# COMMISSIONER OF INCOME TAX, TRIV ANDRUM v. MIS ANAND THEATRES ETC. ETC

- **Citation:** [2000] Supp. 1 S.C.R. 338
- **Court:** Supreme Court of India
- **Decided:** 2000-05-12
- **Case number:** Civil Appeal No. 4758 of 1998
- **Bench:** A.P. Misra, M.B. Shah
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/commissioner-of-income-tax-triv-andrum-v-mis-anand-theatres-etc-etc-17453
- **Pages:** 41

## Headnote

Income Tax Act, 1961-Sections 32 and 43 (3)-Depreciation-Rate
of-'Building' and 'Plant '-Meaning of-Difference between-Building of a
hotel or a cinema-Held, are not apparatus or tool for running the business
C of hotel or cinema-Cannot be 'plant' for the purpose of depreciationIncome Tax Rules, 1962-Rule 5 and part I Appendix I.
Rule 5 of the Income Tax Rules, 1962 provides for calculation ot
depreciation as specified in table in Part I o( Appendix I to the Income Tax
D Rules, 1962. The general rate of depreciation to be charged for 'buildings'
under the said Appendix is 5% whereas the general rate of depreciation to
be charged for 'machinery and plant' is 10%.
The assessee claimed depreciation at 15% on his theatre building
claiming the same to be a 'plant'. The Assessing Officer rejected the claim
E and allowed depreciation only at 5%. i:he assessee filed an appeal before the
Commissioner of Income Tax (Appeals) which was allowed by holding that the
theatre building is to be treated as 'plant'. The Income tax Appellate Tribunal
confirmed the order of the Commissioner of Income Tax (Appeals). On
reference by the Income Tax Appellate Tribunal to the High Court, the High
Court also decided the reference in favour of the assessee. Hence the Revenue
F filed the instant appeal by way of Special Leave Petition. Appeals filed by other
assessees and the Revenue involving the same question of law were heard by
this Court.
Before this Court, the assessees contended that the words 'plant' and
'building' are not mutually exclusive. 'Plant' may include building in certain
G set of circumstances and, therefore, applying the functional tests the
assessees would be entitled to depreciation under the head 'plant' which is
more beneficial to it In the modern era theatre building and hotel building
are integral part of the operation of carrying out such business and are
constructed and designed for facilitating such business and therefore, they
H are apparatus or tool for running the cinema or hotel business and are
338
C.I.T. v. ANAND THEATRES
339
therefore, 'plant'.
Allowing the appeals filed by the Revenue and dismwing the appeals
filed by the assessees, the Court
A
HELD : 1.1. The building used for running a hotel or carrying on cinema
business cannot be held to be a 'plant'. The scheme of Section 32 of the Income B
Tax Act, 1961 is to provide different rates of depreciation for building,
machinery, plant or furniture, ships, buildings used for hotels, aeroplanes
and other items mentioned therein. For a building u~ed for a hotel, specific
provision is made granting depreciation under Section 32 (1) (v) of the Income
tax Act, 1961. The word 'plant' is given inclusive meaning under Section 43(3)
of the Income tax Act, 1961 which nowhere includes buildings. All throughout C
Section 32 for building it is specifically mentioned that 'whenever it is erected'
while for the machinery and plant, the words used are 'whenever it is
installed' and there is no question of installing building. The Income Tax
Rules, 1962 prescribing the rates of depreciation specifically provide for
grant of depreciation on buildings, fu.miture and fittings, machinery and plant D
and ships. The legislature has not considered hotel building by itself as a
plant. The Legislature has considered building as separate from the hotel
business and building is not considered as a plant for running the hotel.
(364-F-H; 365-A-G)
1.2. There is no question of referring to dictionary meaning of the word E
'plant' which may or may not include t.uilding, for arriving at a conclusion
that building which is a specifically designed and constructed as a hotel
building would be a 'plant'. 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 F
would be 'plant' under the Income tax Act, 1961 appears, on the face ofit, to
be inconsistent with the p

## Text

_Characters 0–39,872 of 98,495. This is a partial read: ask again with offset=39872 for what follows._

A
COMMISSIONER OF INCOME TAX, TRIV ANDRUM
v.
MIS ANAND THEATRES ETC. ETC.
MAY 12, 2000
B
[A.P. MISRA AND M.B. SHAH, JJ.]
