Case: C.I.T.,Trivandrum Vs. M/S.Anand Theatres

and also in other buildings. Still, however, it would be difficult to draw a distinction and differentiate by holding that a building which is specially designed and constructed for running a hotel or cinema would be covered by a plant and other buildings used for the same purpose would not get depreciation as plant, even though such business is carried on in such premises. In our view, the Delhi High Court has in the case of R.C. Chemical Industry (supra) rightly observed that mere fact that manufacture of saccharine would be better carried on in a building having atmospheric controls would not convert the building form the setting to the means for carrying the business. Similarly, Rajasthan High Court also in Lake Palace Hotels & Motels (P) Ltd.s case (supra) rightly observed that simply because some special fittings or controlling equipments are attached for the purpose of carrying on hotel business, it will take it out of the category of building and make it a plant. In our view special fittings or equipments to control atmospheric effects would be plant, but not the binding which house such equipments. Further 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 suite the requirement of a particular industry, trade or business. But that would not make such building a plant. It only shelters running of such business. For each and every business, trade or industry, building is required to carry on such activity. That means building plays some role and in other words, its function is to shelter the business, but it has no other function except in some rare cases such as dry dock where it plays an essential part in the operations which take place in getting a ship into the dock, holding it squarely and then returning it to the river. Building is more durable. If contention of the assessee is accepted, virtually all such buildings would be considered to be a plant and distinction which the Legislature has made between the building and machinery or plant would be obliterated. 42. The learned counsel for the assessee submitted that the words plant and building are not mutually exclusive. Plant may include building in certain set of circumstances and, therefore, applying the functional tests assessee would be entitled to depreciation under the head it is more beneficial to it. He submitted that in the modern era, theatre building and hotel building are integral part of operation for carrying out such business and, therefore, such building should be considered as a plant. 43. As discussed above, the aforesaid contention cannot be accepted. Firstly, it would be difficult to draw a line between a building which is specially constructed for the aforesaid purposes and buildings which are used for the aforesaid purposes by converting a residential accommodation or industrial premises for such purposes. Secondly, the depreciation as a general principle represents the diminution in value of capital asset when applied to the purpose of making profit or gain. The object is to get true picture of real income of the business. Hence, it can be inferred that the Legislature never intended to give such benefit of depreciation to a building which is usually more durable than machinery or plant. In CIT v. Alps Theatre [AIR 1967 SC 1437 ], the court considered the question - whether the cost of land is entitled to depreciation under the Schedule to the Income Tax Act along with the cost of the building standing thereon? The court observed thus :- (6) It would be noticed that the word used is depreciation and depreciation means: a decrease in value of property through wear, deterioration, or obsolescence; the allowance made for this in book-keeping, accounting, etc.(Websters New Word Dictionary). In that sense land cannot depreciate. The other words to notice are such buildings. We have noticed that in sub-clause (iv) and (v), building clearly means structures and does not include site (p. 1439) The court also held that: (7) One other consideration is important. The whole object of section 10 is to arrive at the assessable income of a business after allowing necessary expenditure and deductions. (8) Depreciation is allowable as a deduction both according to accountancy principles and according to the Indian Income Tax Act. Why? Because otherwise one would not have a true picture of the real income of the business. But land does not depreciate, and if depreciation was allowed it would give a wrong picture of the true income. (p. 1439) 44. Under the 1961 Act also for the building and machinery or plant depreciation is allowed probably after taking into consideration its life and decrease in the value of the property through wear and tear. 45. The learned counsel for the assessee vehemently submitted that even though the line between the building and the plant in some cases is absolutely thin yet the Legislature or the Central Board of Direct Taxes (Revenue Board) has not clarified the same at any point of time inspite of conflicting judgments of the High Courts on the subject. The learned counsel for the assessee further submitted that even though the Legislature was alive to the issue and amended section 43(3) of the Act by the Finance Act, 1995 by excluding tea bushes and livestock with retrospective effect from 1962, it has not excluded the buildings which are used for running hotel or cinema business. It has not clarified or carried out any amendment in the provision and, therefore, it should be held that interpretation given by the High Courts was accepted by the revenue and the Legislature. We do not know that the Revenue Board was alive to the said controversy. If that was so, it would have clarified either way and litigations could have been avoided. But that is no ground for accepting interpretation suggested by the learned counsel for the assessees which would be inconsistent with scheme of section 32.

