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Issues Involved:
1. Depreciation of hotel building. 2. Classification of hotel building as a plant under section 43(3) of the Income-tax Act, 1961. Issue-wise Detailed Analysis: 1. Depreciation of Hotel Building: The primary issue in these cases is whether the Income-tax Appellate Tribunal was justified in directing to allow the assessee's claim regarding the depreciation of the hotel building. The Tribunal had consistently allowed the assessee's claim for depreciation at the rate of 15% up to the assessment year 1986-87, based on the view that the hotel building was a plant. This was influenced by the decision of the Madras Bench of the Tribunal in Hotel Sulekha Private Ltd. v. ITO. However, for the assessment years 1986-87 and 1987-88, the Tribunal reversed its stance, influenced by decisions from the Delhi and Allahabad High Courts, and held that a hotel building could not be treated as a plant, thus disallowing the higher depreciation rate. 2. Classification of Hotel Building as a Plant: The second issue is whether the hotel building qualifies as a plant under section 43(3) of the Income-tax Act, 1961. The assessee argued that the hotel building was integral to its business and should be classified as a plant, thereby qualifying for higher depreciation. The Revenue contended that a hotel building is like any other building and should not be classified as a plant. The court examined various precedents to determine the correct classification. The Supreme Court in CIT v. Taj Mahal Hotel held that sanitary fittings and pipe lines in a hotel were plant, indicating a broad interpretation of "plant." The Allahabad High Court in CIT v. Kanodia Cold Storage and S. K. Tulsi and Sons v. CIT applied the "functional test," determining that structures integral to the business operations could be classified as plant. The Karnataka High Court in CIT v. Dr. B. Venkata Rao and Santosh Enterprises v. CIT also adopted this view, considering the specific functions and requirements of the buildings in question. Conversely, the Delhi High Court in R. C. Chemical Industries v. CIT emphasized that buildings serving merely as the setting for business operations should not be classified as plant. The Calcutta High Court in S. P. Jaiswal Estate Private Ltd. v. CIT and the Andhra Pradesh High Court in Hotel Banjara Ltd. v. CIT further discussed these principles, with the latter emphasizing that the classification depends on the specific facts and circumstances of each case. The court concluded that the classification of a hotel building as a plant depends on whether the building serves as the "means" or merely as the "setting" for carrying on the business. This requires a detailed examination of the building's design and its role in the business operations. The Tribunal had not approached the question from this angle, necessitating a reconsideration of the matter in light of the material facts and the functional test. Conclusion: The court directed the Tribunal to reconsider the classification of the hotel building as a plant by applying the functional test and examining whether the building served as the means for carrying on the business or merely provided the setting for it. The reference was answered accordingly, and a copy of the order was sent to the Tribunal for further action.
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