Income Tax Act, 1961-Sections 32 and 43 (3)-Depreciation-Rate
of-'Building' and 'Plant '-Meaning of-Difference between-Building of a
hotel or a cinema-Held, are not apparatus or tool for running the business
C of hotel or cinema-Cannot be 'plant' for the purpose of depreciationIncome Tax Rules, 1962-Rule 5 and part I Appendix I.
Rule 5 of the Income Tax Rules, 1962 provides for calculation ot
depreciation as specified in table in Part I o( Appendix I to the Income Tax
D Rules, 1962. The general rate of depreciation to be charged for 'buildings'
under the said Appendix is 5% whereas the general rate of depreciation to
be charged for 'machinery and plant' is 10%.
The assessee claimed depreciation at 15% on his theatre building
claiming the same to be a 'plant'. The Assessing Officer rejected the claim
E and allowed depreciation only at 5%. i:he assessee filed an appeal before the
Commissioner of Income Tax (Appeals) which was allowed by holding that the
theatre building is to be treated as 'plant'. The Income tax Appellate Tribunal
confirmed the order of the Commissioner of Income Tax (Appeals). On
reference by the Income Tax Appellate Tribunal to the High Court, the High
Court also decided the reference in favour of the assessee. Hence the Revenue
F filed the instant appeal by way of Special Leave Petition. Appeals filed by other
assessees and the Revenue involving the same question of law were heard by
this Court.
Before this Court, the assessees contended that the words 'plant' and
'building' are not mutually exclusive. 'Plant' may include building in certain
G set of circumstances and, therefore, applying the functional tests the
assessees would be entitled to depreciation under the head 'plant' which is
more beneficial to it In the modern era theatre building and hotel building
are integral part of the operation of carrying out such business and are
constructed and designed for facilitating such business and therefore, they
H are apparatus or tool for running the cinema or hotel business and are
338
C.I.T. v. ANAND THEATRES
339
therefore, 'plant'.
Allowing the appeals filed by the Revenue and dismwing the appeals
filed by the assessees, the Court
A
HELD : 1.1. The building used for running a hotel or carrying on cinema
business cannot be held to be a 'plant'. The scheme of Section 32 of the Income B
Tax Act, 1961 is to provide different rates of depreciation for building,
machinery, plant or furniture, ships, buildings used for hotels, aeroplanes
and other items mentioned therein. For a building u~ed for a hotel, specific
provision is made granting depreciation under Section 32 (1) (v) of the Income
tax Act, 1961. The word 'plant' is given inclusive meaning under Section 43(3)
of the Income tax Act, 1961 which nowhere includes buildings. All throughout C
Section 32 for building it is specifically mentioned that 'whenever it is erected'
while for the machinery and plant, the words used are 'whenever it is
installed' and there is no question of installing building. The Income Tax
Rules, 1962 prescribing the rates of depreciation specifically provide for
grant of depreciation on buildings, fu.miture and fittings, machinery and plant D
and ships. The legislature has not considered hotel building by itself as a
plant. The Legislature has considered building as separate from the hotel
business and building is not considered as a plant for running the hotel.
(364-F-H; 365-A-G)
1.2. There is no question of referring to dictionary meaning of the word E
'plant' which may or may not include t.uilding, for arriving at a conclusion
that building which is a specifically designed and constructed as a hotel
building would be a 'plant'. 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 F
would be 'plant' under the Income tax Act, 1961 appears, on the face ofit, to
be inconsistent with the provisions of the Act. Such meaning would be clearly
against the legislative intent. (366-F-H; 367-A)
2. 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 G
home for conduct of such buJlines5. Such buildings cannot be termed as tools
for running business but are mere shelter for carrying on such business
activities. Therefore, even functiona1 test, which would not be conclusive in
all cases, is not satisfied. (369-8; 370-8)
3. The contention of the Assessee that the words 'plant' and 'building' H
340
SUPREME COURT REPORTS [2000) SUPP. I S.C.R.
A are not mutually exclusive and that 'plant' may include 'building' in certain
set of circumstances and, therefore, applying the functional tests assessee
would be entitled to depreciation under the head which is more beneficial to
it cannot be accepted. Firstly, it would be difficult to draw a line between a
building which is specifically constructed for the aforesaid purposes and
B buildings which are used for the aforesaid purposes by converting a residential
accommodation or industrial premises for such purposes. Secondly,
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 on come of the business. Hence, it can be inferred
that the Legislature never intended to give such benefit of depreciation to a
C 'building' which is usually more durable than 'machinery' or 'plant'.
