1. Heard Mr. U. K. Borthakur, the learned counsel for the appellant/assessee. Also heard Mr. S Sarma, the learned standing counsel, Income-tax Department on behalf of the respondent.
2. These appeals have been filed under section 260A of the Income-tax Act, 1961 (hereinafter referred to as "the IT Act"), against the common order dated December 13, 2013 (annexure D) in the I. T. A. No. 4/Gau/2011 and the I. T. A. No. 5/Gau/2011 respectively of the Income-tax Appellate Tribunal, Guwahati Bench, whereby the appeals preferred by the assessee were dismissed by declaring that the Assessing Officer was justified in reassessing the tax, for excess claim towards depreciation, since the Gotanagar truck terminus (hereinafter referred to as "the Truck Terminus") cannot be considered as a "plant" (deserving 25 per cent. depreciation), but it should be treated as a "building" attracting the lower rate of depreciation (10 per cent.).
3. The appeals were admitted on the following substantial questions of law :
(i) Whether on facts and in the circumstances, the Tribunal was justified in holding that there was justifiable material/reasons to issue notice under section 148 of the Income-tax Act, 1961 for reopening of the assessment for the years 2004-05 ?
(ii) Whether the Tribunal was justified on facts and in the circumstances of the case to hold that "Gotanagar Truck Terminus" is not a "plant" but a "building" for the purpose of claiming depreciation under section 32 read with section 43 of the Income-tax Act, 1961 and, therefore, the assessee was entitled to claim depreciation at the rate of 10 per cent applicable to "buildings" and not at the rate of 25 per cent., as prescribed for "plant" ?
4. The assessee is a local authority and acts as a nodal agency for the State Government for various developmental activities in Guwahati. They filed their return of income for the concerned assessment years and declared their total income. For the truck terminus, they claimed depreciation at 25 per cent. by considering the same to be a plant. Moreover, nil depreciation was claimed for land and building in the fixed asset schedule. The returns for the concerned assessment years, were processed under section 143(1) of the Income-tax Act and depreciation claimed was supported by the audited report under section 44AB of the Income-tax Act, the balance- sheet and also the profit and loss accounts. The schedule of fixed assets for the purpose of assessment was also annexed to claim depreciation at 25 per cent., for the truck terminus by considering the same to be plant for the purpose of quantifying the applicable rate of depreciation.
5. The above claim, in the understanding of the Assessing Officer, was found to be an excess claim towards depreciation and thus the Assistant Commissioner of Income-tax opined that he has reason to believe that income has escaped assessment, within the meaning of section 147 of the Income-tax Act. Thus notice for reassessment was issued under section 148 of the Income-tax Act.
6. In their response, the assessee submitted that their original return should be treated as their response to the notice under section 148 of the Income-tax Act and they contended in their letter dated July 18, 2007 as follows :
"The truck terminus has been constructed on a plot of land measuring 27 bighas (36,415 sq. mtr.) of land allotted by the Government of Assam. We spend an amount of Rs. 193.82 lakhs on development of land for construction of truck parking yards, RCC ramp for truck washing, dormitory for the truck drivers, lavatory to be used by the trucks drivers with an intention to earn income by way of parking fees from the trucks to be parked there. Around 300 trucks can be parked at a time there in the truck terminus. To earn the said income we made some investments like construction of ticket counter and office room measuring approximately 100 sq. mtr.
We are earning income by way of parking fee only and not rent. Thus, the asset under the head 'Gotanagar Truck Terminus' should be considered as plant and not as building."
7. However, the above projection of the assessee was rejected and the Assessing Officer observed that plant as defined in section 43(3) does not include building and the truck terminus with its superstructure and the land appurtenant thereto cannot be a plant. Moreover earning through parking fee is immaterial as it depends on the nature of the business. He also observed that the Income-tax Act has outlined how much depreciation allowance can be claimed, in respect of the assets used for the purpose of business and that the word plant will not include a truck terminus for the Income-tax Act. Thus it was held that depreciation allowance for the truck terminus should be taken at the lesser rate, applicable for buildings.
