TMI Blog1998 (3) TMI 128X X X X Extracts X X X X X X X X Extracts X X X X ..... gineering House Pvt. Ltd. v. CIT [1986] 157 ITR 86, in which the Supreme Court relying on the classic dictum of Lindley L. J. in Yarmouth v. France [1887] 19 QBD 647 (CA) and the dictum of Lord Reid in IRC v. Barclay, Curle and Co. Ltd. [1970] 76 ITR 62 (HL), amongst others, laid down certain tests to find out as to what is "plant" and contended that the tests laid down by the Supreme Court are fulfilled in this case and, therefore, the hotel building is "plant" entitled to depreciation applicable to "plant". The Division Bench, which was in seizin of the reference, noticed a marked inconsistency between the decision of this court in I. T. R. No. 155 of 1991 (CIT v. Damodar Corporation [1997] 225 ITR 699) and the decision of the Supreme Court in Scientific Engineering House [1986] 157 ITR 86. I. T. R. Nos. 54 55 of 1995 : One of the common questions referred for the opinion of this court in these references, at the instance of the Revenue, is as follows : "Whether, on the facts and in the circumstances of the case, the theatre building can be considered as a plant ?" Before a Division Bench of this court, counsel for the Revenue contended that the question is squarely cov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us used by a businessman for carrying on his business is included in the definition of "plant". In IRC v. Barclay, Curle Co. Ltd. [1970] 76 ITR 62, the House of Lords, speaking through Lord Reid, held that a dry dock is a plant. The function of a dry dock is to lower ships into a position where they can be securely held exposed out of the water and inspected and repaired and to raise them again to a level where they are free to sail away. The valves, the machinery for the provision of electricity and the pumps were taken as an integral part of the dock as a functioning entity. The remainder of the dock would have been useless to the company without them and, similarly, they would have been useless without the remainder of the dock. Relying on the classic definition of "plant" given by Lindley L. J. in Yarmouth's case [1887] 19 QBD 647 (CA), inter alia, the House of Lords concluded as follows : "The dry dock was in our view not the mere setting or premises in which ships were repaired. It was different from a factory which housed machinery, for in the operation of the dock, the dock itself played a part in the control of water and enabled the valves, pumps and electricity gene ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is that section 32(1) of the Act refers to buildings, plant, machinery or furniture and, therefore, each item is mutually exclusive and what falls under the head "Building" could not be treated as "plant" and vice versa. In Barclay, Curle Co.'s case [1970] 76 ITR 62 (HL), Lord Guest indicated a functional test in these words : "In order to decide whether a particular subject is an 'apparatus' it seems obvious that an inquiry has to be made as to what operation it performs. The functional test is, therefore, essential at any rate as a preliminary." In brief the test would be : Does the article fulfil the function of a plant in the assessee's trading activity ? Is it a tool of his trade with which he carried on his business ? If the answer is in the affirmative, it will be a plant (Scientific Engineering House P. Ltd. v. CIT [1986] 157 ITR 86 (SC)). Considering the peculiar nature of hotel business and applying the aforesaid test, we are of the view that the hotel building is a tool of the assessee's business. "Plant" cannot necessarily be confined to an apparatus which is used for mechanical operations or process or is employed in mechanical or industrial business. In Scient ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntire building has to be used by the assessee for carrying on its hotel business. The business of the assessee is of a nature where the building has to be treated as a tool of his trade. The building is not a setting or a canopy under which the assessee carries on its business." The Revenue vehemently relied on CIT v. Lake Palace Hotels and Motels P. Ltd. [1997] 226 ITR 561, in which the Rajasthan High Court took the contrary view that neither hotel building nor theatre building is "plant" within the meaning of section 43(3). Though the Rajasthan High Court referred to all the above important cases, yet, without giving cogent reasons to differ from the view taken by the Supreme Court and the House of Lords in the aforementioned cases, it chose to take the contrary view. Bereft of the critical analysis and the cogent reasons, we are afraid that the decision of the Rajasthan High Court does not possess persuasive force and lay down a good law on the point in issue. Similarly, the Division Bench of this court in CIT v. Damodar Corporation [1997] 225 ITR 699 held that a hotel in its entirety is not a plant for the purposes of depreciation. The Division Bench stated reasons as under : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... activities are carried on, it would amount to "plant" but where the structure plays no part in the carrying on of those activities but merely constitutes a place within which they are carried on, the building cannot be regarded as a "plant". We entirely agree with the view taken by the Allahabad High Court. An SLP was filed by the Department against the judgment dated December 20, 1993, of the Allahabad High Court in ITA No. 132 of 1993 rejecting a reference application on the question whether the assessee's building was "plant" entitling it to depreciation and that was dismissed by the Supreme Court by a judgment dated January 4, 1995. However, an authoritative decision is still awaited from the Supreme Court, as the decision dismissing the SLP does not form a precedent. It is to be borne in mind that section 43(3) of the Act gives only an inclusive definition of the word "plant". This being so, it would be proper to hold that the word "plant" is of wider amplitude and that cannot be construed in a narrower fashion. The inclusive definition under section 43(3) is indicative of the fact that the terms "buildings", "machinery" and "plant" are not mutually, exclusive. In the re ..... 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