[375-D-G)
D
4. There are hotels of all kinds and hotel business can be carried on in
all kinds of buildings, may be pucca or kacha constructions. A building
intended to be used, or in fact used, earlier as a residential accommodation
or business purpose can be converted for running hotel business. To
differentiate a building for grant of additional depreciation under the Income
Tax Act, 1961 by holding it to be a 'plant' in one case where the building is
specially designed and constructed with some special features to attract the
customers and a building not so constructed but used for the same purpose
E namely, as a hotel or theatre, would be unreasonable. [374-D-E; 378-C-DJ
5. 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 suit the requirement of a particular industry, trade or business.
But that would not make such building a 'plant'. It only shelters running of
F such business. 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. (375-8-D]
G
Dy. Chief Controller of Imports and Exports, New Delhi v. K.T. Kosa/ram
& Ors., (1970) 3 SCC 82; C./. T. v. Mir Mohammad Ali, (1964) 53 ITR 165
SC; C.l.T., Andhra Pradesh v. Taj Mahal Hotel, (1971) 82 ITR 44 SC;
Commissioner of Inland Revenue v. Scottish & Newcastle Breweries Ltd., 55
Tax Cases 252; Benson v. Yard Arm Club Ltd., (1979) 1 WLR 347; Wimpy
International Ltd. v. War/and and Associated Restaurants Ltd. v. War/and, 61
H Tax Cases 51; Carr (H.M Inspector of Taxes) v. Sayer, 65 Tax Cases 15; Gray
C.l.T. v. ANAND THEATRES
341
v. Seymours Garden Centre, 67 Tax Cases 401 and C./. T. Punjab, J & K. and A
Himachal Pradesh, Patiala v. Mis Alps Theatre, AIR (1967) SC 1437, relied
OIL
Inland Revenue Commissioner v. Barclay, Curle & Co. Ltd, (1969) l
WLR 675, referred to.
B
Scientific Engineering House P. ltd, v. Commissioner of Income Tax, A.P.
(1986) 157 ITR 86 SC; C.I. T. Lucknow v. Knodia Cold Storage, (1975) 100
ITR 155 (Allahabad); C./. T., Patiala II v. Yamuna Cold Storage, (1981) 129
ITR 728, (Punjab & Haryana); C.l.T. v. Warner Hindustan ltd, (1991) 117
ITR IS (Andhra Pradesh); C.I. T. v. Ca/tax Oil Refinding (India) Ltd, (1979)
116 ITR 404 (Bombay); C.l.T. v. Dr. B. Venkata Rao, (1993) 202 ITR 303 C
(Kamataka); Additional C.I. T. v. Madras Cement ltd, 110 ITR 281 (Madras);
C.I. T. v. Krishna Bottlers P. Ltd, (1989) 175 ITR 154 (Andhra Pradesh) and
Webster Conprehensive Dictionary (International Edition); Webster's Third
New International Dictionary, referred to.
R.C. Chemical Industries v. C.L T. New Delhi, (1982) 134 ITR 330 (Delhi); D
C.LT. v. lake Palace Hotels and Motels P. ltd, (1997) 226 ITR 561
(Rajasthan); C.LT. v. Damodar Corporation Hotel, Pankay, (1997) 137 ITR
574 (Kerala); Siemens India ltd. v. C.l.T., (1996) 217 ITR 622 (Bombay) and
C.l T. v. N. Sathyanathan and Sons P. ltd, (200ll) 242 ITR 514 (Madras), approved.
S.K. Tulsi and Sons v. C./. T., (1991) 187 ITR 685 (Allahabad); C.l T. v.
Hotel Luciya, (1998) 231 ITR 492 (Kerala); Tutsi Theatre v. C./. T., (1991) 190
ITR 575 (Allahabad); Leela Movies v. C.l T., 191 ITR 113 (Allahabad); C.l T. v.
Hotel Rama Pvt. ltd., (1998) 146 CTR 243 (Karnataka); C./. T. v. Lawly
Enterprises (P) ltd, (1997) 225 ITR 154 (Patna) and S.P. Jaiswal Estates (P)
E
Ltd v. C./. T., (1995) 216 ITR 145 (Calcutta), disapproved.
F
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 4758 of
1998.
From the Judgment and Order dated I 1.3.98 of the Kerala High
Court in I. T.A. No. 85 of I 996.
WITH
Civil Appeal Nos. 5198-99/98, 5391/98,15, 241, 242-43, 244, 245, 246,-48
of 1999, CA Nos. 3434-35 of2000, CA Nos. 2784-86, 2787, 3690of1999 and
55-57 of2000.