8. The aggrieved assessee approached the Commissioner of Income-tax (Appeals) but the appellate authority observed that the Assessing Officer bona fide believed that excessive depreciation was claimed and thus income chargeable to tax has escaped assessment. He also observed that the entire super structure consisting of truck parking yards, RCC ramps for washing trucks, dormitories for truck drivers, toilets, ticket counters, etc. are permanent structures without having any plant or machinery forming a pre-dominant part of such structure. Moreover, the income earned from collection of parking fee is not through any industrial process. Thus it was concluded that the facilities in the truck terminus were specially built but functional test would be unreasonable and unjustified and therefore the depreciation for the truck terminus should be at 10 per cent., by considering it to be a building and not plant. It was accordingly declared that the truck terminus cannot be treated as a plant and consequently the lesser depreciation determined by the Assessing Officer at 10 per cent., by treating the facility as a building was upheld by the appellate authority, by dismissing the appeal filed by the assessee. On the legality of the re- assessment proceeding under section 147 of the Income-tax Act, it was found that the Assessment Officer had bona fide reason to believe that income has escaped assessment and there was linkage between material and belief and thus the jurisdiction question was answered against the assessee.
9. The matter was then taken by the aggrieved assessee to the Income-tax Appellate Tribunal, where both the appeals were considered analogously. In its judgment, the Income-tax Appellate Tribunal held as under :
"13. In the assessment years under consideration, the Assessing Officer has reopened the assessment under section 147 of the Act and there is amendment in section 147 of the Act with effect from April 1, 1989 and as per the amended provisions, it requires fulfilment of one condition namely the Assessing Officer has reason to believe that income has escaped assessment. Once, the said condition is fulfilled, the Assessing Officer has the jurisdiction to take action under section 147 of the Act. There being no finality of the assessment at the notice under section 143(1) of the Act, it will be justified for the Assessing Officer to take into consideration the materials placed before him by the assessee along with the original return of income. If such materials has escaped notice of the Assessing Officer, for whatever may be the reason, it is open to the Assessing Officer to take into consideration such materials already available before him for forming a belief within the meaning of section 147 of the Act that there is escapement of income chargeable to tax. In the instant case, only intimation under section 143(1) was received which are not orders of assessment. The proceeding under section 147 of the Act, which was initiated by the Assessing Officer on April 10, 2007 within four years from the end of the relevant assessment year, and the Assessing Officer was satisfied that he has reason to believe that profit and gain chargeable to tax has escaped assessment in view of Explanation 2(b) to section 147 of the Act . . .
14. Ground No. 3 in both the appeals relate to as to whether Gotangar Truck Terminus is to be considered as plant or not. The said truck terminus consists of RCC ramp for washing trucks, dormitory for truck drivers, lavatories, ticket counters and office rooms. The assessee earned income by allowing the open space to be used for parking of the trucks. The RCC ramps used for washing of trucks, dormitories to accommodate the truck drivers, lavatories, ticket counters and office rooms are complementing the main object to allow open space to be used for parking. The entire super structure is constructed on open land of 27 bighas. Building has been defined in the Act; therefore, one has to go to the meaning of building as per ordinary grammatical sense. Building is now generally used, a fabric of edifice, framed or constructed, deigned to stand more or less permanently, and covering a space of land, for use as dwelling, store house, factory, shelter for beasts or some other useful purposes.
15. As per the assessee, the assessee is entitled for depreciation on the Gotanagar Truck Terminus at 25 per cent. as it was considered as plant, but as we have seen from above, that it is a building and it is roofless structure, therefore, it cannot be considered as plant. The entire super structure is concrete structure without having any plant and machinery forming predominant part of such structure. The income earned from the parking facilities does not involve any machinery or industrial process. The assessee has earned income by way of parking fees by allowing its open space for use of parking of trucks. The truck terminus is parking yard. Therefore, it cannot be considered as plant . . .
16. In view of the above, we are of the opinion that our interference is not required in the findings of the learned Commissioner of Income-tax (Appeals). Accordingly, we dismiss this ground of appeal of the assessee in both the assessment years."
10.1 Representing the appellant (assessee), Mr. U. K. Borthakur, the learned counsel submits that reassessment can be ordered only when the Assessing Officer has reasons to believe that income chargeable to tax has escaped assessment and such reasons to believe cannot just be suspicion of the Income-tax Officer and there has to be live link between the materials under consideration and the belief reached by the Assessing Officer. In the instant caseno reasons are disclosed by the Assessing Officer to proceed under section 147/148 of the Income-tax Act and therefore the entire proceeding is contended to be without jurisdiction.
