not temporary

or portable so as to be able to easily shifted or removed from one

LPA Nos.52-58/1987 page 9 of 27 place to another. The tanks have to be dismantled before they

can be removed and erected at another place. Learned counsel

also submitted that the question whether a storage tank of this

kind would be a building or not is no longer res integra in view of

the direct decision of the Supreme Court in Municipal Corporation

of Greater Bombay v. Indian Oil Corporation (supra). Learned

counsel also referred to the judgment of the Supreme Court in

Indian City Properties Ltd. and another v. Municipal Commissioner

of Greater Bombay and another (2005) 6 SCC 417.

17. On the other hand, Mr.B.B. Jain, learned counsel

appearing for the respondent, submitted that the definition of the

building in Section 2(3) of the Act is different than the one which

is contained in Bombay Municipal Corporation Act and the

decisions in Municipal Corporation of Greater Bombay v. Indian

Oil Corporation (supra) and Indian City Properties Ltd. and

another v. Municipal Commissioner of Greater Bombay and

another (supra) are clearly distinguishable. He submitted that

meaning of the word "building" would take colour from the word

"shelter" in Section 2(3) of the Act and the storage tanks cannot

be regarded as a structure for the purpose of Section 2(3) of the

Act.

LPA Nos.52-58/1987 page 10 of 27

18. In The Municipal Corporation of Greater Bombay v. Indian

Oil Corporation (supra) an identical question arose in respect of

oil tanks for storage of petrol and petroleum products. The Court

noticed that each tank rested on a foundation of sand having a

height of 2 ft. 6 inches. There was a four inches thick asphalt

layer to retain the sand. The steel plates were spread on the

asphalt layer and the tank was put on the steel plates which

acted as bottom of the tanks which rested freely on the asphalt

layer. There were no bolts and nuts for holding the tanks on to

the foundation. The tanks remained in the position by its own

weight. Each tank was about 30 ft. in height and 50 ft. in

diameter weighing about 40 tons. The total weight of the tank

filled with petroleum products would be about 7,160 tons. Each

tank had a staircase along the side. Each of the tanks was

connected with the pump house with the pipes for pumping

petroleum products into the tank and sending them back to the

pump house having a diameter of 8" x 14". The distance

between the pump house and tanks varied between 50 fts. to 300

fts. The question before the Supreme Court was whether these

storage tanks of petroleum products are 'building' within the

meaning of Section 3(s) of Bombay Municipal Corporation Act and

LPA Nos.52-58/1987 page 11 of 27 are assessable to property tax. Section 3(s) of the Bombay

Municipal Corporation Act defines "building" to include "a house,

out-house, stable, shed, hut and every other such structure

whether of masonry, bricks, wood, mud, metal or any other

material whatever." The Court observed that since the

enactment of the Act, enormous research and scientific

development has taken place in the construction technology of

storage tanks etc. The petroleum products are highly

inflammable and highly dangerous liquid which cannot

successfully be stored without taking careful precautions with

modern technology for its storage. The erection and storage

must be according to law or relevant rules. If it could be possible

to give an interpretation consistent with the purpose and scheme

of the Act and the nature of the property sought to be assessed

for rateable value, the Court could always endeavour to give that

interpretation which would sub-serve the purpose of the Act. The

Court after referring to the dictionary definition of the word

"building" as well as the word "structure" and certain English

cases, concluded as follows:

"29. These depots or tanks are formed as they are sometimes called to have very large capacities, in some cases containing tanks upto 2,300 water

LPA Nos.52-58/1987 page 12 of 27 tons capacity (about 150 ft. in diameter by 50 ft. height). There are invariably numerous smaller tanks for the storage of refined products awaiting distribution. Such depots frequently cover many acres of land, the tanks being well dispersed as a fire precautionary measure. Necessarily there are miles of pipe lines with diameter of from 6 inches to 36 inches or greater and furthermore a net work of fire protection lines. These are called tanks with modern equipment and exigible to rateable value.

30. In the light of the above discussion it is undoubted that if the tanks are situated within a Plant they would be integral parts of the plant and get exempted from assessment under Section 154 of the Act but there exist no such plant on the demised site. It is also equally undoubted that harmonious construction must be adopted consistent not only with the principles of taxation to make rateable value but also those relating to income-tax, wealth-tax etc. .........

31. ..... ..... .... .... .... .... .... ...

