2003 (11) TMI 14 - HC - Income Tax

Higher Depreciation on studio building - Whether the assessee s studio building constituted a plant in the hands of the assessee for which the assessee is entitled to higher depreciation? - Held that - In this case the assessee has satisfied the functional test. Floor measuring 12,000 sq. ft. with asbestos roof, railing platforms and replaceable walls can be treated as tools with which business of the assessee is being carried on. The spot verification made by the members of the Tribunal also revealed that the building is a plant. We are therefore in agreement with the Tribunal that part of the studio building would come within the term plant and in that view the assessee is entitled to depreciation at the rate applicable to plant and machinery. We therefore answer the question in favour of the assessee holding that the assessee s studio would constitute plant in the hands of the assessee and consequently be entitled to depreciation at the rates applicable to plant and machinery. - Decided in favour of assessee.

Issues:
1. Determination of whether the main floor of the studio is a plant.
2. Assessment of whether the floor can be considered a tool for carrying out the business.
3. Entitlement of the assessee to extra shift allowance on the main floor of the studio, studio bulbs, and central air-conditioning plant.

Analysis:
The High Court of Kerala addressed the issues arising from two appeals concerning the assessment years 1985-86 and 1987-88, both involving the same assessee, a partnership firm engaged in cinematograph film production. The core question revolved around whether the studio owned by the assessee qualified as a plant, allowing for higher depreciation rates, extra shift allowance, and investment allowance. The Tribunal had ruled partially in favor of the assessee, recognizing certain aspects of the studio as plant eligible for specific deductions. However, the Income-tax Officer had treated the studio as a building, leading to a dispute.

The court considered whether the studio building constituted a plant in the hands of the assessee, emphasizing the functional test to determine the nature of the asset. A crucial aspect was the design and functionality of the studio, which featured removable partitions, plywood walls, and a flexible floor layout suitable for creating various scenes. The court highlighted the studio's adaptability for different settings and scenes, indicating its role as a business tool rather than a mere building.

In analyzing precedents and legal principles, the court referred to relevant cases such as CIT v. Hotel Luciya and Scientific Engineering House (P.) Ltd. v. CIT to establish the criteria for categorizing a structure as a plant. It emphasized that the functional test was pivotal, and a building designed for specific atmospheric controls did not automatically qualify as a plant. The court also cited the inclusive definition of "plant" under section 43(3) of the Income-tax Act, emphasizing the enduring utility and business use of the asset.

After a detailed examination of the studio's features and functionality, including a physical inspection by the Tribunal members, the court concluded that part of the studio building met the criteria of a plant. Therefore, the assessee was deemed entitled to depreciation at rates applicable to plant and machinery, affirming the Tribunal's decision in favor of the assessee. The judgment clarified the distinction between a building and a plant, emphasizing the operational role and durability of the asset in determining its classification.

In conclusion, the court ruled in favor of the assessee, recognizing the studio as a plant based on its functional attributes and business utility. The judgment provided clarity on the interpretation of the term "plant" in the context of income tax assessments, highlighting the importance of functionality and enduring use in determining the eligibility for specific deductions and allowances.

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