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]6. In CIT v. Taj Mahal Hotel [(1971) 82 ITR 44 (SC)] this court considered that the sanitary and pipeline fittings fell within the definition of plant in section 10(5) of the Indian Income Tax Act, 1922 and, therefore, the assessee was entitled to development rebate in respect thereof. The court further held that the fact that the assessee claimed depreciation on the basis that sanitary and pipeline fittings fell under furniture and fittings in rule 8(2) of the Indian Income Tax Rules, 1922, did not detract from this position as the rules cannot take away what is controlled by the Act or whittle down its effect. After considering the contentions raised by the revenue, the court observed as under:It cannot be denied that the business of a hotelier is carried on by adapting a building or premises in a suitable way to be used as a residential hotel where visitors come and stay and where there is arrangement for meals and other amenities are provided for their comfort and convenience. To have sanitary fittings, etc., in a bath room is one of the essential amenities or conveniences which are normally provided in any good hotel, in the present times. If the partitions in Jarrolds case (1963) 1 WLR 214 could be treated as having been used for the purpose of the business of the trader, it is incomprehensible how sanitary fittings can be said to have no connection with the business of the hotelier. He can reasonably expect to get more custom and earn large profit by charging higher rates for the use of rooms if the bath rooms have sanitary fittings and similar amenities ....(Emphasis here italicised in print supplied) (p.48)Thereafter, the court further held;If the dictionary meaning of the word plant; were to be taken into consideration on the principle that the literal construction of a statute must be adhered to unless the context renders it plain that such a construction cannot be put on the words in question - this is what is stated in Websters Third New International Dictionary. Land, buildings, machinery, apparatus and fixtures employed in carrying on trade or other industrialt is, however, unnecessary to dwell more on the dictionary meaning because, looking to the provisions of the Act, we are satisfied that the assets in question were required by the nature of the hotel business which the assessee was carrying on. They were not merely a part of the setting in which hotel business was being carried on. (p. 49)7. In Scientific Engg. House (P.) Ltds case (supra) this court considered that the drawings, designs, charts, plans, processing data and other literature comprises in the documentation service as specified in clause (3) constituted a book which fell within the definition of plant in section 43(3) of the 1961 Act. The court held that these documents did not perform any mechanical operations or processes, but that cannot militate against their being a plant since they were in a sense the basic tools of the assessees trade having a fairly enduring utility. The court further held that capital assets acquired by the assessee, namely, the technical know how in the shape of drawings, designs, Charts, plans, processing data and other literature falls within the definition of plant and, therefore, a depreciable asset. The court also referred to the functional test referred by Lord Guest in Barclay Curle & Co. Ltds case (supra) and observed as under:In other words, the test would be: Does the article fulfil the function of a plant in the assessees 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. (p. 96)We would add that the learned counsel for the assessees on 3-5-2000 has filed an additional submission pointing out the decision rendered by this court in CIT v. Dr. B. Venkata Rao [(1991) 202 ITR 302], wherein this court dismissing the appeal filed by the revenue held that the nursing home building was specifically equipped as a plant for the assessees business. The court observed:....... What is to be determined is whether the particular nursing home building was equipped as to enable the assessee to carry on the business of a nursing home therein or whether it is just any premises utilised for thate find from the order of the Tribunal as also the assessment order that the assessees nursing home is equipped to enable the sterilisation of surgical instruments and bandages to be carried on. It is reasonable to assume in the circumstances, particularly having regard to the Tribunals order which states that the sterilisation room covers about 250 square fetes that the nursing home is also equipped with an operation theatre. In the circumstance, we think that the finding of the High Court should be accepted. (p. 82)This decision is based on the facts found by the Tribunal and the High Court wherein it was held that nursing home was equipped to enable sterilisation of surgical instruments and bandages to be carried on and that room covered 250 square feets and hence was a plant. As such, no legal contentions were raised and considered by the court and the matter is decided solely on the facts as quoted above without any discussion. Hence, this decision would not be of any assistance