My generating station building was designed and built so that the machinery cannot work without it. Is it a building or is it plant?
It can be plant. The Supreme Court dismissed the Revenue's appeal and held that where it is found as a fact that a building has been so planned and constructed as to serve the assessee's special technical requirements, it qualifies as plant. The Commissioner (Appeals) had found that the generating station building could not be separated from the machinery and that the machinery could not work without that special construction, and the Tribunal and the High Court had affirmed. The Court also confined Anand Theatres to buildings used as hotels or cinema theatres, holding that its observations will not always apply otherwise.
Decided by the Supreme Court (Supreme Court of India - S.P. Bharucha, R.C. Lahoti and N. Santosh Hegde, JJ) on 2000-07-27, reported as (2002) 9 SCC 571; JT 2000 (9) SC 629; 2000 (6) SCALE 421. It bears on section 43(3), section 32A, section 80J of the Income Tax Act 1961, in Deductions & Disallowances and Assessment & Scrutiny matters.
This is the case that rescued the functional test after Anand Theatres, which the department reads as laying down that a building housing plant can never be plant. The Supreme Court says that reading is too broad: Anand Theatres answered a question about hotels and cinemas and its reasoning is limited to them. What is left is a question of fact, and the test is whether the structure has been planned and constructed to serve the assessee's special technical requirements so that it forms an integral part of the apparatus. That makes the record before the Assessing Officer decisive, and it is why the description the assessee filed here - the water conductor system into the turbines, the tail race channel, the outdoor yard transformers and the purpose-designed cable duct system - carried the case. The same decision also confirms that interest and hire charges received during construction are capital receipts reducing capital cost.
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Three questions had been answered by the High Court in favour of the assessee and the Revenue appealed by special leave. The first concerned the deletion of an addition of Rs 1,30,44,518 representing interest receipts and hire charges from contractors, held to be capital receipts reducing capital cost. The second concerned treating work in progress as opening capital for relief under section 80J. The third, the only one argued, was whether the assessee was entitled to investment allowance on its generating station building as plant. Before the Commissioner (Appeals) the assessee had filed a note including in its claim the potential transformer foundation, the cable duct system, the outdoor yard structures and the tail race channel. It explained that generation begins with water let in from the reservoir through the penstocks and ducts forming the water conductor system into the turbines; that since electricity cannot be stored the process of generation continues until it is led to the transmission tower; that the water used to rotate the turbines is removed through the tail race channel; that transformers in the outdoor yard step up the electricity; and that the electricity is conducted through conductors held in purpose-designed ducts. The Commissioner (Appeals) accepted that the buildings could not be separated from the machinery and that the machinery could not work without such special construction, and the Tribunal and the High Court affirmed.
The civil appeal was dismissed with no order as to costs. The first two questions were not in dispute and were answered in the assessee's favour on the authority of Bokaro Steel and Alcock Ashdown. On the third, the Court proceeded on the finding of fact recorded by the fact finding authority that the generating station building is an integral part of the assessee's generating system, and held that it is plant entitled to investment allowance. The Revenue's reliance on Anand Theatres was rejected: that judgment cannot be read so broadly, its observation about not differentiating between a specially designed building and one not so constructed being limited to buildings used as hotels or cinema theatres. The question is basically one of fact, and where a building is found to have been planned and constructed to serve an assessee's special technical requirements it qualifies as plant.
The Court treated the classification as a question of fact to be answered functionally. The material the assessee had put before the Commissioner (Appeals) showed that the structures in issue were part of the process itself rather than the shell within which the process happened: water passes through the conductor system into the turbines, the tail race channel removes it, the outdoor yard carries the transformers that step up the output, and the cable ducts are specifically designed to carry the conductors, generation continuing until the electricity reaches the transmission tower because it cannot be stored. On that material the Commissioner (Appeals) found the building inseparable from the machinery, and that finding was affirmed twice. The Court then addressed the only obstacle, Anand Theatres. The question there was whether a building used as a hotel or cinema theatre could be depreciated as plant, and the Court's survey of Indian and English authority and its conclusion were directed to that question; its remark that it would be unreasonable to differentiate between a building specially designed to attract customers and one not so constructed but used for the same purpose belongs to that setting. It does not displace the ordinary factual inquiry in other cases.
