TMI Blog1995 (11) TMI 9X X X X Extracts X X X X X X X X Extracts X X X X ..... preciation should be allowed at the rate applicable to a plant, and in further holding that the hotel being run 24 hours a day is also eligible to extra shift allowance on the basis of its being a plant ? " The facts of this case relevant for the purpose of decision on the above question of law are that the assessee is a private limited company and is running two hotels under the name and style of Lake Palace Hotels and Motels and Garden Hotels and Motels. During the year in dispute, the assessee claimed depreciation on the hotel buildings at 10 per cent. claiming it to be a plant, but the Income-tax Officer allowed depreciation at 5 per cent. In appeal before the Commissioner of Income-tax (Appeals), Jodhpur, the disallowance of the claim was upheld. In second appeal before the Income-tax Appellate Tribunal, an additional ground was also taken that the hotel building being a plant, the assessee is entitled to extra shift allowance on the hotel building. The Tribunal allowed the said additional ground to be raised before it and it was observed that depreciation should be allowed at the rate applicable to a plant and that as the hotel is being run 24 hours a day it is also eligibl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or plant does not exceed five thousand rupees, the actual cost thereof shall be allowed as a deduction in respect of the previous year in which such machinery or plant is first put to use by the assessee for the purposes of his business or profession : Provided further that no deduction shall be allowed under this clause in respect of any motor car manufactured outside India, where such motor car is acquired by the assessee after the 28th day of February, 1975, and is used otherwise than in a business of running it on hire for tourists : Explanation 1. --- Where the business or profession of the assessee is carried on in a building not owned by him but in respect of which the assessee holds a lease or other right of occupancy and any capital expenditure is incurred by the assessee for the purposes of the business or profession on the construction of any structure or doing of any work, in or in relation to, and by way of renovation or extension of, or improvement to, the building, then, the provisions of this clause shall apply as if the said structure or work is a building owned by the assessee. Explanation 2. --- For the purposes of this clause ' written down value of the bl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In Thomas v. British Thomson-Houston Co. Ltd. [1953] 1 All ER 29 [1953] 1 WLR 67 (QB), it was held that the restaurant run within the curtilage of a factory exclusively for executive and administrative employees must be regarded as solely used for some purpose other than the processes carried on in the factory and was not considered as part of the factory while in Luttman v. Imperial Chemical Industries Ltd. [1955] 3 All ER 481 ; [1955] 1 WLR 980, a canteen meant for and solely used by the works people employed in the factory was regarded for the purpose incidental to the process of manufacturing carried on in the factory. In CIT v. R. G. Ispat Ltd. [1994] 210 ITR 1018 (Raj), it was observed by this court that the functional test is whether a structure is used for carrying on the business and hence is a tool of the trade or whether it is only the place of business in which the business is carried on. In CIT v. Kanodia Cold Storage [1975] 100 ITR 155 (All), it was observed by the Allahabad High Court that in common parlance the word " plant " includes within its ambit buildings and equipment used for manufacturing purposes. The building in question was held to be part of the air ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h it is unnecessary to go into." The Karnataka High Court in Santosh Enterprises v. CIT [1993] 200 ITR 353, applying the functional test, observed that : ". . . screening wall and the ceiling of the auditorium having been constructed with requisite installations so as to have a proper control of the sound effect and for the efficient screening of the films may be treated as part of ' plant ' but no other part of the building can be included in the said term. The furniture, fittings and fixtures consisting of wooden walls including false ceiling and wooden panelling of the walls and the chairs would come within the purview of ' plant ' for development rebate." The chairs outside the auditorium were held not falling within the definition of " plant ". The building, structures or part thereof by means of which the business activities are carried on was considered to be a plant and the structure which plays no part in the carrying on of these activities but merely constitutes a place in which such activity is carried on was considered not to be a " plant ". In S. K. Tulsi and Sons v. CIT [1991] 187 ITR 685 (All), it was observed by the Allahabad High Court that the cinema build ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the business, but were merely the structure within which the business was carried on and therefore not plant (Benson v. Yard Arm Club Ltd. [1979] STC 266). The Calcutta High Court in S. P. Jaiswal Estates Pvt. Ltd. v. CIT (No. 2) [1994] 209 ITR 307, observed that buildings, non-factory or factory, are generally treated as buildings even though the extensiveness of the meaning of the word " plant " can also embrace them as a species of plant, but where the Legislature treats a particular species differently from the rest under a genus, the scope for bringing that species under the genetic description for the purpose of allowing depreciation is not permissible. Law requires that buildings irrespective of their use and function shall qualify for depreciation as buildings and not as plant. The hotel building in its entirety was not considered as plant within the meaning of section 32(1) of the Income-tax Act, 1961. A conference hall was considered as falling within the term " hotel building " under section 32(1)(v) and was considered to be a new building by the Allahabad High Court in CIT v. U. P. Hotel Restaurant Ltd. [1980] 123 ITR 626. In R. C. Chemical