in determining the question involved.From the aforesaid discussion, it is apparent that for a building used as a hotel there is a specific provision for granting depreciation allowance at specified rates depending upon fulfilment of the conditions mentioned therein. Hence, there is no question of referring to dictionary meaning of the word plant which may or may not include building, for arriving at a conclusion that building which is specifically designed and constructed as in hotel building would be a plant.Further, in context of legislative scheme under section 32 stated above which provides depreciation at different rates for building, machinery and plant, furniture and fixtures, ships, building used for hospital, aeroplanes, cinematograph films, machinery used in the production and exhibition of cinematograph films, recording equipment, reproducing equipment, developing machines, printing machines, synchronizers and studio lights except bulbs, projecting equipment of film exhibiting concerns, even though the word plant may include building or structure in 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 Act appears, on the face of it, to be inconsistent with the aforesaid provisions. Such meaning would be clearly against the legislative intent.34. Applying the said test, we have to gather the meaning of words building and plant in context of Scheme of section 32 and it is not necessary that we should adopt a judge sense meaning, which is artificial and imprecise in application, given to the word plant in 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 the building which has more durability.35. In CIT v. Mir Mohammad Ali [(1964) 53 ITR 165] this court considered the meaning of the word machinery and observed that the word machinery is an ordinary and not a technical word and unless there is something in the context in the Act, the ordinary meaning would prevail. Thereafter, the court observed:According to the above definition, a diesel engine is clearly machinery. indeed, rule 8 of the Income Tax Rules treats aero-engines separately, from aircraft. It is true that this rule cannot be used to interpret the clauses in the Act but it does show that components of an aircraft, which are machinery, can be treated separately.(Emphasis here italicized in print supplied I (P. 172)For the words plant and installed the court held :Further, when the assessee purchased the diesel engines, they were not plant or part of a plant : because they had not been installed in any vehicle. They were, according to the definition given by the Privy Council, machinery. They were not yet part of a plant, and, according to the Act, 20 per cent of the cost thereof was allowable to the assessee. All the conditions required by the Act are satisfied. If we look at the point of time of purchase and installation, what was purchased and installed was machinery. (p. 172)Thereafter, the court considered the meaning of the expression install and held that when an engine is fixed in a vehicle it is installed within the meaning of sections 10(2)(vi) and 10(2)(via) of the 1922 Act. Similarly, in the present case, the word plant is given 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 this would not mean that it includes budding which is treated separately from machinery and plant. Wider meaning to word plant is given by including specified items mentioned above, that is, it includes ships, vehicles, books, etc.36. In Taj Mahal Hotels case (supra) this court specifically observed that it is well-settled that where the definition of the word has not been given it must be construed in its popular sense if it is a word of every day use. The court also observed that even books have been included plant, therefore, wider meaning should be given so as things which the interpretation clause declares that they shall include. Further, it is to be stated that section 43 itself provides that `unless the context otherwise requires the word plant is to be given wider meaning as stated therein. This wider meaning does not include building. But in any case even for the time being presuming that the judge made meaning of the word plant includes building in certain set of circumstances context of section 32 such wider meaning cannot be given and plant would not include building in which hotel business is run or a theatre building in which cinema business is carried on. Further, the court specifically observed that:. . . the business of a hotelier is carried on by adopting a building or premises in a suitable way to be used as a residential hotel where visitors come and stay.... (p. 48)37. These observations clearly indicate that business of a hotelier is carried on in a building or a premises and building is not an apparatus for running such business. It is a shelter or a home for conduct of such business. The learned counsel also pointed out the decision of the Madras High Court in. CIT v. N. Sathyanathan & Sons (P.) Ltd. [(2000) 242 ITR 514] wherein the court observed that in the case of Taj Mahal Hotel (supra) even after noticing the fact that the dictionary definition of `plant includes buildings, the court did not proceed to hold that the building in which the