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
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Handle my notice → Ask a CA on WhatsAppIt can be plant. The Supreme Court dismissed the Revenue's appeal and held that where it is found as a fact that a building has been so planned and constructed as to serve the assessee's special technical requirements, it qualifies as plant. The Commissioner (Appeals) had found that the generating station building could not be separated from the machinery and that the machinery could not work without that special construction, and the Tribunal and the High Court had affirmed. The Court also confined Anand Theatres to buildings used as hotels or cinema theatres, holding that its observations will not always apply otherwise. This was decided by the Supreme Court (Supreme Court of India - S.P. Bharucha, R.C. Lahoti and N. Santosh Hegde, JJ) and bears on section 43(3), section 32A, section 80J of the Income Tax Act 1961. It is reported as (2002) 9 SCC 571; JT 2000 (9) SC 629; 2000 (6) SCALE 421. This is the case that rescued the functional test after Anand Theatres, which the department reads as laying down that a building housing plant can never be plant. The Supreme Court says that reading is too broad: Anand Theatres answered a question about hotels and cinemas and its reasoning is limited to them. What is left is a question of fact, and the test is whether the structure has been planned and constructed to serve the assessee's special technical requirements so that it forms an integral part of the apparatus. That makes the record before the Assessing Officer decisive, and it is why the description the assessee filed here - the water conductor system into the turbines, the tail race channel, the outdoor yard transformers and the purpose-designed cable duct system - carried the case. The same decision also confirms that interest and hire charges received during construction are capital receipts reducing capital cost. If it applies to you, the first step is this: Build the factual record early: describe the process, show which parts of the structure the process actually runs through, and explain why the machinery cannot work without them.
Three questions had been answered by the High Court in favour of the assessee and the Revenue appealed by special leave. The first concerned the deletion of an addition of Rs 1,30,44,518 representing interest receipts and hire charges from contractors, held to be capital receipts reducing capital cost. The second concerned treating work in progress as opening capital for relief under section 80J. The third, the only one argued, was whether the assessee was entitled to investment allowance on its generating station building as plant. Before the Commissioner (Appeals) the assessee had filed a note including in its claim the potential transformer foundation, the cable duct system, the outdoor yard structures and the tail race channel. It explained that generation begins with water let in from the reservoir through the penstocks and ducts forming the water conductor system into the turbines; that since electricity cannot be stored the process of generation continues until it is led to the transmission tower; that the water used to rotate the turbines is removed through the tail race channel; that transformers in the outdoor yard step up the electricity; and that the electricity is conducted through conductors held in purpose-designed ducts. The Commissioner (Appeals) accepted that the buildings could not be separated from the machinery and that the machinery could not work without such special construction, and the Tribunal and the High Court affirmed. The matter was decided on 2000-07-27 by the Supreme Court (Supreme Court of India - S.P. Bharucha, R.C. Lahoti and N. Santosh Hegde, JJ). On those facts the Supreme Court held as follows. The civil appeal was dismissed with no order as to costs. The first two questions were not in dispute and were answered in the assessee's favour on the authority of Bokaro Steel and Alcock Ashdown. On the third, the Court proceeded on the finding of fact recorded by the fact finding authority that the generating station building is an integral part of the assessee's generating system, and held that it is plant entitled to investment allowance. The Revenue's reliance on Anand Theatres was rejected: that judgment cannot be read so broadly, its observation about not differentiating between a specially designed building and one not so constructed being limited to buildings used as hotels or cinema theatres. The question is basically one of fact, and where a building is found to have been planned and constructed to serve an assessee's special technical requirements it qualifies as plant.
