Section 43(3)

Section 43(3) — the law in short

What the courts have decided on section 43(3), in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.

• CIT v Karnataka Power Corporation Supreme CourtHelps taxpayer
  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.
• CIT v Anand Theatres Supreme CourtHelps department
  I built a cinema hall (or a hotel) specially for the business. Can I claim depreciation on the building at plant rates?
  No. The Supreme Court held that a building used for running a hotel or carrying on a cinema business is a building, not a plant, and cannot be given depreciation as plant. Section 32 grants depreciation separately for buildings and for machinery or plant, and the inclusive definition of plant in section 43(3) nowhere takes in buildings. That a building is specially designed to suit the trade does not convert it into an apparatus with which the trade is carried on. The Court answered the reference in favour of the Revenue and against the assessee.
• Scientific Engineering House (P) Ltd v CIT Supreme CourtHelps taxpayer
  I paid a foreign collaborator a lump sum for drawings and designs that let me start manufacturing. Is that capital spending on which I can at least claim depreciation?
  Yes. The Supreme Court held that the payment was capital expenditure by which the assessee acquired technical know-how, and that the know-how, in the shape of drawings, designs, charts, plans, processing data and other literature, is plant within section 43(3) and so a depreciable asset. The test is functional: does the article fulfil the function of a plant in the assessee's trading activity, and is it a tool of his trade? These documents were the basic tools with which the manufacture was begun, and collectively they are a book. That they perform no mechanical operation does not matter. The appeals were allowed.
• CIT v Taj Mahal Hotel Supreme CourtHelps taxpayer
  The officer says my fittings are part of the building, not plant. Is there a test, or is it just his impression?
  There is a test, and it is functional. The definition of plant is inclusive, not exhaustive, so the question is what the article does in the business rather than what it looks like. Sanitary fittings and pipeline fittings in a hotel were held to be plant, because providing them is part of what a hotelier sells.
• M/s. The Plantation Corporation of Kerala Ltd and M/s. The Velimalai Rubber Co. Ltd v ACIT, Kottayam ITATHelps departmentOverruled
  I am a rubber planter. I cleared an old unproductive block and replanted it, and claimed the cost under rule 7A(2). The Assessing Officer has disallowed it. Is there anything I can do?
  Not in Kerala. The Cochin Tribunal dismissed both appeals, holding itself bound by the Kerala High Court in Rehabilitation Plantations Ltd v CIT, which construed rule 7A(2) as covering only infilling — the replacement of dead or useless trees within an existing yielding area — and not the replanting of an area after cutting and removing an old plantation, and held that expenditure on planting and developing a plantation up to maturity must be capitalised. Rule 7A itself makes 35 per cent of the income from the specified rubber products taxable as business income and leaves 65 per cent as agricultural income for the State.

Listed strongest first: Supreme Court, then High Court, then Tribunal, then CBDT. Nothing here has yet been read in full by a chartered accountant — open an entry to see where it came from.