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PETITIONER:

C.I.T., TRIVANDRUM

Vs.

RESPONDENT:

M/S ANAND THEATRES

DATE OF JUDGMENT: 12/05/2000

BENCH:

M.B.Shah, A.P.Misra

JUDGMENT:

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 termed as a plant and

depreciation can be allowed accordingly or whether it

remains a building wherein either 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 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?

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 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 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 depreciation and further

allowed the claim of assessee for extra shift allowance.

Revenue filed Reference Application No.264 of 1994 before

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Income Tax 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.

(1) Whether on the facts and in the circumstances of

the case, the theatre building can be considered 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. M/s Abhilash

Theatre, Kottayam answered in favour of the assessee and

against the revenue. [Against the decision rendered in

Abhilash Theatres 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 Abhilash

Theatres 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 role in running the hotel, meaning

thereby whether the building is such 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 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 merely accommodate

something or which cannot be regarded merely as a setting or

premises, but if that plays an important role in carrying on

the 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 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

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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 assessees business. Plant cannot necessarily be

confined to an apparatus which is used for mechanical

operations or process 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.I.T. v. Lake Palace Hotels &

Motels P. Ltd. [(1997) 226 ITR 561 Rajasthan] and CIT v.

Damodar Corporation Hotel Pankay, [(1997) 137 ITR 574

Kerala] but agreed with the decision of Karnataka High Court

in C.I.T. v. Dr. B. Venkata Rao, [(1991) 202 ITR 302]

and the decision of Calcutta High Court in S.P. Jaiswal

Estates (P) Ltd. v. CIT, [(1995) 216 ITR 145 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 Court referred to the decision of

Allahabad High Court in S.K. Tulsi and Sons v. C.I.T.

[(1991) 187 ITR 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.

VARIOUS RELEVANT DECISIONS RENDERED BY THIS COURT AND

THE HIGH COURTS ON THE ISSUE.

(A) DECISIONS OF THIS COURT

In CIT, Andhra Prdesh 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 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 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 W.L.R.

214] could be treated as having been used for the purpose of

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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 supplied)

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 questionthis is what is stated in Websters Third New

International Dictionary: Land, buildings, machinery,

apparatus and fixtures employed in carrying on trade or

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

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 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 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

Barclays case 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.

We would add that the learned counsel for the

assessees on 3rd May, 2000 has filed an additional

submission pointing out the decision rendered by this Court

in CIT v. Dr. B. Venkata Rao, [(2000) 243 ITR 81],

wherein this Court dismissing the appeal filed by the

revenue held that the nursing home building was specially

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 that

object.

We 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

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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 sq. ft. 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.

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 sq. fts. 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.

(B) DECISIONS RENDERED BY THE HIGH COURTS

In C.I.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

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 down value.

In S.K. Tulsi and Sons v. C.I.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.

In C.I.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 [Against this

decision, Civil Appeal No.15 of 1999 is pending before this

Courtbeing disposed of by this judgment]

Further, in CIT Patiala II v. 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

High Court in Leela Movies v. CIT [191 ITR 113] 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 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. Caltax 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. Karnataka

High Court in CIT v. Dr. B. Venkatarao [(1993) 202 ITR

303] held that building which was used as nursing home was a

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plant. Similarly, in CIT, Karnataka v. Woodlands Hotel

Pvt. Ltd. [IRTC No.48 & 49 of 1993 dt.16th June, 1997]

[Against this decision, Civil Appeals No.4373-74 of 1999 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 is a plant for the purpose of grant of

depreciation. Madras High Court in Additional CIT v.

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.

In C.I.T. v. Krishna Botttlers 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 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 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 CIT v. Lawly Enterprises (P) Ltd., [1997 (225) ITR

154] the High Court of Patna considered whether the hotel

is a plant within the meaning of 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 have certain special

design and features and those buildings may be said to form

an integral part of the business of running that hotel and

in those cases, the 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}: - the hotel building owned by the assessee and used

for the purpose of carrying on its hotel business was an

apparatus with which the assessees 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 purpose of depreciation allowance under Section 32.

(C) Judgments expressing contrary views: -

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In CIT v. 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 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 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. 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 is free from atmospheric vagaries might

have certain advantages as compared with a normal

construction, but it remained the space or shelter where the

business of manufacturing saccharine was carried on as

opposed to the means.

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.I.T. v. Lake Palace Hotels & Motels P. Ltd.

[(1997) 226 ITR 561] the 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:- (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

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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.

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 the category of plant then it could not be

considered to be a plant 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: - The building which is

used in the business of hotel remains a building inspite of

the fact that it is decoratedIf 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 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.

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

as it is used for accommodating the customers as a setting.

In respect of cinema the work is carried on by the projector

which displays the film on screen.

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

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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) 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 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

dividing 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,

therefore, contemplate immovable property like 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) 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(1)(iia) and

Section 33(1)(b)(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 that the

hotel premises are not machinery or plant, but are only a

building. 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.

