1995 (11) TMI 9 - HC - Income Tax

Summary

Issues Involved:
1. Whether a cinema building or hotel building is plant for the purpose of claiming depreciation.
2. Whether the hotel building is eligible for extra shift allowance on the basis of its being a plant.

Summary:

Issue 1: Cinema Building or Hotel Building as Plant for Depreciation Purposes
The controversy revolves around whether a cinema building or hotel building qualifies as a "plant" u/s 32 of the Income-tax Act, 1961, for claiming depreciation. The Income-tax Appellate Tribunal (ITAT) had previously held that both the hotel and cinema buildings should be treated as plants, allowing depreciation at the rate applicable to a plant.

In the case of Lake Palace Hotels and Motels Pvt. Ltd., the ITAT allowed depreciation at 10% for the hotel building, considering it a plant. For Payal Theatre, the ITAT considered the cinema building as a plant, allowing depreciation at the plant rate. However, the High Court analyzed various legal precedents and definitions, including the functional test, which determines whether a structure is used as a tool of the trade or merely as a place where business is conducted.

The court referred to several judgments, including CIT v. Taj Mahal Hotel, where sanitary fittings in a hotel were considered plant, and CIT v. Alps Theatre, which emphasized that buildings should be understood in their common sense. The court concluded that both hotel and cinema buildings should be categorized as buildings, not plants, for depreciation purposes. The functional test revealed that these buildings serve as settings for business activities rather than tools of the trade.

Issue 2: Extra Shift Allowance for Hotel Building
The ITAT had also granted extra shift allowance for the hotel building, considering it a plant operating 24 hours a day. The High Court, however, clarified that the building itself, irrespective of its use, remains a building and not a plant. The court emphasized that the legislative intent, as reflected in different depreciation rates for buildings and plants, supports this distinction.

Conclusion:
The High Court concluded that the ITAT was not justified in treating cinema and hotel buildings as plants for depreciation purposes. The reference was answered in favor of the Revenue and against the assessee, with no order as to costs.