32. The tanks, though, are resting on earth on their own weight without being fixed with nuts and bolts, they have permanently been erected without being shifted from place to place, permanency is the test. The chattel whether is movable to another place of use in the same position or liable to be dismantled and re-erected at the later place? If the answer is yes to the former it must be a movable property and thereby it must be held that it is not attached to the earth.

If the answer is yes to the latter it is attached to the earth. For instance a shop for sale of merchandise or eatables is a structure. The same could be sold by keeping in a push cart which has its mobility from place to place. Merely it is stationed at a particular place and business was carried on, it cannot be said that push cart is a shop. The fact that no nuts and bolts were used to

LPA Nos.52-58/1987 page 13 of 27 imbed the tank to the earth by itself is not conclusive. Though the witness stated that the tank is capable of being shifted, as a fact the tanks were never shifted from the places of erection. By scientific process, the tanks stand on their own weight on the earth at the place of erection as a permanent structure.

33. The petroleum products are being stored through pipes and are taken out by mechanical process. The operational mechanisation also though relevant is not conclusive. The rateable is based on the rent, which the building or land is capable to fetch. Due to erection of the tanks whether the value of the demised property had appreciated or not is also yet another consideration. Undoubtedly, when the tanks are erected and used for commercial purposes, the value of the demised property would get appreciated. The annual letting value is capable of increase. However, the rate of increase is a question of fact but the fact remains that the value of the land gets increased by virtue of erection of the storage tanks. Considering from this perspective we have no hesitation to hold that the petroleum storage tanks are structures or things attached to the land within the definition of Sections 3(s) and 3(r) of the Act. Thereby they are exigible to property tax....."

(emphasis supplied)

19. The Judgment in Indian Oil Corporation v. Municipal

Corporation of Greater Bombay (supra) was followed in Indian

City Properties Ltd. and another v. Municipal Commissioner of

Greater Bombay and another (supra). The question in that case

was whether the land in the appellant's premises which was

LPA Nos.52-58/1987 page 14 of 27 sought to be affected by the notice under Section 299 of the

Bombay Municipal Corporation Act is "not occupied by any

building" or occupied by "some other structure external to a

building"? In terms of the said Section, if the land is occupied by a

building it is outside the scope of Section 299; but if there are

only structures external to a building, action may be taken under

Section 299 by the Corporation to take possession of the land and

demolish the structure. The notice was challenged by the

appellants under Article 226 of the Constitution contending that

the former was true in its case. The Court then noted that there

are six structures including an underground RCC tank with

cylinder shape precast tank on top. The Court following its earlier

judgment of Municipal Corporation of Greater Bombay v. Indian

Oil Corporation (supra) held as follows:

11. The definition itself is in terms an inclusive one and is therefore to be widely construed. It seems to indicate that a structure would be a building if it has been erected by the use of whatever material, which may or may not be used by human beings since it specifies stables and tanks as buildings. The respondent's submission is that the servant quarters, security cabin, the pump room, underground RCC Tank with Cylinder shape precast tank and the AC Plant are temporary building and are ancillary to the main residential building and not buildings for the purposes of exclusion from Section 299.

LPA Nos.52-58/1987 page 15 of 27 ..... ..... .... .... .... .... .... ...

14. This Court in Municipal Corporation of Greater Bombay v. Indian Oil Corporation Limited 1991 Suppl. (2) SCC 18, construed the words "every other such structure" in Section 3(s) in the context of Section 143(a) of the Act (which authorizes a levy of general tax on building and land) and held that a petrol storage tank although not fixed to the earth was such a structure, holding that permanency is the test.

..... ..... .... .... .... .... .... ...

19. The word "'structure" is used as a generic term so that while all buildings may be structures, all structures are not buildings. That structure which is not a building and is a platform, verandah, step, or some other such structure external to a building may be taken over by the Commissioner under Section 299(1) if it is within the regular line of the street. The words "some other such" must be construed as structures similar or like platform, verandah and step. The words must be read ejusdem generis with the preceding words since the word 'such' means "of the type previously mentioned" (See Concise Oxford English Dictionary (10th Edn.)). The word "other" has also been held to indicate that it must be construed ejusdem generis (Siddeshwari Cotton Mills (P) Ltd. v. Union of India: (1989) 2 SCC 458, Assistant Collector of Central Excise v. Ramdeo Tobacco Co. (1991) 2 SCC 119. The underlying characteristic of platforms, verandas and steps is that they are not independent structures and are external to a building, that is they are attached to the outside and form an inessential part of a building. In our opinion, therefore in order to be a building for the purpose of Section 299 the structure would have to be an independent, permanent structure. Thus there is no repugnancy if one were to read the definition of building and Section 299 and in our

LPA Nos.52-58/1987 page 16 of 27 opinion the word "building" has been used in Section 299 in the sense defined in Section 3(s).

