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TMI Blog1985 (11) TMI 99X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 32 of the Income-tax Act, 1961 ('the Act'). The ITO did not accept the assessee's contention and he granted depreciation at 2.5 per cent only. 5. The Commissioner (Appeals), however, accepted the assessee's contention. He based his findings mainly on a ruling given by the Madras Bench of the Tribunal in the case of Hotel Srilekha (P.) Ltd. v. Third ITO [1983] 5 ITD 541. 6. The department is in appeal before us. Shri Padmanabhan submitted that under section 32 building is treated separately as a subject of depreciation apart from plant and machinery. Therefore, if the statute prescribes a rate of depreciation for buildings, that should be applied. The question here, according to Shri Padmanabhan, is not whether a building could be treated as plant. The question here is whether the asset in question could be treated as a building. He submitted that the Legislature had treated hotel building only as 'building' and not as 'plant' and this is evident from the provisions of section 32(1)(v). In this provision, a special depreciation is being granted to hotels in respect of their investment in buildings. This would show that Legislature considered the building of a hotel for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tomers. These rooms are well furnished and air-conditioned. The question is whether this part of the building consisting of the rooms which are to be let out should be considered as a building or as a plant for the purposes of section 32. At the time of hearing, Shri Ratnakar had made it clear that his claim is only in respect of the rooms and halls. The rooms where the office is situated or the rooms where a restaurant is run are not claimed to be part of the plant. Thus, it would be seen that even on the assessee's own admission a part of the structure is not claimed to be a plant. The extent of this structure will have to be ascertained by the officer if in case the assessee's claim is to be admitted. But, since our finding is against the assessee, it is not necessary to go into this issue at this stage. 9. The provisions of section 32 read as follows: "In respect of depreciation on buildings, machinery, plant or furniture owned by the assessee and used for the purposes of the business or profession, the following deductions shall, subject to the provisions of section 34, be allowed---" It will be seen that for the purpose of section 32, the depreciable assets are divided ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as a plant even for section 32. A hotel building, as we see, can be covered under section 32 both by the expression 'building' as well as the expression 'plant'. Since the expression 'plant' would include buildings of certain types, that expression is a wider expression than the expression 'building'. In other words, the expression 'building' is a special provision covering structures which would be treated as 'building', whereas the expression 'plant' is a general expression which would also include certain types of building. When a building is covered by the expression 'plant' its identity as a building is lost. 12. The question then is whether the general provision, i.e., 'plant' or the special provision, i.e., 'building' will be applicable in these cases ? There is no doubt at all that the maxim Generalia specialibus non derogant will be applicable in such cases. That being so, when there are special provisions for buildings giving certain different rates of depreciation, that alone should be considered in a building even if such buildings for certain other purposes could be considered as a plant. This is supported by the Bombay High Court decision in the passage referred to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anitary fittings as a part of the building itself as Shri Ratnakar would want us to assume. In the case before the Supreme Court, the issue was whether such fittings by themselves could be 'plant'. It would appear that the Supreme Court had considered the fittings as something severable from the building itself and it will be clear from the following passage. The following passage occurs immediately after the passage quoted by the Madras Bench given above. "...To have sanitary fittings, etc., in a bathroom is one of the essential amenities or conveniences which are normally provided in any good hotel, in the present times. If the partitions in Jarrold's case [1963] 1 WLR 214, 223 (CA) could be treated as having been used for the purpose of the business of the trader, it is incomprehensible how sanitary fittings can be said to have no connection with the business of the hotelier. He can reasonably expect to get more custom and earn larger profit by charging higher rates for the use of rooms if the bathrooms have sanitary fittings and similar amenities...." It will be seen from the above that the Supreme Court visualised bathrooms without sanitary fittings and that is why they ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cannot be a plant. We can conceive of several assets which are necessary for carrying on a business but which still cannot be a plant. For example, in a dairy, the cows and buffaloes are essential and there could be no dairy business at all without them. Can it be said on that ground that cows are plant ? 17. The correct test is not indispensability, but it is the functional test, i.e., whether a particular asset is an apparatus or whether it is the setting in which the business is carried on. A hotel building is the setting in which the business is carried on. It may be that the hotel building divided into rooms is given on licence to the customers. The assessee gets his profit by charging for the use of the rooms. If the assessee were to let out the rooms on long-term basis, then it would not be business it would be income from house property. It is only because the rooms are not let out on long-term basis but for shorter periods, that the letting out of the rooms is being considered as business. That does not mean that the building itself becomes an apparatus. 18. We may consider some of the case laws relied on. One decision which was considered to be nearest to facts, refe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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