Mr. B.B. Ahuja and Mr. Joseph Vellapally, learned

senior counsel for the 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(1)

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 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 modern 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 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

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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 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 modern 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 Hotels case,

the Legislature amended the definition of 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 difficult to draw a

clear line for plant or building in some cases. Despite

this as legislature or Central Board of Direct Taxes adopted

by various has not issued any clarification on the subject,

the view 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 and if they are construed as one unit it would be a

plant. Secondly, these buildings are to be considered not

on their own but in relation to the business carried on by

the assessee namely running of hotel or cinema. In support

of this contention, the learned counsel heavily relied upon

Inland Revenue Commissioners v. Barclay, Curle & Co. Ltd.

[(1969) 1 WLR 675also reported in (1970) 76 ITR 62] and

other decisions stated above.

Hence, the controversial question for consideration

iswhether building used for running hotel or cinema

business could be held a plant as provided under Section

43(3) of the Act?

We would first refer to the judgment in Barclay, Curle

& Co. case (supra) upon which most of the judgments of the

High Courts are based for arriving at the conclusion that

building which is used for running the hotel business or

cinema theatre would be a plant. In the said case, the

House of Lords considered whether a dry dock constructed by

a Company for use of shipbuilders, ship repairers and marine

engineers incurring capital expenditure, which comprised the

cost of excavating a specially shaped new basin, having

direct access to the Clyde and a floor below the level of

high tide to enable ships to float in and out could be

considered to be a plant for the purpose of trade of the

Company within the meaning of Section 279 of the Income Tax

Act, 1952. Relevant part of Section 279 as applicable,

which was considered, reads thus: - where a person

carrying on a trade incurs capital expenditure on the

provision of machinery or plant for the purposes of the

trade, there shall be made to him, for the year of

assessment in the basis period for which the expenditure is

incurred, an allowance (in this Chapter referred to as an

initial allowance) equal to three tenths of the

expenditure.

The matter was decided by the majority view and it was

held that the dry dock was a plant. For this purpose, Lord

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Reid considered the definition of the word plant given by

Lindley L.J. in Yarmouth v. France [(1887) 19

Q.B.D.647,658]. This definition reads in its ordinary

sense, it includes whatever apparatus is used by a

businessman carrying on his business,--not his

stock-in-trade which he buys or makes for sale; but all

goods and chattels, fixed or movable, live or dead, which he

keeps for permanent employment in his business. Thereafter

it was observed as under: 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 generator, which were an integral part of its

construction, to perform their functions. The dock was not

a 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 further observed that plant was not defined

under the Income Tax Act and thereafter held that every

part of this dry dock plays an essential part in getting

large vessels into a position where the work on the outside

of the hull can begin, and that it is wrong to regard either

the concrete or any other part of the dock as a mere setting

or part of the premises in which this operation takes place.

The whole dock is, I think, the means by which, or the plant

with which, the operation is performed.

Lord Guest agreed with the view taken by Lord Reid.

In the judgment rendered by him it was observed that in

order to decide whether a particular subject is an

apparatus it seems obvious that an inquiry is to be made

as to what operation it performs.

Lord Hodson disagreed with the above view and

observed: The dock as a complete unit contained a large

amount of equipment without which the dry dock could not

perform its function. This equipment admittedly qualifies

for the initial allowance appropriate to expenditure on

plant. It includes a dock gate and operating gear, cast

iron keel blocks, electrical installation, pipe work

installation, pumping installation and other subsidiary

equipment, expenditure on which clearly qualifies for

initial allowance as having been incurred in paying for

machinery or plant.

Further with regard to building it was observed: A

building or structure is normally to be regarded in the

context of this statute as something more durable than

machinery or plant, hence the differentiation in favour of

the less durable. The dock in question, it was found in the

case stated, might last for 80-100 years if reasonable and

timely repairs were carried out when requisite.

The learned Lord disagreed with the argument based on

functional test. He agreed with the reasoning given by

Finlay J. in Margrett v. Lowestoft Water & Gas Co.

[(1887) 19 T.C. 481] wherein it was inter alia observed

that: Clearly, if one takes the case of a factory with

machinery inside it, the machinery in all probability would

be plant, but equally clearly the factory, the bricks and

mortar, would not be plant.

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It was finally observed that to regard the dock as

apparatus was wrong as it was something quite different from

the generally accepted conception of plant.

Lord Upjohn also disagreed with the majority view by

observing that too much emphasis on a functional element

ought not to have been given. In a modern sophisticated

factory purpose built for a particular manufacture without

which the factory would be useless, makes the walls of a

factory part of the plant and that is not intended. It was

further observed that function is no more than an element

for deciding whether it is a plant or a building.

We may mention at the stage that even in England House

of Lords has repeatedly commented that the word plant is

given imprecise application because of the artificial

meaning given to it. In Cole Brothers Ltd. v. Phillips

(Inspector of Taxes), [(1982 (1) WLR 1450], House of Lords

considered the question whether expenditure incurred in

electric lighting installation and conduit and cables to

socket outlets, constituted expenditure on the provision of

plant so as to qualify for capital allowance. For the

expression Plant Lord Hailsham observed: ..that the word

plant in the relevant sense, although admittedly not a

term of art, and therefore part of the general English

tongue, is not, in this sense, an ordinary word, but one of

imprecise application, and, so far as I can see, has been

applied to industrial and commercial equipment in a highly

analogical and metaphorical sense, borrowed, unless I am

mistaken, from the world of botany.

