2016 (9) TMI 1004 - HC - Income Tax

Revision u/s 263 - Deprecation claim - whether entire hospital building of the appellant is not eligible to be treated as a plant for the purpose of granting depreciation - Held that - The question to be examined is whether as held by the Apex Court in Karnataka Power Corporation (2000 (7) TMI 72 - SUPREME Court ) the building has been so planned and constructed as to serve an assessee s special technical requirements. On such consideration, if a factual finding has been arrived at in favour of the assesses, then the building would qualify to be a plant with consequential depreciation at the applicable rate. Insofar as these cases are concerned, from the assessment order itself, we find that it was the case of the assessee that the hospital building is a specifically designed and planned one to meet its requirements as a hospital. However, without any further verification, this contention has been brushed aside and the assessment has been completed merely following the principles laid down in Venkata Rao (supra). In the light of the subsequent judgment in Karnataka Power Corporation (2000 (7) TMI 72 - SUPREME Court ), we are unable to sustain such assessments. Therefore, we set aside the assessment orders and the orders of the first appellate authority and the Tribunal and remit the matters to the Assessing Officer to pass fresh orders in the light of the principles laid down by the Apex Court in Karnataka Power Corporation.

Summary

Issues:
Assessment of depreciation for a hospital building - Classification as plant or building - Eligibility for depreciation at different rates.

Analysis:

Issue 1: Classification of Hospital Building for Depreciation
The case involved appeals by the assessee against orders passed by the Income Tax Appellate Tribunal regarding the classification of the hospital building for depreciation purposes. The contention was whether the entire hospital building could be treated as a plant for depreciation at 25% or if only certain portions qualified for higher depreciation rates. The Commissioner under Section 263 assumed jurisdiction, leading to a dispute on the classification of different parts of the building for depreciation purposes.

Issue 2: Interpretation of Legal Precedents
The questions of law framed for consideration included whether the Tribunal was justified in holding that the entire hospital building was not eligible for depreciation as a plant and if there were sufficient materials for the Tribunal to classify the building partly as a plant and partly as a general building. The legal analysis involved references to the Supreme Court judgments in Dr. B. Venkata Rao's case and Karnataka Power Corporation's case, which discussed the criteria for determining whether a building qualifies as a plant for depreciation purposes.

Issue 3: Merits of the Case
The High Court analyzed the provisions of Section 32 of the Income Tax Act regarding depreciation and the distinction between portions of a hospital building that could be classified as a plant or a building. The Court referred to various legal precedents, including Commissioner of Income Tax v. Dr. B. Venkata Rao and subsequent judgments, to determine the criteria for classifying a building as a plant based on its special technical requirements. The Court emphasized the need for factual findings to support the classification of a building as a plant and the applicability of higher depreciation rates.

Conclusion:
The High Court overruled the preliminary objection raised by the Revenue and set aside the assessment orders, directing the Assessing Officer to pass fresh orders based on the principles laid down by the Apex Court in Karnataka Power Corporation. The Court held in favor of the assessee, remitting the matters for reassessment in accordance with the legal principles discussed in the judgment.