10.2 Referring to the order passed by the Assessing Officer on April 10, 2007, the learned counsel for the assessee submits that what exactly was the basis of the belief of the Assessing Officer for initializing reassessment proceeding, is not disclosed in the order with which, the proceeding was started under section 147 of the Income-tax Act against the assessee and accordingly it is argued that the reassessment process is without any legal jurisdiction.
10.3 The appellant contends that the reason to believe has to be based on tangible and intelligible materials and there must be reasonable nexus of the materials with the belief of the Assessing Officer and unless the relevant material is discernible on the face of the order passed by the Assessing Officer, the same cannot be supplemented thereafter, through additional reasoning.
10.4 The appellant contends that income is earned from the truckter minus for which parking fee is collected and therefore the tangible asset from which earning is made is the parking facility provided to the truck drivers and therefore such income cannot be construed to be earnings generated by the toilets and resting facility provided to the truck drivers. Therefore the assessee contends that the higher rate of depreciation applicable for plant should be allowed for them.
10.5 The learned counsel submits that for the purpose of depreciation under section 32(1), four categories of tangible assets are indicated and building and plant are separately shown in this section and therefore Mr. Borthakur argues that since income is derived from parking fee in the truck terminus and not from the sleeping quarters and the toilets provided for the truck drivers, the higher rate of depreciation for plant is attracted and the conclusion made to the contrary in the reassessment proceeding, is incorrect.
10.6 On the other hand, Mr. S Sarma, the learned standing counsel for the Income-tax Department submits that initiation of reassessment proceeding was made after due consideration of the relevant materials and it is not a case of proceeding without reasonable basis or material.
10.7 The Revenue contends that the truck terminus from which income is earned, also had sleeping quarters and toilet facility for the truck drivers in addition to other structures needed for operation of the truck ter minus and therefore the income earned has to be traced back to a building used by the truck drivers and the assessee and since plant and machinery are not involved in generating income from the truck drivers, the same should not be read as income from plant, which attracts higher depreciation benefits for the assessee.
10.8. The learned counsel for the Revenue relies on CIT v. Anand Theatres [2000] 244 ITR 192 (SC) to contend that separate rates of depreciation are envisaged for plant and building, under section 32 of the Income-tax Act and since plant with its exclusive meaning under section 43(3), does not include building, the depreciation in the present case for the truck ter minus has to be related to income earned from building and not from plant, which has higher rate of depreciation.
11. We have carefully considered the submissions made by the learned counsel for the parties. The first issue that needs to be considered here is whether initiation of reassessment proceeding under section 147 of the Income-tax Act was justified on the materials. This section allows the Assessing Officer to reassess income only if, he has reason to believe that income for concerned assessment year has escaped assessment. The material basis for the reason to believe will justify the action of the Assessing Officer to act against a particular assessee. Therefore it is relevant to determine whether relevant materials existed on which reasonable person could have formulated the requisite belief to conclude prima facie that, income for the concerned assessment year, has escaped assessment.
12. When the Assessing Officer takes action under section 147 of the Income-tax Act and issues notice for reassessment under section 148, he has to record his reasons and such reasons is subject to judicial scrutiny. The expression reason to believe was explained in various decisions and the substance of the conclusion in those decision are culled out by our court in CIT v. Shiv Shakti Flour Mills P. Ltd. [2010] 327 ITR 430 (Gauhati) in the following passage (page 438) :
"The expression 'reason to believe' came to be discussed in various decisions of various High Courts as well as of the apex court. The apex court in Sheo Nath Singh v. Appellate Assistant CIT (Central) [1971] 82 ITR 147 (SC), has observed that the words 'reason to believe' suggest that the belief must be that of an honest and reasonable person, based upon reasonable grounds and though the Assessing Officer may act on direct or substantial evidence but he cannot act on mere suspicion, gossip or rumour. It has further been observed that the Assessing Officer would be acting without jurisdiction if the reason for his belief that the conditions are satisfied does not exist or is not material or relevant to the belief required by the section. The apex court has further opined that the court can always examine this aspect, though the declaration or sufficiency of the 'reason to believe' cannot be investigated by the court. The apex court in Lakhmani Mewal Das [1976] 103 ITR 437 (SC) has observed that the grounds or reasons which lead to the formation of belief contemplated by section 147 of the Act must have a material bearing on the question of escapement of income of the assessee from assessment. Once there exist reasonable grounds for the Assessing Officer to form the belief, that would be sufficient to clothe him with the jurisdiction to issue notice. It has further been observed that the expression 'reason to believe' does not mean a purely subjective satisfaction on the part of the Assessing Officer and the 'reason to believe' must be held in good faith and it cannot be merely a pretence and should not be based on extraneous or irrelevant consideration. There must be a live link between the material and the belief. In Ganga Saran and Sons [1981] 130 ITR 1 (SC), the apex court has observed that if there is no rational and intelligible nexus between the reasons and the belief, so that on such reasons no one properly instructed on facts and law could reasonably entertain the belief, the conclusion would be inescapable that the Assessing Officer could not have rea son to believe that any part of the income of the assessee had escaped assessment . . ."