Industries v. CIT [1982 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r and murals (e. g., wall plaques, tapestries, pictures and sculptures), such items creating or enhancing an atmosphere conducive to the comfort and well-being of his customers. It was observed that where it was claimed that part of a taxpayer's premises was plant, the test to be applied was that something which became part of the premises, instead of merely embellishing them was not plant except in the rare case where the premises were themselves plant. In relation to a hotel, the creation of the right atmosphere or setting to make the interior attractive to customers was a means to an end in the carrying on of such a trade, and was not a trade in itself or a separate part of the trade. Accordingly, the amenities and decoration were not the setting in which the taxpayers carried on their business, but the setting which they offered to their customers for them to resort to and enjoy. It followed that the expenditure incurred by the taxpayers on the electric light fittings, decor and murals qualified for relief as expenditure on the provision of " plant " (IRC v. Scottish and New Castle Breweries Ltd. [1982] 2 All ER 230 ; [1982] 1 WLR 322 (HL)). A beautiful or unusual or historic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the larger London ones, such as the Churchill, Britannica, Portman, London International, and Sky line, mostly had accommodation for dealing with conferences, exhibitions and banqueting, which provide the back-bone of their off season business. Similarly, in some of the chief provincial centres and at the more important holiday resorts, establishments were specially geared to catering to conference trade. One new luxury establishment, the 60 bed-room Capital Hotel in Knightsbridge, London, took the novel step of providing disposable razors and toothbrushes in all bathrooms as well as individual telephones in all rooms. Also in use in the United Kingdom, were service credit cards valid at certain establishments for the payment of accommodation and meals." " Building " has been defined in Webster's Third New International Dictionary at page 292, as under : " Building/' bilding, den/n-s(ME Bilding, fr. gerund of bilden to build) 1 : a thing built : a : a constructed edifice designed to stand more or less permanently, covering a space of land, usu. covered by a roof and more or less completely enclosed by walls, and serving as a dwelling, storehouse, factory, shelter for animals, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... General Commissioners it was held that in determining whether something was a plant the " functional test " had to be applied, namely, whether it performs function in the actual carrying out of the trade. In the present case, the primary function of the ceiling was to provide cladding for the services. They were not part of the means by which the company provided services to its customers. Accordingly, the expenditure did not qualify for the allowance and the appeal would be allowed, Hampton v. Fortes Autogrill Ltd [1980] STC 80 ; [1979] TR 377. In paragraph 1678(ii), it was further mentioned, the taxpayers owned and managed a large number of hotels and licensed premises in Scotland and England. In 1972-73, they decided that to maintain or increase their turnover they ought to brighten and modernise the facilities offered to the public. They accordingly incurred expenditure on the provision of new electric light fittings, decor and murals, such as plaques, tapestries and pictures, for their premises in order to produce an " atmosphere " which would be attractive to their customers. The taxpayers contended that the expenditure had been incurred on the provision of " plant " for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated the use of the building for the purpose of the business. The use of building by a person who carried on the business of hotel or cinema encompasses the building of hotel or cinema. This is further clarified by section 32(1)(v) where it is mentioned that where the building is owned by an Indian company and used by such company as a hotel it will be liable to higher depreciation. This clause has also contemplated that a hotel building even if used as hotel will remain a building. Entry 49 of List II of the Seventh Schedule to the Constitution provides taxes on lands and buildings and hotels and other buildings which are subject to land and building tax which is levied by the State while exercising the power under this entry. The provisions of section 32 have contemplated different rates of depreciation in respect of buildings, machinery, plant or furniture. If a particular item falls in one category then by stretching the meaning it could not be taken to the other category. A Full Bench of the Andhra Pradesh High Court in the case of Mohd. Jaffer Ali v. S. Rajeswara Rao, AIR 1971 AP 156, while considering the provisions of the A.P. Buildings (Lease, Rent and Eviction) Cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. Various principles which have been deduced from the judgment of the apex court and other courts lead to the conclusion that the building of hotel is a building. Simply because some spec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or 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. The element of service is the dominant object and not providing the room alone. The room in a city like Jaipur differs from hotel to hotel. The ordinary rooms may be available at Rs. 100 per day whereas the suite in a five star hotel may be as costly as Rs. 10,000 per day. If the building of a five star hotel is a plant there is no reason why the building of an ordinary hotel should be treated differently only on account of the charges for extra facilities. The difference of charges is because of extra service facilities, etc., provided and the role of the building in the two types of hotels remains the same and at the same time even better services are provided in a number of guest houses. 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 cin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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