2003 (10) TMI 8 - HC - Income Tax

Benefit of depreciation, extra-shift allowance and investment allowance - Whether, Tribunal is legally justified in allowing benefit of depreciation, extra-shift allowance and investment allowance on hotel building and tourist complex by treating them as a plant? Held that assessee is not entitled to the benefit under the Income-tax Act by treating the hotel business to be an industrial undertaking - we hold that the Tribunal was not justified in allowing the benefit of depreciation, extra-shift allowance and investment allowance on hotel building and tourist complex by treating them as a plant.

Summary

Issues:
Interpretation of the term "plant" under section 32 for depreciation allowance on hotel building and tourist complex.

Analysis:
The High Court of Rajasthan addressed the issue of whether hotel buildings and tourist complexes can be considered as a "plant" for the purpose of claiming depreciation, extra-shift allowance, and investment allowance. The court referred to a previous Supreme Court judgment in CIT v. Anand Theatres [2000] 244 ITR 192, where it was established that buildings used for hotels cannot be classified as "plant" under section 32 of the Income-tax Act. The Supreme Court emphasized that buildings are distinct from plant and machinery, and depreciation rates for buildings are separately prescribed. The court reiterated that the legislative intent was to differentiate between buildings and machinery/plant, and including buildings as plants would blur this distinction.

The court rejected the argument that the terms "plant" and "building" are not mutually exclusive, stating that it would be challenging to differentiate between buildings constructed for specific purposes and those converted for business use. Additionally, the court highlighted that depreciation aims to reflect the decrease in value of capital assets for profit calculation, and buildings are generally more durable than machinery or plant. The court cited the case of CIT v. Alps Theatre [1967] 65 ITR 377, where it was clarified that land, being non-depreciable, cannot be included in depreciation calculations along with buildings.

Furthermore, the court referenced its own decision in CIT v. Lake Palace Hotels and Motels P. Ltd. [2001] 251 ITR 644, where it was held that hotel businesses do not qualify as industrial undertakings for tax benefits. Consequently, the High Court concluded that the Tribunal erred in allowing depreciation benefits on hotel buildings and tourist complexes by categorizing them as plants. The reference was answered in favor of the Revenue, denying the benefits to the assessee.

In conclusion, the judgment clarified that hotel buildings and tourist complexes do not fall under the definition of "plant" for depreciation purposes under section 32 of the Income-tax Act. The court emphasized the distinction between buildings and plant/machinery, highlighting the legislative intent behind separate depreciation rates. The decision reaffirmed that buildings used for business purposes serve as shelters and do not qualify as plants, leading to the denial of depreciation benefits to the assessee.