G
T.L.V. Iyer, B.B. Ahuja, Joseph Vellapally, S. Ganesh, Ms. Sushma Suri, H
342
SUPREME COURT REPORTS [2000) SUPP. I S.C.R.
A S. Sukumaran, Ramesh Babu M.R., Tarun Gulati, Vinod M.P., Romy Chaim,
Rajiv Mehta, Ms. Revathy Raghavan, Shail Kumar Dwivedi, Ms. Neelam
Prasad and B.K. Prasad for the appearing parties.
The Judgment of the Court was delivered by
B
SHAH, J. Leave granted in SLP (Civil) Nos. 4373-74 of 1999.
Question involved in these appeals is whether building which is used
as a hotel or a cinema theatre can be considered to be apparatus or a tool
for running the business so that it can be tenned as a plant and depreciation
can be allowed accordingly or whether it remains a building wherein either
C hotel business or business for cinema could be conducted?
The aforesaid question is to be decided in the background of the
specific provisions granting depreciation to buildings, machinery and plant
under Section 32 of Income Tax Act, 1961 (herein after referred to as "the
D Act"). And also to decide whether time has come to have a fresh look at the
old precedents and to lay down the law with the changed perceptions keeping
in view the provisions of the Act? Further, to what extent are we required to
follow and adopt artificial and largely judge-made sense of the word "plant",
which is given inclusive meaning under Section 43(3) and in context of the
Scheme of Section 32?
E
In this batch of civil appeals, some appeals are filed by the Revenue and
some by the assessees. Since the question involved in all these appeals is
similar, we would deal with the facts in Civil Appeal No. 4758 of 1998 for
convenience. For the assessment year 1986-87 the assessee claimed
depreciation at 15% on the theatre building claiming it to be a plant. The
· F assessing officer by order dated 27.9.1988 rejected the claim and allowed
depreciation only at 5%. The appeal filed by the assessee before the
Commissioner of Income Tax (Appeals), Trivandrum was allowed by order
dated 21.7.1989 holding that the theatre building is to be treated as a 'plant'.
Being aggrieved, the Revenue filed appeal ITA No. 748/Coch/89 before the
G Income Tax Appellate Tribunal, Cochin Bench, Cochin. It was contended by
the Revenue that the theatre building is not a 'plant' and even if it is to be
construed as plant only that part of the building housing the auditorium and
furniture and fittings found therein should be construed as plant and not the
entire building. The Tribunal by order dated 29.9.1994 held that the entire
theatre building should be construed as plant for the purposes of granting
H depreciation and further allowed the claim of assessee for extra shift allowance.
C.l.T. v. ANAND THEATRES [SHAH, J.]
343
Revenue filed Reference Application No.264 of 1994 before Income Tax A
Appellate Tribunal, Cochin Bench, Cochin requesting the Tribunal to draw up
a statement of case and refer the questions, arising out of the order of
Tribunal passed in ITA No. 748 [Coch]/1989 dated 29.9.1994, for opinion of
the High Court of Kerala. After hearing both the sides, the Tribunal referred
following questions to the High Court of Kerala.
(I) Whether on the facts and in the circumstances of the case, the
theatre building can be con~idered as a plant?
(2) Whether on the facts and in the circumstances of the case, the
assessee is entitled to higher rate of depreciation on the theatre?
The High Court of Kerala in ITR No.85 of 1996 considered the above
questions and after relying upon its earlier decision in CIT. Trivandrum v.
Mis. Abhilash Theatre, Kottayam answered in favour of the assessee and
against the revenue. [Against the decision rendered in Abhi/ash Theatre's
case, Civil Appeal No.5198-5199 of 1998 is pending before this Court-being
disposed of by this judgment]
The question considered by the High Court in Abhi/ash Theatre's case
(Supra) was - whether hotel building and theatre building can be considered
as a "plants". With regard to the hotel, the Court considered whether hotel
building is merely a setting or premises or whether that plays an important
B
c
D
role in running the hotei meaning thereby whether the building is such E
without which business of hotel cannot be conceived; and if a building is an
integral part of hotel business, that is some thing more than merely a place,
accommodating some requisites of hotel, then that would partake the character
of plant For this purpose, the High Court considered the decisions in Inland
Revenue Commissioners v. Barclay, Curle & Co. Ltd, (1969) 1 WLR 675 and F
Scientific Engineering House P. Ltd v. Commissioner of Income-Tax, A.P.,
(1986) 157 ITR 86 SC. The Court .observed that the principle that can be
deducted is that if a building is merely a setting or place to accommodate
some apparatus, then that will not be held as plant but if a building which
does not IJlerely accommodate something or which cannot be regarded merely
as a setting or premises, but if that plays an important role in carrying on the G
business, then that would fall within the inclusive definition of the plant
Thereafter, the Court observed thus: -
"The hotel building in our opinion, cannot be equated with a
residential building, which provides shelter to the people living therein.