For this purpose, the Court quoted the words of

Buckley L.J. in Benson v. Yard Arm Club Ltd. [(1979) 1

WLR 347, 351]: as a man who speaks English and understands

English accurately but not pedantically would interpret it

in [the] context, applying it to the particular subject

matter in question in the circumstances of the particular

case.

The Court further observed:

To this admirable precept Oliver L.J. [1981] STC

671, 682E in delivering the leading judgment in the Court of

Appeal in the instant case, warily, and perhaps wearily,

added the cautionary rider that the English speaker must, I

think, be assumed to have studied the authorities. These

however, as he cautiously admitted in an earlier passage

(p.676) cannot be pretended to be at all easy to reconcile,

and, as he said in a still earlier passage, at p.675D: it

is now beyond doubt that [the word plant] is used in the

relevant section in an artificial and largely judge-made

sense.

The Court thereafter observed: if plant is to be

contrasted with the place in which the business is carried

on, the line must be drawn somewhere. There must,

therefore, be a criterion (or criteria) by which the courts

define the frontier between the two..

But, on the special facts relating to these components

carrying electricity, they held that it was an exceptional

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case where the Commissioners were right in taking each

component separately as each was serving a different

purpose and held that each of them was not plant.

In Inland Revenue Commissioners v. Scottish &

Newcastle Breweries Ltd. [(1982) 1 WLR 322] the question

was whether the moneys spent on electrical rewiring,

installation of new electric light fittings and of various

categories of décor and murals in the hotel was on the

provision of plant. Lord Wilberforce observed that: The

word plant has frequently been used in fiscal and other

legislation. It is one of a fairly large category of words

as to which no statutory definition is provided (trade,

office, even income are others), so that it is left to

the court to interpret them. It naturally happens that as

case follows case, and one extension leads to another, the

meaning of the word gradually diverges from its natural or

dictionary meaning. This is certainly true of plant. No

ordinary man, literate or semi- literate, would think that a

horse, a swimming pool, moveable partitions, or even a

dry-dock was plantyet each of these has been held to be so:

so why not such equally improbable items as murals, or

tapestries, or chandeliers?

The House of Lords observed that even the functional

test was inconclusive. Therefore, the Court suggested that

each case must be resolved by considering carefully the

nature of the particular trade being carried on, and the

relation of the expenditure to the promotion of the trade.

Applying that test the Court held: I do not find it

impossible to attribute to Parliament an intention to

encourage by fiscal inducement the improvement of hotel

amenity.

In the said case, Lord Lowry also considered the case

of Benson v. Yard Arm Club Ltd. [(1979) 1 WLR 347 :

(1979) 2 All ER 336], in which ship, or floating hulk, used

as a restaurant was held not to be plant and observed: the

Crown relied on the case because of the fact that the ship

was used to create a shipboard feeling, in other words, a

certain kind of atmosphere, among the patrons. But the

distinction is that the ship, although a chattel, was the

place in which the trade was carried on and was therefore

the equivalent of the various premises in which the present

taxpayer company carry on their trade and not of the

apparatus used as an adjunct of the trade carried on in

those premises. It was further observed that the dry dock

in Barclay Curle & Co. Ltd. (supra) was a structure as

well as plant.

RELEVANT PROVISIONS UNDER THE ACT FOR GRANT OF

DEPRECIATION

Before dealing with the rival contentions, we would

refer to the relevant parts of Sections 32 and 43(3) of the

Act:

Section 32. Depreciation(1) In respect of

depreciation of building, machinery, plant or furniture

owned by the assessee and used for the purposes of the

business or profession, the following deductions shall,

subject to the provisions of section 34, be allowed

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(i) in the case of ships other than ships ordinarily

plying on inland waters, such percentage on the actual cost

thereof to the assessee as may, in any case or class of

cases or in respect of any period or periods, be prescribed:

Provided that different percentages may be prescribed

for different periods having regard to the date of

acquisition of the ship.

(ii) in the case of buildings, machinery, plant or

furniture, other than ships covered by clause (I), such

percentage on the written down value thereof as may in any

case or class of cases be prescribed:

Provided that where the actual cost of any machinery

or plant does not exceed seven hundred and fifty 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 or clause (iii) 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;

(iia) in the case of any new machinery or plant (other

than ships and aircraft) which has been installed after the

31st day of March 1980 but before the 1st day of April,

1985, a further sum equal to one-half of the amount

admissible under clause (ii) (exclusive of extra allowance

for double or multiple shift working of the machinery or

plant and the extra allowance in respect of machinery or

plant installed in any premises used as a hotel) in respect

of the previous year in which such machinery or plant is

installed or, if the machinery or plant is first put to use

in the immediately succeeding previous year, then in respect

of that previous year:

Provided that no deduction shall be allowed under this

clause in respect of

(a) any machinery or plant installed in any office

premises or any residential accommodation:

(b) any office appliances or road transport vehicles;

and

(c) any machinery or plant, the whole of the actual

cost of which is allowed as a deduction (whether by way of

depreciation or otherwise) in computing the income

chargeable under the head profits and gains of business or

profession of any one previous year.