20. Of the six items listed by the Commissioner in his report, learned counsel appearing on behalf of the respondents has, as we have noted earlier, already conceded that the part of the main structure described against serial No. 6 would be excluded from the purview of the action proposed in the impugned notice under Section 299. Even without the concession in our view, applying the test of independence and permanence each of the items falls within the definition of "building" in Section 3(s) of the Act, and therefore, fall outside the purview of Section 299."

(emphasis supplied)

20. In M.C. Mehta v. Union of India and others (2006) 3 SCC

399, the Supreme Court in para 21 has noticed that the definition

of the expression "building" in Delhi Municipal Corporation Act is

very wide and encompasses any structure only excluding

portable shelter. Though the definition of building is not an

inclusive definition, the use of the words "any other structure"

makes the definition inclusive by bringing within its ambit

amongst others 'any other structure'. The storage tanks in

question cannot be termed as portable shelters because these

storage tanks are not temporary or portable so as to be able to

be shifted or removed from one place to another. These tanks

have been permanently erected without being shifted from place

LPA Nos.52-58/1987 page 17 of 27 to place. Considering the fact that the storage tanks have been

permanently erected without being shifted from place to place

and are permanently stationed at the present place since last

several decades, in our opinion they are building within the

meaning of the Act. Accordingly, our answer to the first question

is that the erection of storage tanks in question amounts to

erection of building which is taxable under the Delhi Municipal

Corporation Act.

Re. Question (ii)

21. The next question is whether these storage tanks and

other structures raised on the land are exempted as plant and

machinery under Section 116 of the Act. Mr.B.B.Jain, learned

counsel appearing for the respondent, contended that there is no

definition of plant in the Act but in its ordinary sense it would

include whatever apparatus used by a businessman for carrying

on his business and since storage tanks are apparatus for

carrying on business, they should be regarded as "plant" within

the meaning of Section 116 of the Act. He placed reliance on the

classic definition given by Lord Justice Lindley in Yarmouth v.

France, 1887(19) QBD 647 observing that the word "plant" in its

ordinary sense would include "whatever apparatus is used by a

LPA Nos.52-58/1987 page 18 of 27 businessman for carrying on his business .... not his stock in trade

which he buys or makes for sale; but all goods and chattels, fixed

or movable, live or dead, which he keeps for permanent

employment in his business." Learned counsel referred to the

decision in Jarrold v. John Good & Sons, (1963)1 All E.R. 141,

where the Court of Appeal, relying upon the decision in

Yarmouth's case held the partitions as "plant" on the basis that

the same served as a part of the building in which tax payers'

business was carried on. He also relied upon in Inland Revenue

v. Barclay Curle, (1969) 1 ALL E.R.732, where House of Lords

followed the definition of plant, as given in Yarmouth's case

holding Dry Dock to be a plant by applying the functional test,

being an integral part of the business of the assessee. He next

referred to Cooke v. Beach Stations Caravans Ltd.,(1974) 3 All

E.R. 159, where a swimming pool being a structure was held to

be a plant by applying the functional test that the same was used

by the assessee for his trade or business and was part of the

apparatus used by the tax payer company for carrying on its

business as a Caravans Park Operator. He also referred to

decisions of the Supreme Court in CIT, Andhra Pradesh v. Taj

Mahal Hotel, Secunderabad, (1971) 3 SCC 550 and Scientific

LPA Nos.52-58/1987 page 19 of 27 Engineering House (P) Ltd. v. C.I.T., Andhra Pradesh, (1986) 1

SCC 11, where the Court referred to with approval the

observations of Lindley, L.J. in Yarmouth v. France.