Building is essential to run the business of hotel. Without befitting H
A
B
c
D
344
SUPREME COURT REPORTS [2000) SUPP. I S.C.R.
building it is ideal to think of an hotel business. A good hotel requires.
amenities and a building which is so erected as to fulfill the requisite
norms of hotel. A building simply accommodating machinery or other
apparatus to run a factory is different from the hotel building, which
is specially designed, suiting to the hotel requirements. So specifically
erected building cannot be said to be a mere setting or premises. No
hotel can function without a suitable building satisfying the norms of
hotel."
The Court further observed:-
"Building and plant are not mutually exclusive. When dry dock a
concrete dry structure can be held a plant because the whole dock
was used for carrying on the entire operation, we fail to understand
why the hotel building specially erected for that purpose, cannot be
held as plant. As a specially erected building for hotel is used for
carrying on the hotel operation, it must come within the inclusive
definition of the plant."
The High Court further considered the case of Scientific Engineering
House (P) Ltd (Supra) and applying the functional test held 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
E or is employed in industrial operations. The Court further held that terms
"building" and "plant" occurring in Section 32(1) are not mutually exclusive
and a building depending on its nature and peculiarity can be held as plant.
The High Court disagreed with the decisions in C./. T. v. La/re Palace Hotels
& Motels P. Ltd., (1997) 226 !TR 561 Rajasthan] and CIT v. Damodar
Corporation Hotel Pan/cay, (1997) 137 !TR 574 Kerala] but agreed with the
F decision ofKamataka High Court in C.l.T. v. Dr. B. Venkata Rao, (1991) 202
!TR 302 and the decision of Calcutta l:ligh Court in S.P. Jaiswal Estates (P)
Ltd v. CIT, (1995) 216 !TR I 45 Calcutta. The High Court finally held that the
"hotel" building is plant entitled to depreciation applicable to plant under the
rules framed under the Act. Further with regard to the "theatre" building, the
G Court referred to the decision of Allahabad High Court in S.K. 'Tutsi and Sons
v. C.l.T. (1991) 187 !TR 685 and held that 'what holds good for the hotel
building, that equally applies to a theatre building'.
Being aggrieved, the Revenue has filed the present appeal by special
leave.
H
VARIOUS RELEVANr DECISIONS RENDERED BY THIS COURT
. .
..
C.l.T. v. ANAND THEATRES [SHAH, J.]
345
AND THE HIGH COURTS ON THE ISSUE.
(A)
DECISIONS OF THIS COURT
In CIT, Andhra Pradesh v. Taj Mahal Hotel, (1971) 82 ITR 44 SC this
Court considered that the sanitary and pipeline fittings fell within the definition
A
of 'plant' in section I 0(5) of the Income Tax Act, 1922 and therefore, the B
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 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 C
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 D
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 Jarrold's case (1963) I W.L.R. 214 could be treated as
having been used for the purpose of the business of the trader, it is E
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 supplied)
Thereafter, the Court further held "if the dictionary meaning of the word
"plant" were to bC: 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 Clll)not be put on the words in question-this
F
is what is stated in Webster's Third New International Dictionary: "Land,
buildings, machinery, apparatus and fixtures employed in carrying on trade or G
other industrial business .... "
It 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 H
346
SUPREME COURT REPORTS [2000] SUPP. I S.C.R.
A assessee was carrying on. They were not merely a part of the setting in which
hotel business was being carried on."
In Scientific Engineering House P. Ltd (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
B a book which fell within the definition of 'plant' in section 43(3) of the Income
Tax Act. The Court held that these documents did not perfonn 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 assessee's trade having a
fairly enduring utility. The Court further held that capital assets acquired by
C the assessee, namely, the technical know how in the shape of drawings,
desi~ns, 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's case and observed
as under:
D
"In other words, 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 carries on his business? If the answer is in
the aflinnative, it will be a plant."
We would add that the learned counsel for the assessees on 3rd May,
E 2000 has filed an additional submission pointing out the decision rendered by
this Court in C/Tv. Dr. B. Venkata Rao, (2000) 243 ITR 81, wherein this Court
dismissing the appeal fi!ed by the revenue held that the nursing home building
was specially equipped as a plant for the assessee's business. The Court
observed:
F
" ... What is to be detennined is whether the particular nursing
G
H
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 that object.
