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2001 (2) TMI 116 - HC - Income Tax

Issues:
Whether depreciation and extra depreciation on a hotel building can be allowed by treating it as a plant under the Income-tax Act.

Detailed Analysis:
The judgment revolves around the issue of whether a hotel building can be considered as a plant for the purpose of allowing depreciation. The case involved an assessee company running hotels in Udaipur, which claimed depreciation on the hotel building at the rate of 15 percent by treating it as a plant. Initially, the Deputy Commissioner of Income-tax restricted the depreciation to 5 percent and disallowed extra depreciation. The Commissioner of Income-tax (Appeals) later accepted the plea of the appellant-assessee and directed that depreciation be allowed on the hotel building by treating it as a plant.

The Income-tax Appellate Tribunal dismissed the appeal by the Deputy Commissioner, stating that the issue was already decided in favor of the assessee in an earlier case for the assessment year 1985-86. The Tribunal then referred the question of law to the High Court, seeking clarification on whether the hotel building could be considered a plant for depreciation purposes under section 32 of the Income-tax Act.

The High Court analyzed the legal provisions related to depreciation allowance under section 32 of the Income-tax Act, emphasizing that assets eligible for depreciation must be buildings, machinery, plant, or furniture. The term "plant" is defined in section 43(3) and includes various items but does not encompass buildings. The court applied a functional test to determine whether a building is a plant, stating that if it is an apparatus used for business operations, it qualifies as a plant for depreciation purposes.

Referring to a previous case, the court highlighted that a hotel or cinema building cannot be treated as a plant and should be depreciated at the rate applicable to buildings. Citing a Supreme Court judgment in a similar matter, the court reiterated that buildings used as hotels or cinema theaters do not qualify for depreciation as plants. Consequently, the High Court answered the referred question in the negative, stating that the Tribunal was not legally justified in allowing depreciation on the hotel building as a plant.

In conclusion, the High Court ruled in favor of the Revenue and against the assessee, directing the Tribunal to pass an appropriate order based on the court's answer. The judgment emphasizes the distinction between buildings and plants for depreciation purposes under the Income-tax Act, providing clarity on the treatment of hotel buildings in such cases.

 

 

 

 

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