Explanation : For the purpose of this clause,- (a)

new machinery or plant shall have the meaning assigned to

it in clause (2) of the Explanation below clause (vi) of

this sub-section:

(b) residential accommodation includes accommodation

in the nature of a guest house but does not include premises

used as a hotel;

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(iii) in the case of any building, machinery, plant or

furniture which is sold, discarded, demolished or destroyed

in the previous year (other than the previous year in which

it is first brought into use), the amount by which the

moneys payable in respect of such building, machinery, plant

or furniture, together with the amount of scrap value, if

any, fall short of the written down value thereof:

Provided....

Explanation (iv) in the case of any building which

has been newly erected after the 31st day of March, 1961,

where the building is used solely for the purpose of

residence of persons employed in the business and the income

of each such person chargeable under the head Salaries is

ten thousand rupees or less, or where the building is used

solely or mainly for the welfare of such persons as a

hospital, creche, school, canteen, library recreational

centre, shelter, rest-room or lunch-room, a sum equal to

forty percent of the actual cost of the building to the

assessee in respect of the previous year of erection of the

building; but any such sum shall not be deductible in

determining the written down value for the purposes of

clause (ii) of sub-section (1);

(v) in the case of any new building, the erection of

which is completed after the 31st day of March, 1967, where

the building is owned by an Indian company and used by such

company as a hotel and such hotel is for the time being

approved in this behalf by the Central Government, a sum

equal to twenty-five percent of the actual cost of erection

of the building to the assessee, in respect of the previous

year in which the erection of the building is completed or,

if such building is first brought into use as a hotel in the

immediately succeeding previous year, then in respect of

that previous year; but any such sum shall not be

deductible in determining the written down value for the

purposes of clause (ii);

(vi) in the case of new ship or a new aircraft

acquired after the 31st day of May, 1974, by an assessee

engaged in the business of operation of ships or aircraft or

in the case of new machinery or plant (other than office

appliances or road transport vehicles) installed after that

date for the purposes of business of generation or

distribution of electricity or any other form of power or of

construction, manufacture or production of any one or more

of the articles or things specified in items 1 to 24 (both

inclusive) in the list in the Ninth Schedule or in the case

of new machinery or plant (other than office appliances or

road transport vehicles) installed after that date in a

small-scale industrial undertaking for the purposes of

business of manufacture or production of any other articles

or things, a sum equal to twenty percent of the actual cost

of the ship, aircraft, machinery or plant to the assessee,

in respect of the previous year in which the ship or

aircraft is acquired or the machinery or plant is installed,

or if the ship, aircraft, machinery or plant is first put to

use in the immediately succeeding previous year, then, in

respect of that previous year; but any such sum shall not

be deductible in determining the written down value for the

purposes of clause (ii):

Provided

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Provided further that no deduction shall be allowed

under this clause in respect of

(a) any machinery or plant installed in any office

premises or any residential accommodation including any

accommodation in the nature of a guest-house;

(b) (c)

Explanation

(1A) Where the business or profession is carried on in

a building not owned by the assessee 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 after the 31st day of

March, 1970, 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, in

respect of depreciation of such structure or work, the

following deductions shall, subject to the provisions of

section 34, be allowed

(i) such percentage on the written down value of the

structure or work as may in any case or class of cases be

prescribed; (ii)

Provided

Explanation

(2)..

Section 43 In sections 28 to 41 and in this section,

unless the context otherwise requires

(1) (2)

(3) Plant includes ships, vehicles, books,

scientific apparatus and surgical equipment used for the

purposes of the business or profession.

Rule 5 of the Income Tax Rules, 1962 provides for

calculation of depreciation at the percentages specified in

second column of the Table in Part I of Appendix I to the

Rules. Appendix I to Rule 5 is as under: -

TABLE OF RATES AT WHICH DEPRECIATION IS ADMISSIBLE

Class of assets Depreciation allowance as %age of--

Remarks (i) actual cost in the case of ocean- going ships;

(ii) written-down value in the case of any other asset. 1 2

3 I.BUILDINGS

[(1) General rate 5 Buildings include (2)Special rate

in respect of factory building roads, bridges, (excluding

offices, godowns, officers and culverts, wells and

employees quarters, roads, bridges, culverts, tube-wells]

wells and tube-wells] 10

(3) Purely temporary errections such as wood- en

structures. 100

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(4) In respect of any structure of work in or in

relatiion to a building referred to in sub-section (1A) of

section 32,-- (a) where such structure is constructed or

such The percentage work is done by way of renovation or

specified against sub- improvement to any such building.

Items (1,2 or 3], as may be approximate to the

class of building in or in

relation to which the

renovation or improvement is effected.

(b) where the structure is constructed or The

percentage specified work is done by way of extension

against sub-items [1,2 or 3] to any such building. As would

be appropriate if the structure of work

constituted a separate

building.

II. FURNITURE AND FITTINGS

(1) General rate 10

(2) Rate for furniture and fittings used in Hotels,

restaurants and boarding houses; 15 Cinema-houses;

theatres and

III. MACHINERY AND PLANT (not being a ship)

(i)General rate applicable to machinery and plant (not being

a ship) for which no special rate has been prescribed under

Item (ii) herein below.