We find from the order of the Tribunal as also the assessment
order that the assessee's 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 Tribunal's order which states that the sterilisation room
covers about 250 sq. ft. that the nursing home is also equipped with
an operation theatre. In the circumstance, we think that the finding of
[
C.l.T. v. ANAND THEATRES [SHAH, J.]
347
the High Court should be accepted."
A
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 tl\at
room covered 250 sq. fts. and hence was a "plant" As such, no legal
contentions were raised and considered by the Court and the matter is B
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.
(B) DECISIONS RENDERED BY THE HIGH COURTS
· In C./. T. Lucknow v. Kanodia Cold Storage, (1975) 100 ITR 155 the
Allahabad High Court arrived at the conclusion that where a building with
insulated walls is used as a freezing chamber, though it is not machinery or
c
part thereof, it is part of the air conditioning plant of the cold storage of the
assessee and will be entitled to special depreciation at 15% on its written D
down value.
In S.K. Tulsi and Sons v. C./. T., (1991) 187 ITR 685, the Allahabad High
Court arrived at the conclusion that the cinema building constructed and used
as a cinema along with its fittings and fixtures and wherein cinema business
was carried on constitute a plant.
E
In C./. T. v. Hotel Luciya, {1998) 231 ITR 492 the Full Bench of Kerala
High Court held that for deciding whether a building is plant or not Court
must apply what is called "functional tests" and further held that hotel
building and theatre building are plant within the meaning of Section 43(3) of
the Act and accordingly entitled to depreciation as applicable to the "plant" F
[Against this decision, Civil Appeal No.15 of 1999 is pending before this
Court-being disposed of by this judgment]
Further, in CIT Patiala llv. Yamuna Cold Storage, (1981).129 ITR 728,
Punjab & Haryana High Court held that the building with insulated walls of
the cold storage was a plant and was entitled to depreciation at 15%. Allahabad G
High Court in Leela Movies v. CIT, [191 ITR I IJ] and Tulsi Theatre v. CIT,
( 1991) 190 ITR 575 held that the cinema building constitute "plant" within the
meaning of Section 43(3). Andhra Pradesh High Court in CIT v. Warner
Hindustan Ltd, (1991) 117 ITR 15 held that the well dug in the factory by the
assessee for the purpose of carrying on its business was a plant within the H
348
SUPREME COURT REPORTS (2000] SUPP. I S.C.R.
A meaning of Section 43_(3) and, therefore, the assessee was entitled to
depreciation and development rebate on the cost of digging the well. Bombay
High Court in CIT v. Ca/tax Oil Refinding (India) Ltd, (1979) 116 ITR 404
held that the fencing round the refinery processing unit constitutes plant and
was entitled to depreciation and development rebate. Kamataka High Court
B in C/Tv. Dr. B. Venkatarao, (1993) 202 ITR 303 held that building which was
used as nursing home was a plant. Similarly, in CIT, Karnataka v. Woodlands
Hotel Pvt. Ltd., [IRTC No. 48 & 49of1993 dt. 16th June, 1997) [Against this
decision, Civil Appeal Nos. 4373-74of1999 are pending before this Courtbeing disposed of by this judgment] and in CIT v. Hotel Rama Pvt. Ltd.,
( 1998) 146 CTR 243 held that building in which hotel business is carried on
C is a plant for the purpose of grant of depreciation. Madras High Court in
. Additional C/Tv. Madras Cement Ltd, [110 ITR 281) held that the special
reinforced concrete foundation for the purpose of locating or installing the .
rotary kiln in the factory would come within the scope of the expression plant
and is entitled to development rebate.
D
In C.I.T. v. Krishna Bottlers P Ltd, (1989) 175 ITR 154 the Andhra
Pradesh High Court held that bottles were essential tools of the trade for it
was through them that soft drink was passed on from the assessee to the
customers and, therefore, were "plant" for the purpose of Income-tax. In that
case, Court exhaustively considered various decisions including the decisions
of the Courts in England and inter alia held that the building or the "setting"
E in which the business is carried on cannot be plant; in considering whether
a structure is plant or premises, one must look at the finished product and
not at the bits and pieces as they arrive from the factory. The fact that a
building or part of a building holds the plant in position does not convert the
building into plant. A piecemeal approach is not permissible and the entire
F matter must be considered as a single unit unless of course, the component
parts can be treated as separate units having different purposes and the
functional test is a decisive test.