13. The analysis of the judicial pronouncement as extracted above reflects that there must be a live connection between the materials on which conclusions are reached by the Assessing Officer in formation of his belief that income chargeable to tax has escape assessment. The reasons must be based on bonafide belief and cannot be based upon extraneous materials. In other words, there must be rational or intelligible nexus between the reason and the belief so that any reasonable person properly instructed on facts and on laws, can reasonably entertain the belief needed for acting under section 147 of the Income-tax Act. It is also important that the relevant materials must appear from the order whereby the Assessing Officer has decided to proceed with the reassessment and the satisfaction of the officer cannot be supplemented by the Revenue, through subsequent explanation/affidavit. The validity of the action under section 147 should therefore be construed objectively from reasons disclosed in the order itself and not with any supplementary explanation.
14. The Supreme Court while examining the power for ordering reassessment in CIT v. Kelvinator of India Ltd. reported in [2010] 320 ITR 561 (SC), referred to the Central Board of Direct Taxes Circular No. 549 dated October 31, 1989 and observed that the power conferred upon the Assessing Officer to reopen assessment on the basis of just his opinion, was taken away and the expression reason to believe was reintroduced in section 147. Therefore the apex court opined that the power to reopen assessment can be exercised only when there is tangible material for the Assessing Officer to believe that, income has escaped assessment.
15. Since we are concerned here on whether the income earned from the truck terminus is from a building or plant, we may gainfully refer to the ratio of CIT v. Karnataka Power Corporation reported in [2001] 247 ITR 268 (SC). Here the Supreme Court analysed the earlier decision in Anand Theatre (supra) which was cited by the counsel for the Revenue. In that context, the later judgment noted that the question in Anand Theatre (supra) was for building that was used as hotel or cinema theatre and the rate of allowable depreciation. In this backdrop, the Supreme Court concluded that the structures which are used as hotel or cinema theatre, cannot be given depreciation on the basis that it was a plant. The court found that the building under consideration in Anand Theatre (supra) were the very structure that shelters running of such business and therefore the court held that such income for the purpose of depreciation, should be construed as earning from a building and not plant.
16. However, in the present case, we are concerned with the issue of depreciation for income generated from the truck terminus which is spread across 27 bighas of land. The trucks are parked in the truck terminus for which parking fee is collected by the assessee and in order to encourage the truck drivers to park their vehicles in the truck terminus, resting and toilet facility are provided in the appurtenant building in the truck terminus. The definition of the term plant is of wide magnitude and when it is clear enough that the buildings are not let out by the assessee to earn rent, the parking fee income generated by the truck terminus cannot be attributed to the building which houses the resting quarters and the toilet facility, for the truck drivers.
17. Under section 43 of the Income-tax Act, for the purpose of allowable depreciation of income under section 32, unless the context otherwise requires, the definition given in sub-section (3) of section 43 has to be taken into account. Under section 43(3), plant includes ships, vehicles, books, scientific apparatus and surgical equipment used for the purpose of the business or profession and this itself makes it clear that the facility or the tools used for generating income, can be a plant and need not connote only factories or require use of machinery. Of course buildings are excluded from the definition of plant, under section 43(3) of the Income-tax Act.