(ii) Special rates: 15

C(I) Cinematograph filmsMachinery used in the

production and exhibition of cinematograph films (N.E.S.A.)

(a) Recording equipment, reproducing equipment, developing

machines, printing machines, synchronisers and studio lights

except bulbs. 20 (b) Projecting equipment of film

exhibiting concerns.

D.(1) AeroplanesAircraft, Aerial photographic

Apparatus (N.E.S.A.) 30

E.(1) AeroplanesAero-engines[N.E.S.A.] 40

F.(2) Cinematograph filmsBulbs of studio lights. 100

IV. SHIPS (1) Ocean going ships 10 (i) Fishing

vessels with wooden hull (ii) Dredgers, tugs, barges, survey

launches 7 And other similar ships used mainly for Dredging

purpose. 5 (iii) Other Ships To be calculated on the actual

cost.

(2) Vessels ordinarily operating on Inland waters (i)

speed boats 20 (ii) Other vessels 10

Aforesaid clauses of the Section 32 deal with

depreciation allowance in respect of assets of the specified

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description used for the purpose of business or profession.

From a careful scrutiny thereof what emerges is: -

(1) The scheme of Section 32 is to provide different

rates of depreciation for building, machinery, plant or

furniture, ships, buildings used for hotels, aeroplanes and

other items mentioned therein. Clause (ii) of Section 32

specifically provides for grant of depreciation for

building, machinery, plant or furniture at prescribed

percentage on the written down value thereof. The Rates are

prescribed under Income Tax Rules.

(2) Under clause (iia) of Section 32(1) specific

provision is made for new machinery or plant which has been

installed and it provides for additional sum equal to one

half of the amount admissible as depreciation under clause

(ii) if the conditions mentioned therein are fulfilled.

Further, the proviso carves out an exception to the effect

that no deduction shall be allowed in respect of any

machinery or plant installed in office premises or any

residential accommodation. That means the Legislature has

divided building into different categories, namely, (i)

buildings used for office premises or (ii) for residential

accommodation; or (iii) premises used for other purposes.

Meaning to the phrase residential accommodation is also

given under the Explanation which includes accommodation in

the nature of a guest house and it specifically excludes

premises used as a hotel. So, the Legislature has not

considered hotel building by itself as a plant. The phrase

is premises used as a hotel where machinery or plant is

installed.

(3) Under sub-clause (v) of clause (1) of Section 32

specific provision is made for a new building, the

erection of which is completed after 31.3.1967, which is

used as a hotel. If the conditions mentioned therein are

satisfied then for a building which is used for a hotel, a

sum equivalent to 25 per cent of the actual cost of the

erection of the building is granted as depreciation.

Further, the Legislature has considered building as separate

from the hotel business and building is not considered as a

plant for running the hotel. Therefore, building and the

use of such building as a hotel are considered distinct.

(4) All throughout Section 32 for building it is

specifically mentioned that whenever it is erected, while

for machinery and plant, the words used are whenever it is

installed and there is no question of installing building.

Section 32(1)(iia) uses the phrase machinery or plant

installed in any premises used as a hotel and Section

33(1)(b)(B)(ii) provides in case of machinery or plant

is installed for the purposes of business or construction

etc. which indicates that plant is to be installed and

there is no question of erection.

(5) Under the Rules as quoted above, separate rates

are prescribed under the Heading (I) Buildings, and (II)

Furniture and fittings, (III) Machinery and Plant and (IV)

Ships. These headings have been further sub-divided

providing different rates. Like, Building is divided into

(i) building generally, (ii) special rate in respect of

factory building and (iii) temporary erections such as

wooden structures. In the remarks column (3) it is stated

that buildings include roads, bridges, culverts, wells and

tube-wells. Furniture and Fittings is also divided into (i)

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general rate and (ii) rate for furniture and fittings used

in hotels, restaurants and boarding houses, cinema house

theatres etc. Similarly, Machinery and Plant are under one

heading and are divided into two parts(i) general rate

applicable to machinery and plant and (ii) special rates,

which includes machinery and plant for cinematograph films,

recording equipments, reproducing equipments, developing

machines, printing machines, synchronisers and studio lights

and projecting equipments of film exhibiting concerns.

Further, special rates are provided for machinery used in

production and exhibition of cinematograph films being (a)

recording equipment, reproducing equipment, developing

machines, printing machines, editing machines, synchronisers

and studio lights except bulbs and (b) projecting equipment

of film exhibiting concerns. Further different rates have

been provided for machinery for cinematograph films that

includes studio lights except bulbs under the heading

C(1)(b) and for bulbs of studio lights under the heading

F(2).

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 fulfillment 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 a 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, synchronisers 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.

