The main legal point established in the judgment is that the concept of 'plant' under the Income Tax Act is broad and inclusive, encompassing any installation that facilitates the production or increases the efficiency of the business.

K. Shivashankar Bhat, J.—The following question has been referred to us for consideration under the provisions of the Income Tax Act, 1961 :

"Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in upholding the order of the Commissioner of Income Tax (Appeals) that the internal telephone system should be considered as 'plant' of the assessee's factory and investment allowance has to be granted ?"

2. The assessee is engaged in the manufacture of electronic equipment. It has an internal telephone system with about 20 lines. This installation is claimed to be a plant and investment allowance was claimed by the assessee. However, the original authority did not grant the allowance but, on appeal, the same was granted by the Commissioner (Appeals). This order of the first appellate authority was affirmed by the Appellate Tribunal. Hence, this reference at the instance of the Revenue.

3. The question arose under section 32A of the Income Tax Act. As per this section :

Section 32A. - (1) In respect of a ship or an aircraft or machinery or plant specified in sub-section (2), which is owned by the assessee and is wholly used for the purposes of the business carried on by him, there shall, in accordance with and subject to the provisions of this section, be allowed a deduction, in respect of the previous year in which the ship or aircraft was acquired or the machinery or plant was installed or, if the ship, aircraft, machinery or plant is first put to use in the immediately succeeding previous year, then, in respect of that previous year, of a sum by way of investment allowance equal to twenty-five per cent of the actual cost of the ship, aircraft, machinery or plant to the assessee :

4. The second proviso to this section says that :

"No deduction shall be allowed under this section is respect of

(a) any machinery or plant installed in any office premises or any residential accommodation, including any accommodation in the nature of a guest house;

(b) any office appliances or road transport vehicles;" (other clauses not necessary here)

5. The other relevant provision will be the definition of plant found in clause (3) of section 43 of the Act wherein the definition of plant is an inclusive one, including ships, vehicles, books, scientific apparatus and surgical equipment used for the purpose of business or profession.

6. Mr.Chanderkumar, Learned counsel for the Revenue, contended that the internal telephone system is only a facility which is on par with office equipment which does not by itself produce any goods and, therefore, this system cannot be considered as plant. According to learned counsel, any installation to fall within section 32A(1) should be of such a nature which by itself produces the goods or aids in production of goods. A mere facility which facilitates communication does not result in any production of goods or aid the production of goods and, therefore, it cannot be said to be "used for the purpose of business." Learned counsel advanced a theory of direct nexus between production and installation. Mr.Chanderkumar also contended that telephone installations are office appliances which fall under clause (b) of section 32A and just because they are installed in the place of production, they do not cease to be office appliances.

7. This question directly came up for consideration before the Himachal Pradesh High Court and the decision is reported in Commissioner of Income Tax Vs. Mohan Meakin Breweries Ltd., (1980) 122 ITR 203 HP. After referring to sections 33 and 43 of the Act, the Bench observed at page 215 :

"Internal telephone system is undoubtedly a scientific apparatus used for the purpose of the business of the assessee. There is, therefore, no difficulty in concluding that it is a plant. That, however, would not conclude the matter because even if particular item is a plant it would not earn development rebate if it is found to be an office appliance. There