In CITv. Lawly Enterprises (P) Ltd, (1997) 225 ITR 154 the High Court
of Patna considered - whether the hotel is a plant within the meaning of
G section 43(3) of the Income-tax Act, 1961 and depreciation at the rate of 15
per cent is admissible to it? The Court observed that a building intended to
be used or in fact used earlier as a residential accommodation can be converted
any time into a lodge and used for running a hotel business. On the other
hand, there are hotels, self-contained in many ways and having a small world
of their own; and it is possible that the buildings housing such hotels may
H have certain special design and features and those buildings may be said to
C.I. T. v. ANAND THEATRES [SHAH, J.)
349
fonn an integral part of the business of running that hotel and in those cases, A
die buildings may qualify as plant but that would depend upon the facts of
each case.
In S.P. Jaiswal Estates (P) Ltd. v. Commissioner of Income-Tax, (1995)
216 ITR 145], the Calcutta High Court considered similar questions and
observed as under: (Page 151): -
B
''the hotel building owned by the assessee and used for the purpose
of carrying on its hotel business was an apparatus with which the
assessee' s hotel business was carried on. It cannot be treated as a
setting, within which or a canopy under which, the assessee carried
on its business. The hotel building is to be treated as 'plant' for the C
purpose of depreciation allowance under Section 32."
(C) Judgments expressing contrary views: -
In C/Tv. Damodar Corporation Hotel Pankay, (1997) 137 ITR 574 the
Kerala High Court held that a hotel in its entirely is not a plant for the purpose D
of depreciation and observed as under: -
"a perusal of the said statutory provisions of Section 32- A of the Act
would show that the words machinery and plant have been separately
with an exclusive character from each other finds place in the concerned E
enactments of the Section. The statutory provision also of other
requirements for entitlement to investment allowance on the count".
In R.C. Chemical Industries v. CIT, New Delhi, (1982) 134 ITR 330
(Delhi)], the Delhi High Court held that the definition of word "plant" given
under Section 43(3) should be given a wide meaning as it is inclusive definition. F
It held that assessee who constructed a building having atmospheric controls,
namely moisture, temperature and provision for filtered air, which were required
for manufacturing of saccharine, would not come within the expression "plant".
It observed that the mere fact that manufacture of saccharine would be better
carried on in this type of building would not convert the building from "the
setting" to ''the means" for carrying on the business. Such a building which G
is free from atmospheric vagaries might have certain advantages as compared
with a nonnal construction, but it remained the space or shelter where the
business of manufacturing saccharine was carried on as opposed to the
'means'.
H
350
SUPREME COURT REPORTS [2000] SUPP. I S.C.R.
A
In Siemens India Ltd. v. CIT, (1996) 217 ITR 622 (Bombay) the Court
observed that an item would not qualify to be "plant" even if it satisfied the
"functional test", if on an application of "premises test" it is found to be used
as or part of the premises or place upon which the business was conducted.
In C.J. T. v. La/re Palace Hotels & Motels P. Ltd., (1997) 226 ITR 561 the
B Rajasthan High Court considered similar questions and after perusal of various
judgments and dictionary meanings observed that the Legislature has by
subsequent amendments made it clear that hotel and cinema premises will fall
within the definition of building and summarised various principles emerging
from various decisions of different courts as under:-
C
(i)
The functional test is a decisive test.
(it)
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".
D
(m) 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
E
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.
F
(v) The building in which the business is carried on cannot be
G
H
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."
On the basis of aforesaid principles, the Court came to the conclusion
that: -
"the building of hotel is a building. Simply because some special
fittings or controlling equipments are attached, it will not take it out
of the category of building. Even if a particular building falls within
C.l.T. v. ANAND THEATRES [SHAH, J.]
351
the category of plant then it could not be considered to be a plant A
and will be considered as building because the golden rule of
interpretation is that if a particular item is more near to one category,
then by stretching it should not be considered to fall in a category
which is far off."
The Court further observed: -
B
" ... The building which is used in the business of hotel remains a
building inspite of the fact that it is decorated .. .lf 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 C
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( I )(v) has
only clarified the legislative intent that the building of hotel is a D
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 E
a building ... 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 F
same and at the same time even better services are provided in a
number of guest houses.
The building which is used for accommodating the cinema-goers
remains a building even if specially designed.
If the functional test is applied, it would be found that it
accommodates the machinery for exhibition of the film like any other
factory where production is carried on and provides the accommodation
to the public for viewing the picture and cannot be taken out from the
definition of "building". The building is not used as a tool of the trade
G
as it is used for accommodating the customers as a setting. In respect H
352
SUPREME COURT REPORTS [2000] SUPP. I S.C.R.