22. We are unable to accept the submissions of Mr.B.B. Jain.

The words "plant and machinery" in Section 116 of the Act

cannot be interpreted so widely. In our opinion, the object and

scheme of the Act do not permit such a wide interpretation. The

decisions cited by Mr.B.B.Jain were in the context of the Income

Tax Act and, therefore, not of universal application. If plant is

defined differently under a different provision or if the context so

requires it may have to be given a different and narrower

meaning. There is no definition of the plant in the Act. A

contextual interpretation and meaning will have to be given to

"plant and machinery" in the light of object and scheme of the

Act. Under the Act all lands and buildings are taxable unless

exempted by the Statute. As noticed earlier, 'land' and 'building'

are defined in wide terms. The term "plant and machinery"

occurs in Section 116 of the Act. For erection of a building it is

necessary to obtain a sanction under Section 332 of the Act and

the Building Bye-Laws framed thereunder while for installing

plant and machinery no such sanction is required. The

LPA Nos.52-58/1987 page 20 of 27 respondent has been granted the right to erect / construct

"petroleum installation buildings" consisting of petroleum tanks,

buildings and other conveniences for receiving and 'storing'

therein petroleum in bulk. Such constructions are admittedly to

be raised so as to enable the grantee the right of extensive user

for a long time. We have already demonstrated that the storage

tanks have been permanently erected without being shifted from

place to place and are permanently stationed at the present

place and they are building within the meaning of Section 2(3) of

the Act. Obviously for running almost all industries or for carrying

on any trade or business building is required. On occasions

building may be designed and constructed to suit the

requirements of a particular trade, industry or business. But that

would not make such building a plant. It only shelters running of

such business. In this connection it will be useful to refer to a

decision of the Supreme Court in C.I.T., Trivandrum v. M/s Anand

Theatres (2000) 5 SCC 393. The question involved in that case

was whether a building which was used as a hotel or cinema

theatre could be considered to be a plant or whether it remained

a building for the purposes of depreciation. The High Court held

that the hotel building was a plant and was entitled to a

LPA Nos.52-58/1987 page 21 of 27 depreciation at the rate applicable to plant and that a theatre

building was also a plant. The respondent assessee relying upon

the very decisions, cited by Mr.B.B.Jain, contended that the

building and structure could also be considered to be a plant

provided they fulfill the functional test i.e. they were part of the

whole apparatus with which the trade carried on as opposed to

the place or setting where the same was carried on. Rejecting

the contention, the Court held as follows:

"Further, in the context for the legislative scheme under Section 32, which provides for depreciation at different rates, inter alia, for building, machinery and plant, building used for certain specified purposes and machinery or machines used for the specified purposes, even though the word "plant" may include building or structure in a certain set of circumstances as per the dictionary meaning, but to say that building used for running the business of hotel or a cinema would be "plant" under the IT Act would be inconsistent with the said provisions and would be against the legislative intent.

One has, therefore, to gather the meaning of the words "building" and "plant" in the context of the scheme of Section 32 rather than to adopt a judge-made meaning which is artificial and imprecise in application, given to the word "plant" in the context of different statutory provisions.

The scheme of Section 32 unequivocally leads to the conclusion that "building" and "plant" are treated separately for the purpose of grant of depreciation. Higher rate of depreciation is granted to "machinery" and "plant" as against

LPA Nos.52-58/1987 page 22 of 27 "building" which has more durability. The word "plant" is given a wider meaning under Section 43(3) to include ships, vehicles, books, scientific apparatus and surgical equipment used for the purposes of the business or profession, but that would not mean that it includes building which is treated separately from machinery and plant.

The business of a hotelier is carried on in a building or premises but the building is not an apparatus for running such business. The same would be the position with regard to a theater in which cinema business is carried on. Moreover, such buildings cannot be termed as tools for running business but are mere shelter for carrying on such business activities. Therefore, even functional test, which would not be conclusive in all cases, is also not satisfied."

23. In State of Bihar v. Steel City Beverages Ltd. (1999) 1

SCC 10, the question, which arose for consideration, was whether

investment made by the respondent company in bottles and

crates can be said to be investment in "Plant" so as to amount to

"Fixed Capital Investment" under the Bihar Sales Tax

Supplementary (Deferment of Tax) Rules, 1990. The High Court

after considering that under the Deferment Rules "fixed capital

investment" means investment in land, building, plant and

machinery and that they do not define the word "Plant", observed

that it was required to be construed according to its dictionary

LPA Nos.52-58/1987 page 23 of 27 meaning or as understood in common parlance and not in its

technical sense. It held that the word "Plant" would include

whatever apparatus is used by a businessman for carrying on his

business; not his stock in trade which he buys or makes for sales,

but all goods and chattels fixed or movable which he keeps for

employment in his business and which have some degree of

durability. Considering the nature of business of the Company,

namely, manufacturing soft drinks and beverages, the High Court

held that bottles and crates employed by it for its business are

also 'Plant' and, therefore, the Company is entitled to get the

benefit of deferment on the investment made in them. Allowing

the appeal, the three Judge Bench of the Supreme Court held as

follows:

"5. Therefore, what we have to consider is whether under the Deferment Rules "plant" would include bottles and crates employed by an industrial unit manufacturing soft-drinks and beverages for carrying on its business. The word plant has a very wide meaning and a variety of articles, objects or things have been held to be plant. Dictionaries have defined plant as land, building, fixtures, machinery, implements and tools, and apparatus used in carrying on a mechanical operation or an industrial process. This Court in C.I.T. v. Taj Mahal Hotel (1971) 3 SCC 550 and Scientific Engineering House P. Ltd. v. CIT, (1986) 1 SCC 11 referred to with approval the observations of Lindley, L.J. in Yarmouth v. France, (1887) 19 QBD 647 that in its

LPA Nos.52-58/1987 page 24 of 27 ordinary sense plant includes whatever apparatus is used by a businessman for carrying on his business, - not his stock-in-trade which he buys or makes for sale, but all goods and chattels, fixed or movable, live or dead, which he keeps for permanent employment in his business. In that case, this Court further held that the test to decide whether a particular thing is plant would be: "Does the article fulfill the function of a plant in the assessee's trading activity? Is it a tool of his trade with which he carries on his business? If the answer is in the affirmative, it will be a plant". Learned counsel for the respondents, heavily relying upon this decision, submitted that the High Court was right in interpreting the word plant in the Deferment Rules as including bottles and crates also as they are used by the Company for carrying on its business. We cannot agree with this contention as we are of the view that the High Court was wrong in interpreting the word plant in Rule 2(v) so widely. It failed to consider whether the object and scheme of the Deferment Rules permit such a wide interpretation. The High Court also failed to appreciate that the decisions of this Court in Taj Mahal Hotel (supra) and Scientific Engineering House (supra) were under the Income Tax Act and the observations made and the test indicated therein were in the context of the wide definition of the word plant given in that Act and, therefore, not of universal application. Obviously, if plant is defined differently under a different provision or if the context so requires, it may have to be given a different and a narrower meaning. The Deferment Rules do not define plant and, therefore, what should have been considered by the High Court was what meaning should be given to it in the context of the Deferment Rules."

24. We may also refer to the definition of "building" in

LPA Nos.52-58/1987 page 25 of 27 Building Bye-Laws, 1983, which reads as follows:

"2.10 Building - Any structure for whatsoever purpose and of whatsoever material constructed and every part thereof whether used as human habitation or not and includes foundation, plinth, walls, roofs, chimneys, plumbing and building services, fixed platforms, verandahs, balcony, cornice or projection part of a building or anything affixed thereto or any wall enclosing or intended to enclose any land or space and signs and outdoor display structures, monuments, memorials or any contrivance of permanent nature / stability built under or over ground."

Buildings have been classified under different heads and the

storage tanks would fall under clause 2.54.8, which reads as

follows:

"2.54.8 Storage Buildings - These shall include any building or part of a building used primarily for the storage or sheltering of goods, wares or merchandise, like warehouses, cold storages, freight depot, transit sheds, store houses / garages, hangars, truck terminals, grain elevators, barns and stables."

25. The storage tanks of the respondent are mere shelters for

carrying on business activities of storing the petroleum products /

stock in trade which are permanent constructions. The business

of storing oil of the respondent is being carried on in these

installations / storage tanks which are shelters or a home for

LPA Nos.52-58/1987 page 26 of 27 carrying on the business and cannot be termed as an apparatus

fur running such business. If the contention of Mr.Jain is

accepted, then virtually all buildings, which are used for

commercial / industrial user, would be considered to be a plant

and the meaning assigned to "building" in the Act would be

completely negated. Such an interpretation will be totally

inconsistent with the object and scheme of the Act.

26. In the result, we record our findings on the two questions

as follows:

(i) The erection of storage tanks in question amounts to

erection of building, which is taxable under the Act.

(ii)The storage tanks in question and other structures raised

on the land in question are not exempted as plant and

machinery under Section 116 of the Act.

27. Registry to transmit these findings to the Supreme Court.

Chief Justice

Sanjiv Khanna, J

S. Muralidhar, J January 15, 2009 "nm"

LPA Nos.52-58/1987                                    page 27 of 27