18. In the above context, the Madhya Pradesh High Court in Babulal Agrawal v. CIT reported in [2005] 272 ITR 454 (MP) was considering whether depreciation on open plinth godowns provided by the assessee, to store FCI rice, should be allowed depreciation at the rate prescribed for building and not as plant. Answering the question, the Division Bench made the following observation (page 463) :
"On a careful perusal of the same, we are of the considered view that it is the functional test which becomes the real criteria for treating a particular tool as plant or not. As has been indicated by their Lordships of the apex court, the definition of the term 'plant' is of a wide magnitude. In the instant case, as is perceptible, the assessee is not involved in letting out the premises to earn rent. It is evincible from the analysis made by the first appellate authority, the assessee is trading with godowns, structure is a temporary measure, it is like a platform as is apparent, the duration is short and the purpose is different. If one goes by the conception of functional test and the activity involved, there can be no scintilla of doubt that the use of the open plinth godowns are not buildings but are plant and therefore the assessee is entitled to depreciation on the basis that they are to be treated as plants and not buildings. The analysis of the Tribunal that the platforms come under the definition of 'building' under the rules is not correct because the Tribunal has really not appreciated the essential and fundamental activity of these platform, the nature of agreement and the factual foundation. If the contract and the activity are understood in proper perspective, there can be no iota of doubt that the assessee is dealing in business with this kind of platform, but not letting them as buildings. It may apparently so appear but on deeper probe and closer scrutiny, something a different picture gets frescoed from where it becomes clear that it is utilised for the business purposes."
19. In the present case, when we examine the order recorded by the Assessing Officer to start the reassessment proceeding under section 147 of the Income-tax Act, we find that the reason to believe to conclude that tax has escaped assessment is not at all reflected, in the order passed by the Assessing Officer. The Assessing Officer has not said that income from collection of parking fee from the trucks is attributable to building and not to the parking facility provided for the trucks. Even if the order recorded by the Assessing Officer on April 10, 2007 is liberally construed, we do not find the requisite material or the nexus on the basis of which, the reasonable belief is reached, for ordering the reassessment proceeding. Therefore in our understanding, the action initiated against the assessee under section 147/148 appears to be without any jurisdiction and it is declared so accordingly.
20. As the learned counsel for the Revenue has raised the question on whether the jurisdictional issue can be questioned before the High Court in a proceeding under section 260A of the Income-tax Act, we may note here that the assessee, even before the first appellate authority, had questioned the legality of reassessment under section 147 of the Income-tax Act and this issue was specially dealt in para 5.1 and 5.4 by the Commissioner (Appeals) when he rejected the assessee's appeal, through his order dated November 9, 2010 (annexure C). Also before the Tribunal, the jurisdictional question to act under section 147 of the Income-tax Act was again raised by the assessee and the Tribunal too rejected the contention. Moreover, the substantial question of law formulated by the High Court when the appeals were admitted on June 24, 2014 touches on the jurisdictional question for reopening of assessment under section 147/148 of the Income-tax Act, this being an important question of law going to the very foundation of the reassessment proceeding. Therefore in our considered understanding, this question cannot be left out of consideration in the proceeding under section 260A of the Income-tax Act. Moreover, the relevant facts pertaining to the jurisdictional question are already on record and therefore no impediment is noticed to answer the question of law posed before us. The jurisdictional question of law arises from the fact found by the Income-tax authority, i.e., earning from parking fee collected from truck terminus and since tax liability of the assessee is dependent on this very issue, the contention raised by the learned counsel for the Revenue that this question cannot be examined by us in this proceeding under section 260A of the Income-tax Act is rejected. The ratio in National Thermal Power Co. Ltd. v. CIT reported in [1998] 229 ITR 383 (SC) supports our decision.
21. That apart, the High Court cannot only answer the substantial question of law already formulated at the time of admission of the appeals but can also determine other substantial questions, which arise out of the proceeding and therefore, the legality of the reassessment proceeding and the validity of the reassessment order under section 147 of the Income-tax Act are issues, which the High Court can definitely answer in a proceeding under section 260A of the Income-tax Act.
22. Following the above analysis and conclusion, the substantial questions of law are answered in favour of the assessee and we further declare that the Gotanagar truck terminus is a plant and not building, for the purpose of claiming depreciation under section 32 read with section 43 of the Income-tax Act. Consequently the assessee is held entitled to depreciation at the rate of 25 per cent. as prescribed for plant and not at 10 per cent., as applicable for building.
23. With the above answer to the substantial questions in favour of the assessee, we quash the reassessment proceeding and also the order(s) passed by the Assessing Officer, the Commissioner of Income-tax (Appeals) and by the Income-tax Appellate Tribunal which are assailed in these proceedings. It is ordered accordingly.
24. With the above order, both appeals stand allowed in the manner indicated. Parties to bear their own cost.