While interpreting the words consumption, raw

material and utilised in clause (c) of the Import Control

Policy formulated by the Government of India this Court in

the case of Dy. Chief Controller of Imports and Exports,

New Delhi v. K.T. Kosalram and others, [1970(3) SCC 82]

observed thus: - In our opinion dictionary meanings,

however helpful in understanding the general sense of the

words cannot control where the scheme of the statute or the

instrument considered as a whole clearly conveys a somewhat

different shade of meaning. It is not always a safe way to

construe a statute or a contract by dividing it by a process

of etymological dissection and after separating words from

their context to give each word some particular definition

given by lexicographers and then to reconstruct the

instrument upon the basis of these definitions. What

particular meaning should be attached to words and phrases

in a given instrument is usually to be gathered from the

context, the nature of the subject matter, the purpose or

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the intention of the author and the effect of giving to them

one or the other permissible meaning on the object to be

achieved. Words are after all used merely as a vehicle to

convey the idea of the speaker or the writer and the words

have naturally, therefore, to be so construed as to fit in

with the idea which emerges on a consideration of the entire

context.

(Emphasis added)

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.

In C.I.T. 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.

held: - For the words plant and installed the

Court 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% of the cost thereof was allowable

of 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.

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 Section

10(2)(vi) and 10(2)(via) of the Act, 1922. 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 building 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.

In Taj Mahal Hotel (supra) this Court specifically

observed that it is well settled that where the definition

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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 in the word

plant, therefore, wider meaning should be given so as to

include those 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,

in 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 adapting a

building or premises in a suitable way to be used as a

residential hotel where visitors come and stay.

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.

Learned counsel also pointed out the decision of the Madras

High Court in. CIT v. (1) N. Sathyanathan And Sons P.

Ltd. [(2000) 242 ITR 514] wherein the Court observed that

in case of Taj Mahal Hotel [(1971) 82 ITR 44] 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.

Next, it is to be stated that the judgment in the case

of Barclay, Curley & Co. 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 or 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 theater

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 semicircular form

with seats rising by easy gradations; (5) Any place or

region that is the scene of events: a theater of operations

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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., 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 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 carrying 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.

In England also, there are conflicting decisions

involving the question whether structure would be a plant or

not and it is stated that each case is required to be

decided on facts of that case. In Commissioners of Inland

Revenue v. Scottish & Newcastle breweries Ltd. (55 Tax

Cases 252) (decided by the House of Lords) the Court of

Appeal observed that though there is no statutory definition

of plant for the purpose of Section 41 of the Finance Act,

1971, from a series of cases decided, following principles

emerge to be settled law: (i)Something which is properly to

be regarded as part of the setting in which a business is

carried on and not as part of the apparatus used for

carrying on the business is not plant: see J. Lyons and

Co. Ltd. v. Attorney-General {(1944) Ch 287}.

(ii) Something which forms part of the setting of a

trade may nevertheless be plant if it is more a part of the

apparatus than part of the setting {Jarrold v. John Good &

Sons Ltd. [(1963) 1 WLR 214 : 40 TC 681]}.

(iii) The term plant is not apt to cover the

permanent structure of a building in which a business is

carried on [John Good & Sons Ltds case].

(iv) Something which is a structure or part of a

structure may nevertheless be plant, if it fulfills the

function of plant in the traders operations.

{Commissioners of Inland Revenue v. Barclay, Curle & Co.

Ltd. [1969 SC (HL) 30 : 45 TC 221]}.

(v) Apparatus which has no functional purpose in the

commercial process, even if it serves to attract custom, is

not plant {Dixon v. Fitchs Garage Ltd. [(1976) 1 WLR 215

: 50 TC 509], in this case the apparatus in question was a

canopy constructed over the pumps of a petrol filling

station to provide shelter while the commercial process of

delivering fuel was carried on}.

In the said case, Lord Stott adopted the distinction

made by Shaw L.J. in Benson v. Yard Arm Club Ltd., [(1979)

1 WLR 347, at p. 358 : 53 TC 67 at p.88.] and relied upon

following observation:- A characteristic of plant appears

to me to be that it is an adjunct to the carrying on of a

business and not the essential site or core of the business

itself.

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Applying the aforesaid characteristic of plant, in

our view, building for hotel or cinema cannot be stated to

be adjunct, that is to say, (as per the dictionary meaning

of the word adjunct) something added to another, or it is

in a subordinate, auxiliary or dependent position.

Further, in Wimpy International Ltd. v. Warland and

Associated Restaurants Ltd. v. Warland [61 Tax Cases 51],

the Court of Appeal dealt with a case where the appellants

owned and operated fast food restaurants and expended money

on improving and modernising their restaurants i.e. by

spending on shop fronts, floor and wall tiles, wall finishes

and other non- decorative items which was held by the

Special Commissioners as part of setting or premises in

which trades were carried on. The appellants contended that

all the items were installed to improve the ambience of the

restaurant and to attract customers and were thus plant.

The Court held that they were not plants. The Court took up

each and every item of decoration separately for analysing

whether it constituted a plant or not. Like for shop fronts

or doors, the Court agreed with the observations of the

Chancery Division that none of the shop fronts or doors

qualifies as plant by holding that their principal function

is to form a necessary part of the premises and doors are

needed for ingress and egress. None of the floor or wall

titles can be classed as plants. They are chosen so as to

create an attractive setting in which customers will be

pleased to sit for the short time required to consume a

fast food meal, but their function in the trade does not go

beyond that. Fox L.J. observed: Considering the facts of

this case and various decisions In the light of the

authorities the position appears to me to be this. There is

a well-established distinction, in general terms, between

the premises in which the business is carried on and the

plant with which the business is carried on. The premises

are not plant. In its simplest form that is illustrated by

Lord Lowrys example of the creation of atmosphere in a

hotel by beautiful buildings and gardens on the one hand and

fine china, glass and other tableware on the other. The

latter are plant; the former are not. The former are

simply the premises in which the business is conducted.