A
of cinema the work is carried on by the projector which displays the
film on screen."
B
The Court lastly held that looking to the common parlance meaning and
the specific use of the word "building" in section 32 of the Act, the building
of a hotel is a "building" and not a "plant".
SUBMISSIONS: -
On the basis of the aforesaid judgments, the learned counsel for the
revenue as well as assessee have made elaborate submissions. Mr. S. Ganesh,
learned senior counsel for the appellant-revenue submitted: (i) Section 32(1)
C of the Income Tax Act draws a clear line of distinction between a building
used for the purpose of business and plant/machinery used for the same
purpose. A building though specially designed for use in a particular business
does not, therefore, cease to be a building. Every building used for the
purpose of a particular business would contain special features which make
D the building suitable for that particular business use. Further, without the
building, the business cannot be carried on. That does not lead to the
conclusion that the building becomes plant. Otherwise, every building would
become 'plant' and the d.ividing line between 'plant' and 'building' would get
obliterated which is not permissible. (ii) Section 43(3) defines plant in inclusive
terms. Each item included in Section 43(3) is movable. Section 43(3) does not,
E therefore, contemplate immovable property lik;e a building being considered
as plant. The 'ejusdem generis' and 'noscitor a socis' principles are relevant
in this connection. (iii) Section 32(i)(ii), Section 32-A and the Appendix to the
Income Tax Rules speak of plant and machinery being "installed" and of
building being "erected". This again brings out the distinction clearly. (iv)
F Section 32(i)(v) unequivocally provides that a new building used as hotel is
regarded as a building for purpose of depreciation. In other words, a building
which is specially designed and constructed for use as a hotel is nevertheless
a building, for the purpose of depreciation. (v) Section 32(l)(iia) and Section
33(1Xb)(B)(ii) and the Appendix to the Income Tax Rules speak of plant and
machinery installed in premises used as a hotel, thereby clearly, establishing
G that the hotel premises are not machinery or plant, but are only a building.
H
The same principle would also apply to a theatre building. Section 32(i)(iv)
makes it clear that even structures/buildings which are constructed in
compliance with the requirements of the Factories Act and Rules are "buildings"
for the purpose of depreciation.
C.l.T. v. ANAND THEATRES [SHAH, J.]
353
Mr. B.B. Ahuja and Mr. Joseph Vellapally, learned seniot counsel for the A
assessee submitted: ( i) From the ratio of the various judgments of this Court
and that of the House of Lords and Court of Appeal, it is clear that the words
buildings, machinery, plant and furniture in S. 32( I) are not mutually exclusive.
It follows that a particular item could fall under both the heads, buildings as
well as plant on functional test and the assessee would be entitled to
depreciation under the head more beneficial to it. In other words, buildings · B
and structures can also be considered as plant provided they fulfil the
functional test, that is, they are part of whole apparatus with which the trade
is carried on as opposed to the place or setting where it is carried on. (ii) In
the modem era, the theatre building including auditorium, stage projection
room etc. are a tool of the trade, the theatre building is an integral part of the C
operation of theatre business and cannot be said to merely a setting in which
the business is carried on. It is their contention that most of the High Courts
in India have followed the functional test propounded while determining as
to whether a structure is a building or plant. The High Courts have taken the
view that structures which forms part of the apparatus with which the business D
is carried on are not mere settings for the business and hence ought to be
considered as 'plant' for the purposes of allowance of depreciation under
S.32(1). According to them, on this functional test, a modem theatre building
and a hotel building will qualify as a 'plant'. (iii) After the judgments in
Kanodia Cold Storage and S.K. Tulsi & Sons cases (supra) following the
decision in Taj Mahal Hotel's case, the Legislature amended the definition of E
'plant' in Section 43(3) of the Act by Finance Act of 1995. The amending
section clearly shows that the legislative intent was never to exclude cinema
and hotel buildings which satisfy the functional test from the meaning of the
word 'plant'. (iv) Use of the word 'installed' or erection' has no bearing on
the issue. (v) The subject of determination - whether a hotel building or a
cinema theatre can be held to be a plant is not free from difficulty and it is F ·
difficult to draw a clear line for plant or building in some cases. Despite this
as legislature or Central Board of Direct Taxes has not issued any clarification
on the subject, the view adopted by various High Courts requires to be
accepted. They submitted that cinema theatre or a hotel building is to be
considered as one unit with all attendant apparatus for running the business G
and if they are construed as one unit it would be a plant.