hotel was run, and wherein the sanitary fittings were used was itself plant, and on that ground sanitary fittings used in the hotel were part of the plant and emphasised that section specifically provides buildings used as hotel would indicate hotel building cannot be construed as a plant. We agree with this view of the Madras High Court.38. Next, it is to be stated that the judgment in the case of Barclay, Curle & Co. Ltd. (supra) would be of no assistance for holding that a building used for the purpose of a hotel or the theatre used for carrying the business of cinema will be a plant because in the said case majority view was that the dry dock was not the mere setting or the premises in which ships were repaired. It was not mere shelter or home but `itself played an essential part in the operations which took place in getting a ship into the dock, holding it securely and then returning it to the river. It was a complete unit by itself, therefore, it was a plant. Against that, for a hotel premises, under the Act, building is not considered to be an apparatus for running the hotel business but is merely a shelter or home for setting in which business is carried out. In our view, same would be the position with regard to a theatre in which cinema business is carried on. Webster Comprehensive Dictionary (International Edition) gives meaning to the word theatre that:(1) A building especially adapted to dramatic, operatic, or spectacular representations; playhouse;(2) The theatrical world and everything relating to it;(3) A room or hall arranged with seats that rise as they recede from a platform, especially adapted to lectures, surgical demonstrations, etc.;(4) Any place of semi-circular form with seats rising by easy gradations;(5) Any place or region that is the scene of events; a theatre of operations in war.This would mean that cinema business can be run in a premises adapted for that purpose which may or may not be specially designed. Further, on the basis of test laid down in the case of Barclay, Curle & Co. Ltd. (supra) such building or premises would be the place in which operation of carrying on of business takes place and not that they are means by which the operation is performed. Even the House of Lords in the case of Benson (supra) arrived at the conclusion that a ship or a floating hulks used as a restaurant was not a plant, even though the ship was used to create a shipboard feeling and certain kind of atmosphere among the patrons. In our view such buildings cannot be termed as tools for running business but are mere shelter for arriving on such business activities. Therefore, even functional test, which is followed and which according to us would not be conclusive in all cases, is also not satisfied.43. As discussed above, the aforesaid contention cannot be accepted. Firstly, it would be difficult to draw a line between a building which is specially constructed for the aforesaid purposes and buildings which are used for the aforesaid purposes by converting a residential accommodation or industrial premises for such purposes. Secondly, the depreciation as a general principle represents the diminution in value of capital asset when applied to the purpose of making profit or gain. The object is to get true picture of real income of the business. Hence, it can be inferred that the Legislature never intended to give such benefit of depreciation to a building which is usually more durable than machinery or plant. In CIT v. Alps Theatre [AIR 1967 SC 1437 ], the court considered the question - whether the cost of land is entitled to depreciation under the Schedule to the Income Tax Act along with the cost of the building standing thereon? The court observed thus :-(6) It would be noticed that the word used is depreciation and depreciationa decrease in value of property through wear, deterioration, or obsolescence; the allowance made for this in book-keeping, accounting, etc.(Websters New Wordn that sense land cannot depreciate. The other words to notice are such buildings. We have noticed that in sub-clause (iv) and (v), building clearly means structures and does not include site (p. 1439)The court also held that:(7) One other consideration is important. The whole object of section 10 is to arrive at the assessable income of a business after allowing necessary expenditure and) Depreciation is allowable as a deduction both according to accountancy principles and according to the Indian Income Tax Act. Why? Because otherwise one would not have a true picture of the real income of the business. But land does not depreciate, and if depreciation was allowed it would give a wrong picture of the true income. (p. 1439)44. Under the 1961 Act also for the building and machinery or plant depreciation is allowed probably after taking into consideration its life and decrease in the value of the property through wear and tear.We do not know that the Revenue Board was alive to the said controversy. If that was so, it would have clarified either way and litigations could have been avoided. But that is no ground for accepting interpretation suggested by the learned counsel for the assessees which would be inconsistent with scheme of section 32.