The distinction, however, needs to be elaborated, for

present purposes, by reference to Lord Lowrys further

formulation, namely that the fact that different things may

perform the same function of creating atmosphere is not

relevant: one thing may function as part of the premises

and the other as part of the plant. Thus, something which

becomes part of the premises instead of merely embellishing

them is not plant except in the rare case where the premises

are themselves plant.

I do not think that what Oliver L.J. was saying in

Cole Brothers is at variance with Lord Lowrys approach. It

is proper to consider the function of the item in dispute.

But the question is what does it function as? If it

functions as part of the premises it is not plant. The fact

that the building in which a business is carried on is, by

its construction particularly well- suited to the business,

or indeed was specially built for that business, does not

make it plant. Its suitability is simply the reason why the

business is carried on there. But it remains the place in

which the business is carried on and is not something with

which the business is carried on.

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Similarly, Lord Hoffmann J. (Chancery Division)

observed: the question is whether it would be more

appropriate to describe the item as part of the premises

rather than as having retained a separate identity. It

seems to me that items such as fixed floor tiles and shop

fronts are more naturally to be regarded as part of the

housing of the business than as mere embellishments having

a separate identity.

In Carr (H.M. Inspector of Taxes) v. Sayer [65 Tax

Cases 15], the Chancery Division considered a case where the

taxpayers carried on business of providing quarantine

kennels and transport services for dogs and cats brought

into the United Kingdom from abroad. Quarantine kennels

were constructed at their premises. Some of the kennels

were movable. The permanent kennels comprised a flat-roofed

structure which consisted principally of a series of pens

divided from each other by walls and with bars and metal

mesh across the front. The Court held that those kennels

were not plant; they were purpose-built permanent buildings

or structures, used as such, and were the premises in which

business was conducted; while they were specifically

designed for quarantine purposes, the particular roof and

walls were building design features and no more, which did

not result in structures being characterised as anything

other than buildings or lead to the end result having the

character of equipment or apparatus. For this purpose, the

Court referred to various principles in context of Section

41(1) of the Finance Act 1971 which is applicable to

machinery or plant. In the context of that section, the

Court observed that plant carries with it a connotation of

equipment or apparatus, either fixed or unfixed. It does

not convey a meaning wide enough to include buildings in

general. The Court pertinently observed that building would

not normally be regarded as a plant, do not cease to be

buildings and become plant simply because they are

purpose-built for a particular trading activity. Such a

distinction would make no sense. Thus the stables of a

racehorse trainer are properly to be regarded as buildings

and not plant. A hotel building remains a building even

when constructed to a luxury specification. Similarly with

a hospital for infectious diseases. This might require

special layout and other features, but this does not convert

the buildings into plant. A purpose-built building, as much

as one which is not purpose-built, prima facie is no more

than the premises on which the business is conducted.

In Gray v. Seymours Garden Centre [67 Tax Cases 401],

the Court of Appeal dealt with a case where assessee

expended on the construction of planteria which was a fixed

structure designed to maintain plants of many different

kinds moved from nurseries, in an environment in which they

would remain in good condition until sale. It was designed

so that an appropriate mini-climate could be provided in

different parts of the planteria suitable for different

varieties of plant, and so as to be open to the public who

could walk around it and choose from the plants on offer.

The Court of appeal held that the true and only reasonable

conclusion from the facts found was that planteria was part

of the premises in which the business was carried on. It

was a structure to which plants were brought which required

special treatment. However, the fact that planteria

provided the function of nurturing and preserving the plants

while they were there could not transform it into something

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other than part of the premises in which business was

carried on; the highest it could be put was that it

functioned as a purpose-built structure, but that was not

enough to make the structure plant.

Hence, to rely upon Barclay Curle and Co.s case

(dealing with dry dock yard) and to hold that hotel building

or theatre would be a plant on functional test would be

unjustified and unreasonable in the context of Section 32 of

the Act which deals with grant of depreciation allowance on

building, machinery, plant or furniture and also for extra

allowance in case of new machinery or plant installed in

premises other than the premises used as office or any

residential accommodation and also for new building erected

and used as a hotel. As against that, the aforesaid

decisions by Courts in England are based upon Section 41 of

the Finance Act, 1971 which provide for allowance for

capital expenditure incurred on the provisions of machinery

or plant for the purposes of the trade and the Courts were

only dealing with general meaning of the word plant. Even

there, as quoted above, Courts have specifically held that

creation of atmosphere in a hotel by beautiful buildings and

gardens would not make such buildings as plants.

Suitability of such building is simply the reason why the

business is carried on there which may flourish, but the

premises remains as premises where business is carried on

and is not some thing with which business is carried on. In

Carr v. Sayer (supra), the Court observed that a hotel

building remains a building even when constructed to a

luxury specification and also a hospital building for

infectious diseases which might require special lay-out and

other features was not held to be a plant by observing that

a purpose-built building is no more than the premises on

which the business is conducted.