The Court treated the classification as a question of fact to be answered functionally. The material the assessee had put before the Commissioner (Appeals) showed that the structures in issue were part of the process itself rather than the shell within which the process happened: water passes through the conductor system into the turbines, the tail race channel removes it, the outdoor yard carries the transformers that step up the output, and the cable ducts are specifically designed to carry the conductors, generation continuing until the electricity reaches the transmission tower because it cannot be stored. On that material the Commissioner (Appeals) found the building inseparable from the machinery, and that finding was affirmed twice. The Court then addressed the only obstacle, Anand Theatres. The question there was whether a building used as a hotel or cinema theatre could be depreciated as plant, and the Court's survey of Indian and English authority and its conclusion were directed to that question; its remark that it would be unreasonable to differentiate between a building specially designed to attract customers and one not so constructed but used for the same purpose belongs to that setting. It does not displace the ordinary factual inquiry in other cases. In the words reproduced by the source cited on this page: "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"
It was decided by the Supreme Court on 2000-07-27 and is reported as (2002) 9 SCC 571; JT 2000 (9) SC 629; 2000 (6) SCALE 421. Binding on every court and authority in India. A Supreme Court decision binds every assessing officer, every Commissioner (Appeals), every bench of the Income Tax Appellate Tribunal and every High Court in India. An officer who declines to follow it is acting contrary to law, and that refusal is itself a ground of appeal. On section 43(3), section 32A, section 80J, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. The civil appeal was dismissed with no order as to costs. The first two questions were not in dispute and were answered in the assessee's favour on the authority of Bokaro Steel and Alcock Ashdown. On the third, the Court proceeded on the finding of fact recorded by the fact finding authority that the generating station building is an integral part of the assessee's generating system, and held that it is plant entitled to investment allowance. The Revenue's reliance on Anand Theatres was rejected: that judgment cannot be read so broadly, its observation about not differentiating between a specially designed building and one not so constructed being limited to buildings used as hotels or cinema theatres. The question is basically one of fact, and where a building is found to have been planned and constructed to serve an assessee's special technical requirements it qualifies as plant. It arises in Deductions & Disallowances and Assessment & Scrutiny matters, on section 43(3), section 32A, section 80J of the Income Tax Act 1961, and was decided by Supreme Court of India - S.P. Bharucha, R.C. Lahoti and N. Santosh Hegde, JJ. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Frame the claim as a functional question of fact rather than a legal classification, and get a finding from the Assessing Officer or the first appellate authority. Meet Anand Theatres by pointing out that it decides the position for hotels and cinema theatres and does not lay down a universal rule. Where receipts such as interest or hire charges arise during construction, treat them as reducing capital cost rather than as income, following Bokaro Steel.
Still good law. The later history that was not checked before has now been searched: 149 decisions cite this judgment. The Rajasthan High Court applied it twice in CIT v R.G. Ispat Ltd (31 January 2003 and 1 September 2003), remitting the investment allowance and depreciation question to be decided in its light, and noted in CIT v Lake Palace Hotels and Motels Pvt Ltd (16 March 2001) that it distinguishes Anand Theatre; the Jaipur Tribunal followed its ratio in ITO v Vaidangi Techmo Management Consultants (11 July 2017). Nothing overruling or doubting it was found; the Hyderabad Tribunal in A.P. State Warehousing Corporation distinguished it on the facts. The finding of fact it requires - that the building was planned and constructed to serve the assessee's special technical requirements - is what carries the case, and investment allowance under section 32A has since ceased to be available, so the live use of the decision today is on section 43(3) and depreciation. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
The batch line gives the year as 2001 and names the case as Karnataka Power Corporation v CIT; the judgment was delivered on 27 July 2000 and is the Revenue's appeal, CIT v Karnataka Power Corporation, though the slug preserves the batch form. The order does not state the assessment year, the High Court appealed from or the reference numbers. The batch line lists section 32; the claim was to investment allowance, which was governed by section 32A, and the definition of plant relied on is in section 43(3), so those and section 80J are given. The order does not itself reproduce section 43(3) or discuss its terms. The second decision relied on for question 2 is printed as Alock Ashodown & Co. Ltd, which appears to be a garbled rendering of Alcock Ashdown & Co Ltd, 224 ITR 353. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The civil appeal was dismissed with no order as to costs. The first two questions were not in dispute and were answered in the assessee's favour on the authority of Bokaro Steel and Alcock Ashdown. On the third, the Court proceeded on the finding of fact recorded by the fact finding authority that the generating station building is an integral part of the assessee's generating system, and held that it is plant entitled to investment allowance. The Revenue's reliance on Anand Theatres was rejected: that judgment cannot be read so broadly, its observation about not differentiating between a specially designed building and one not so constructed being limited to buildings used as hotels or cinema theatres. The question is basically one of fact, and where a building is found to have been planned and constructed to serve an assessee's special technical requirements it qualifies as plant.
TaxSphere, “CIT v Karnataka Power Corporation”, https://taxnotice.vittsphere.com/caselaw/case/karnataka-power-corporation-v-cit/ (validity last checked 2026-08-29)
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