9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
1995 (11) TMI 9 - HC - Income TaxClaim for Depreciation on the hotel buildings - cinema building or hotel building - treated as a plant - Whether the hotel or cinema building is a plant or not the provisions of section 32 of the Income-tax Act - Word building - distinction between plant and machinery - HELD THAT - The various principles which emerge from the various decisions of the apex court and other courts can be summarised as under (i) The functional test is a decisive test. (ii) An item which falls within the category of building cannot be considered to be plant . Buildings with particular specification for atmospheric control like moisture temperature are not plant . (iii) In order to find out as to whether a particular item is a plant or not the meaning which is available in the popular sense i.e. the people conversant with the subject-matter would attribute to it has to be taken. (iv) The term plant would include any article or object fixed or movable live or dead used by a businessman for carrying on his business and it is not necessarily confined to any apparatus which is used for mechanical operations or process or is employed in mechanical or industrial business. The article must have some degree of durability. (v) The building in which the business is carried on cannot be considered to be a plant . (vi) The item should be used as a tool of the trade with which the business is carried on. For that purpose the operations it performs have to be examined. Hotel business is a business in which the building is one of the components besides the other facilities like food air-conditioning etc. The building itself is of different uses like rooms for stay conference hall kitchen etc. The hotels are also of different categories. The facility in the hotels differs according to the star mark given to them. The facility of comfortable stay is also provided by guest houses house hotels inn sarai etc. The building which is used in the business of hotel remains a building inspite of the fact that it is decorated by plaster of paris timber work etc. If the skeleton of the building without decoration is building then the items by which it is decorated would not change the character of building. The item may however be considered as plant subject to its use. The use of the building is as a setting. Building is not used as a tool of the trade. Different rates of depreciation for building have been provided which also makes the legislative intent clear that the different types of buildings remain as building. The amendment of section 32(1)(v) has only clarified the legislative intent that the building of hotel is a building though by amendment a higher rate of deprecation is provided for it. In an industry no production can be normally carried on without a building where the plant and machinery is installed but for that reason the building cannot be considered as plant when there is a separate entry for buildings for purpose of depreciation. Buildings may accommodate plant and machinery or living persons. It remains a building. The structure having roof and durability is considered as building. Every movable and immovable property has its categorisation. It is basically the hospitality which is provided in a hotel may be by human service or by equipment surroundings atmosphere etc. which is provided by decorated rooms beautiful furnishing. The recompense of the hotelier is for the care pain facility which is provided by him by way of service rendered and not by providing the room alone it could be considered as a tool of the trade. The hotel industry is a service oriented industry and the better the service the higher the charges. Looking to the common parlance meaning and the specific use of the word building in section 32 of the Income-tax Act we are of view that the building of hotel is a building. The building which is used for accommodating the cinema-goers remains a building even if specially designed. All the provisions of local laws including approval from the local authorities for construction of a building levy of land and building tax etc. are applicable to it. A cinema may have air-conditioning in its building besides the furniture but for that reason it will not cease to be building. In respect of cinema the work is carried on by the projector which displays the film on screen. The hall of the cinema may be air-conditioned and even it may be an open theatre. In the case of Mohd. Jaffar Ali AIR 1971 AP 156 FB it was considered that a cinema is nothing but a large house with furniture etc. supplied and cinema apparatus and other accessories affixed therein. Thus we are of the view that the Income-tax Appellate Tribunal was not justified in holding that the cinema building/hotel building belonging to the assessee-firm should be treated as plant and depreciation should be allowed at the rate applicable to a plant . Accordingly the reference is answered in favour of the Revenue and against the assessee. No order as to costs.
The judgment addresses the question of whether a cinema building or hotel building should be classified as a "plant" for the purpose of depreciation under the Income-tax Act, 1961. The Income-tax Appellate Tribunal had previously ruled in favor of treating these buildings as plants, which would allow for a higher depreciation rate. The High Court, however, was tasked with reviewing this classification.
Issues Presented and Considered The core issue was whether the cinema and hotel buildings should be classified as "plants" under the Income-tax Act, allowing for depreciation at rates applicable to plants, rather than as buildings which attract a lower depreciation rate. This classification affects the financial implications for businesses operating such establishments. Issue-wise Detailed Analysis Relevant Legal Framework and Precedents Section 32 of the Income-tax Act, 1961, provides for depreciation on buildings, machinery, plant, or furniture used for business purposes. The definition of "plant" under section 43(3) includes various apparatus used for business, but does not explicitly include buildings. The distinction between "plant" and "building" is critical, as it determines the applicable depreciation rate. Court's Interpretation and Reasoning The Court emphasized the "functional test" to determine whether a structure qualifies as a plant. This test examines whether the structure is used as a tool of the trade or merely serves as a location for business activities. The Court referenced multiple precedents, including decisions from the Supreme Court and various High Courts, which have applied this test to different contexts. Key Evidence and Findings The Court reviewed various judicial interpretations and definitions of "plant" and "building." It noted that buildings, even when specially designed for specific business purposes (like a cinema or hotel), are generally treated as buildings unless they perform a function integral to the business process itself. Application of Law to Facts The Court applied the functional test to the cases at hand. It concluded that both the cinema and hotel buildings serve as settings for business activities rather than as tools or apparatuses integral to the business operations. The cinema building accommodates the machinery for film exhibition and provides seating for viewers, while the hotel building provides lodging and associated services. Treatment of Competing Arguments The Court considered arguments that the specialized design and use of these buildings might warrant classification as plants. However, it found that the primary function of these buildings is to serve as locations for business activities, not as active components in the business operations themselves. Conclusions The Court concluded that the buildings in question do not qualify as plants under the Income-tax Act. Therefore, they should be classified as buildings, subject to the depreciation rates applicable to buildings rather than plants. Significant Holdings The Court held that:
The Court's final determination was that the Income-tax Appellate Tribunal erred in classifying the cinema and hotel buildings as plants. Consequently, the reference was answered in favor of the Revenue, affirming the buildings' classification as buildings for depreciation purposes.
|