Further, 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 either as a residential

accommodation or business purpose can be converted for

running hotel business. Section 32 itself contemplates, a

hotel business being carried on in a residential

accommodation including an accommodation which is in the

nature of guest house. On occasions hotel buildings may be

constructed with a special design and features so as to

attract and accommodate certain class of tourist. Similarly

with regard to cinema business, it can be carried on in a

specially designed and constructed building 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 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 from the setting

to the means for carrying the business. Similarly,

Rajasthan High Court also in Lake Palace Hotels and Motels

(supra) rightly observed that simply because some special

fittings or controlling equipments are attached for the

purpose of carrying on hotel business, it will not take it

out of the category of building and make it a plant. In our

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view special fittings or equipments to control atmospheric

effects would be plant, but not the building 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.

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.

As discussed above, the aforesaid contention cannot be

accepted. Firstly, it would be difficult to draw a line

between a building which is specifically 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, Punjab,

J&K, and Himachal Pradesh Patiala v. M/s Alps Theatre, [AIR

1967 SC 1437], Court considered the questionwhether 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 (in para 6) thus:- 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.

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The Court also held (in para 7 and 8) that: -

One other consideration is important. The whole

object of S.10 is to arrive at the asessable income of a

business after allowing necessary expenditure and

deductions.

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.

Under the new 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.

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.

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 of 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 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.

In the result, it is held that the building used for

running of a hotel or carrying on cinema business cannot be

held to be a plant because:

(1) The scheme of Section 32, as discussed above,

clearly envisages separate depreciation for a building,

machinery and plant, furniture and fittings etc.. The word

plant is given inclusive meaning under Section 43(3) which

nowhere includes buildings. The Rules prescribing the rates

of depreciation specifically provide grant of depreciation

on buildings, furniture and fittings, machinery and plant

and ships. Machinery and plant includes cinematograph films

and other items and the building is further given meaning to

include roads, bridges, culverts, wells and tube- wells.

(2) In the case of Taj Mahal Hotel (supra), this Court

has observed that business of a hotelier is carried on by

adopting building or premises in suitable way. Meaning

thereby building for a hotel is not apparatus or adjunct for

running of a hotel. The Court did not proceed to hold that

a building in which the hotel was run was itself a plant,

otherwise the Court would not have gone into the question

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whether the sanitary fittings used in bath room was plant.

(3) For a building used for a hotel, specific

provision is made granting additional depreciation under

Section 32 (1)(v) of the Act.

(4) Barclay, Curle & Co.s case decided by the House

of Lords pertains to a dry dock yard which itself was

functioning as a plant, that is to say, structure for the

plant was constructed so that dry dock can operate. It

operated as 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. The dock as a complete

unit contained a large amount of equipment without which the

dry dock could not perform its function.

(5) Even in England, Courts have repeatedly held that

the meaning to the word plant given in various decisions

is artificial and imprecise in application, that is to use

the words of Lord Buckley, it is now beyond doubt that the

word plant is used in the relevant section in an

artificial and largely judge-made sense. Lord Wilberforce

commented by stating that no ordinary man, literate or

semi-literate, would think that a horse, a swimming pool,

moveable partitions, or even a dry-dock was plant.

(6) For the hotel building and hospital in the case of

Carr v. Sayer (supra), it has been observed that a hotel

building remains a building even when constructed to a

luxury specification and similarly, a hospital building for

infectious diseases which might require a special layout and

other features also remains a premises and is not plant. It

is to be added that all these decisions are based upon the

interpretation of the phrase machinery or plant under

Section 41 of the Finance Act, 1971 which was applicable and

there appears no such distinction for grant of allowance on

different heads as provided under Section 32 of the Income

Tax Act.

(7) To differentiate a building for grant of

additional depreciation 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, namely, as a hotel or theatre would be

unreasonable.

Hence, the question is answered in favour of the

revenue and against the assessee by holding that building

which is used as a hotel or a cinema theatre cannot be given

depreciation as plant.

Accordingly, the Civil Appeal Nos. 55-57 of 2000

filed by the assessee and Civil Appeals Nos. 4758, 5198-99,

5391 of 1998, 15, 2784-86, 2787, 3690 of 1999 and Civil

Appeal Nos._________ of 2000 @ S.L.P.(C) Nos.4373-74 of 1999

filed by the Revenue are disposed of, but in the

circumstances of the case, without costs.

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.....J. (A. P. MISRA)

New Delhi; .J. May 12, 2000. (M.B. SHAH)

In Civil Appeal Nos. 241, 242-243, 244, 245, 246-48

of 1999, the learned counsel for the respondents-assessee

has filed additional written submissions on 4.5.2000 stating

that additional question is involved in these matters and it

is required to be heard. Accordingly, in these appeals, we

fix the hearing of the said question in the Month of August

2000. If a counsel finds that any other additional question

which was raised and decided by filing proper the High Court

is left out, he may draw the attention by application within

four weeks from today.

Ordered accordingly.